SEMI-
ANNUAL
REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a black and white picture of
stock certificates, a desk plotter, pocket watch and an ink pen.
Smith Barney Shearson
CONVERTIBLE
FUND
JANUARY 31, 1994
SMITH BARNEY SHEARSON
CONVERTIBLE FUND
DEAR SHAREHOLDER:
The second half of 1993 was characterized by a strengthening domestic
economy and higher long-term interest rates. This was offset by a strong
rally in the equity market led by cyclical stocks, which generally report
the strongest earnings growth during periods of economic growth. A sub-
stantial number of new convertible issues were brought to market and at-
tracted a wider spectrum of investors. Convertible securities are now used
by a substantial number of growth and income, and equity mutual funds to
increase their income. This adds liquidity to the convertible security
market and allows for both a better quality issuer to consider convert-
ibles as an attractive financing alternative and for larger size issues.
We continue to recommend convertible securities for the conservative eq-
uity investor seeking a combination of current income and long-term
growth. The overall equity market has experienced a substantial rally and
although we favor equities for long-term growth, we might encounter a mar-
ket correction in the months ahead. Convertible securities should be less
volatile than the general market because of their high current income and
senior corporate status.
THE ECONOMIC ENVIRONMENT
Our economic outlook is for continued growth as the momentum from the sec-
ond half of 1993 continues into 1994. The rate of growth in 1994 should
slow from the rapid pace of that of the fourth quarter of 1993, but we
should see good gains in productivity and the overall labor force. Infla-
tion should remain under control and therefore not result in substantially
higher long-term interest rates. The Federal Reserve Board recently raised
the Federal funds rate (an important indicator of the general direction of
interest rates) to 3.25% from 3%, where it had been since late 1992. This
step was taken in an attempt to moderate the rate of growth and control
inflation. Further increases in this rate depend on economic data but are
likely in the near future. This could result in increased market volatil-
ity but is seen as a positive strategy for sustainable longer-term growth.
There does not appear to be any inflationary pressure from world economies
as both Europe and Japan have been in a recession. The outlook for the do-
mestic economy is more favorable than it has been in several years.
INVESTMENT STRATEGY
Our management strategy combines favorable underlying company fundamentals
with an attractively priced convertible security. We emphasize the better-
quality issues and tend to avoid lower rated, more speculative issues. The
Convertible Securities Fund now has 47 issues, 60% of which are rated in-
vestment grade. There are 22 industry groups represented in the portfolio,
covering a broad range of economic sectors that should benefit from con-
tinued economic growth. Recent additions to the portfolio include Oracle,
Kroger, Chevron, Chubb, Property Trust of America, California Microwave
and additions to current holdings in Delta Airlines, Freeport McMoRan,
Newmont Mining, International Paper and Arvin Industries. We sold our
holdings in Goodyear Tire and Rubber, US Air Group, Bank of Boston, and
Federal Mogul Corporation as a result of the issues being called for re-
demption, our view that the underlying common stock was fully priced, or
the price relationship between the convertible and common stock was not
favorable.
How does all of this economic theory and portfolio strategy stack up for
investors? Pretty well, we think. The Fund generated attractive total
return results in the past six months of 5.91% for A shares and 5.66% for
B shares. Fortune magazine, in its March 21st biannual review of mutual
funds, listed Smith Barney Shearson Convertible Fund as one of the funds
that "are truly the best." In the words of Fortune, funds included in this
survey are "champions with no hidden costs to dim their shine." We urge
you to add this article to your reading list.
We will continue in our efforts to provide you with superior investment
performance. We look forward to reporting to you in our Annual Report.
Sincerely,
Heath B. McLendon Jack S. Levande
Heath B. McLendon Jack S. Levande
Chairman of the Board Vice President
and Investment Officer and Investment Officer
March 21, 1994
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31, 1994
INDUSTRY BREAKDOWN
DESCRIPTION OF PIE CHART IN SHAREHOLDER REPORT
Pie chart depicting the allocation of the Income Fund -- Convertible
Fund's investment securities held at January 31, 1994 by industry
classification. The pie is broken in pieces representing industries in
the following percentages:
<TABLE>
<CAPTION>
Industry Percentage
<S> <C>
LEISURE AND AMUSEMENT 5.0%
OIL, GAS AND MINING 17.7%
BANKING AND FINANCE 13.4%
OTHER INDUSTRIES 26.0%
REPURCHASE AGREEMENT AND NET OTHER ASSETS AND LIABILITIES 7.6%
CHEMICALS 4.2%
AUTOMOTIVE 5.8%
COMPUTERS AND ELECTRONICS 5.1%
FOOD, BEVERAGE AND GROCERY 8.1%
INSURANCE 7.1%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
TIME WARNER INC. 4.0%
CYPRUS AMAX MINERALS COMPANY 3.9
CHUBB CAPITAL CORPORATION 3.6
GREAT WESTERN FINANCIAL CORPORATION 3.1
BARNETT BANKS, INC. 3.0
ORACLE 2.7
ARVIN INDUSTRIES, INC. 2.6
INTERNATIONAL PAPER COMPANY 2.5
BURLINGTON NORTHERN CORPORATION 2.4
GENERAL MOTORS CORPORATION, CLASS E 2.4
</TABLE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) JANUARY 31, 1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<S> <C> <C>
CONVERTIBLE SECURITIES -- 91.0%
CONVERTIBLE PREFERRED STOCKS -- 49.8%
BANKING AND FINANCE -- 13.4%
15,000 Ahmanson (HF) & Co., Series D, Conv. Pfd.,
6.00% $
755,625
40,000 Barnett Banks Inc., Series C, Conv. Pfd.,
Exch. $4.00
2,730,000
20,000 First Fidelity Bancorporation, Series B,
Conv. Pfd., Exch. $2.15
735,000
48,000 Great Western Financial Corporation, Conv.
Pfd., Represents 1/5 Share
2,832,000
30,000 Northern Trust Corporation, Depositary
Shares, Series E, Represents 1/20 Share,
Conv. Pfd., 6.250%
1,695,000
50,000 SunAmerica Inc., Depository Shares Repre-
senting 1/50 Demand Conv. Pfd., $2.78
2,087,500
40,000 Union Planter Corporation, Series E, Conv.
Pfd., 8.00%
1,410,000
12,245,125
OIL, GAS AND MINING -- 9.6%
50,000 Cyprus AMAX Minerals Company, Series A,
Conv. Pfd., Exch. $4.00
3,575,000
40,000 Freeport McMoRan Inc., Conv. Pfd., Exch.
$42.3758, 144A+
2,050,000
25,000 Newmont Mining, Depositary Shares, Series
A, Represents 1/2 Share Conv. Pfd., 144A+
1,646,875
20,000 Wheeling Pittsburgh Corporation, Series A,
Conv. Pfd., 6.50%
1,520,000
8,791,875
COMPUTERS AND ELECTRONICS -- 5.1%
40,000 General Motors Corporation, Class E, Repre-
sents 1/10 Share, Conv. Pfd., Series C,
Exch. $3.25
2,225,000
75,000 Salomon Inc, Equity-Linked Securities, Ora-
cle, 10/21/96, Conv. Pfd. 7.25%
2,428,125
4,653,125
AUTOMOTIVE -- 3.2%
15,000 Cummins Engine Inc., Depositary Shares, Se-
ries A, Conv. Pfd.,
Exch. $3.50
1,072,500
35,000 General Motors Corporation, Series A, Conv.
Pfd., $3.31
1,846,250
2,918,750
REAL ESTATE -- 2.9%
50,000 Property Trust of America, Series A, Conv.
Pfd., $1.75
1,393,750
25,000 Rouse Company, Series A, Conv. Pfd., $6.50
1,287,500
2,681,250
METALS -- 2.8%
30,000 Bethlehem Steel Corporation, Conv. Pfd.,
Exch. $3.50, 144A+
1,965,000
10,000 Bethlehem Steel Corporation, Conv. Pfd.,
Exch. $5.00
552,500
2,517,500
RAIL AND TRUCKING -- 2.4%
30,000 Burlington Northern Inc., Series A, Conv.
Pfd., 6.25%
2,227,500
RETAIL -- 2.2%
50,000 K Mart Corp., Depositary Shares, Series A,
Represents 1/4 Share Conv. Pfd., Exch.
$3.41
2,050,000
CHEMICAL -- 2.2%
40,000 Goodrich (B. F.) Company, Series D, Conv.
Pfd., Exch. $3.50
2,020,000
FOOD AND BEVERAGE -- 2.1%
30,000 Conagra Inc., Class E, Conv. Pfd., $1.69
937,500
50,000 RJR Nabisco Holdings Corporation, Deposi-
tary Shares, Series A, Represents 1/4
Share Conv. Pfd., Exch. $0.835
393,750
20,000 Salomon Inc, Equity-Linked Securities,
Snapple Beverages, 9/9/97,
Conv. Pfd. 7.63%
552,500
1,883,750
AIRLINES -- 1.5%
25,000 USAir Group Inc., Depository Shares, Series
B, Represents 1/100 Shares, Conv. Pfd.,
$4.38
1,318,750
CONSTRUCTION -- 1.3%
55,000 Kaufman & Broad Home Corporation, Deposi-
tory Shares, Series B, Representing 1/5
Share Conv. Pfd., $1.52++
1,182,500
HEALTHCARE AND PHARMACEUTICALS -- 1.1%
20,000 Salomon Inc, Equity-Linked Securities,
Amgen, 2/1/97, Conv. Pfd. 6.50%
995,000
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost
$42,532,215)
45,485,125
<CAPTION>
FACE
VALUE
<S> <C> <C>
CONVERTIBLE BONDS AND NOTES -- 41.2%
OIL, GAS AND MINING -- 8.1%
$1,500,000 Amoco CDA Petroleum Company, Series A,
Conv. Sub. Deb., 7.375% due 9/01/13
1,775,625
2,000,000 Freeport McMoRan Inc., Conv. Sub. Deb.,
6.550% due 1/15/01
1,885,000
1,500,000 Pennzoil Company, Conv. into Chevron Bonds,
6.550% due 1/15/03
1,867,500
2,000,000 USX-Marathon Group, Conv. Sub. Deb., 7.000%
due 6/15/17
1,907,500
7,435,625
INSURANCE -- 7.1%
1,500,000 Alexander & Alexander Services, Conv. Deb.,
11.00% due 4/15/07
1,575,000
3,000,000 Chubb Capital Corporation, Conv. Bond,
6.000% due 5/15/98
3,307,500
1,500,000 Cigna Corporation, Conv. Sub. Deb., 8.200%
due 7/10/10
1,614,375
6,496,875
FOOD AND GROCERY STORES -- 6.0%
2,000,000 American Stores Company, New Conv. Sub.
Note, 7.250% due 9/15/01
2,170,000
1,000,000 Kroger Company, Conv. Jr. Sub. Note, 6.375%
due 12/1/99
1,310,000
3,000,000 Sysco Corporation, Conv. Sub. Liquid Option
Note, Zero Coupon due 10/12/04
1,995,000
5,475,000
LEISURE AND AMUSEMENT -- 5.0%
3,000,000 Coleman WorldWide Corporation, Conv. Note,
Zero Coupon due 5/27/13
836,250
3,500,000 Time Warner Inc. Sub. Deb. Conv., 8.750%
due 1/10/15
3,692,500
4,528,750
AUTOMOTIVE -- 2.6%
2,000,000 Arvin Industries Inc., Conv. Sub. Deb.
7.500% due 9/30/14
2,385,000
PAPER AND FOREST PRODUCTS -- 2.5%
2,000,000 International Paper Company, Conv. Sub.
Deb., 5.750% due 9/23/03
2,260,000
CHEMICALS -- 2.0%
1,500,000 Witco Corporation, Conv. Sub. Deb., 5.500%
due 3/15/12
1,811,250
AIRLINES -- 1.8%
2,000,000 Delta Airlines Inc., Conv. Sub. Note,
3.230% due 6/15/03
1,660,000
HOUSEHOLD APPLIANCES -- 1.6%
3,000,000 Whirlpool Corporation, Conv. Sub. Liquid
Note, Zero Coupon due 5/14/11
1,473,750
DIVERSIFIED MANUFACTURING -- 1.2%
1,000,000 Gencorp Inc., Conv. Sub. Deb., 8.000% due
8/1/02
1,130,000
TELEPHONE COMMUNICATIONS -- 1.2%
1,000,000 California Microwave Inc., Conv. Note,
5.250% due 12/15/03
1,112,500
REAL ESTATE -- 1.1%
1,000,000 IRT Property Company, Conv. Sub. Deb.,
7.300% due 8/15/03
1,020,000
CABLE TELEVISION -- 1.0%
1,250,000 Rogers Communications Inc., Conv. Deb.,
2.000% due 11/26/05
859,375
TOTAL CONVERTIBLE BONDS AND NOTES (Cost
$35,723,746)
37,648,125
TOTAL CONVERTIBLE SECURITIES (Cost
$78,255,961)
83,133,250
COMMON STOCK -- 1.4% ($1,048,466)
49,500 Tele-Communications Inc., Class A**
1,348,875
REPURCHASE AGREEMENT -- 5.7% ($5,206,000)
5,206,000 Agreement with Fuji Bank of Japan, 3.150%
dated 01/31/94, to be repurchased at
$5,206,455 on 02/01/94, collateralized by
$4,030,000 U.S. Treasury Bond, 8.75% due
5/15/2020
5,206,000
TOTAL INVESTMENTS (Cost $84,510,427*) 98.1%
89,688,125
OTHER ASSETS AND LIABILITIES 1.9
1,706,807
NET ASSETS 100.0%
$91,394,932
<FN>
* Aggregate cost for Federal tax purposes.
** Non-income producing security.
+ Security exempt from registration under Rule 144A of the Securities Act
of 1933, as amended. These securities may be resold in transactions ex-
empt from registration, generally to qualified institutional buyers.
++ The portion of the security loaned at 1/31/94 has a market value of
$212,721 (See Note 7).
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 1994
<TABLE>
<S> <C>
<C>
ASSETS:
Investments, at value (Cost $84,510,427) (Note 1)
See accompanying schedule
$89,688,125
Receivable for investment securities sold
1,807,160
Dividends and interest receivable
687,066
Receivable for Fund shares sold
406,214
TOTAL ASSETS
92,588,565
LIABILITIES:
Payable for investment securities purchased $555,000
Collateral for securities loaned (Note 7) 223,100
Due to custodian 179,708
Payable for Fund shares redeemed 46,932
Investment advisory fee payable (Note 2) 37,654
Distribution fee payable (Note 3) 36,628
Service fee payable (Note 3) 18,827
Administration fee payable (Note 2) 15,062
Transfer agent fees payable (Note 2) 13,250
Custodian fees payable (Note 2) 8,700
Accrued Trustees' fees and expenses (Note 2) 833
Accrued expenses and other payables 57,939
TOTAL LIABILITIES
1,193,633
NET ASSETS
$91,394,932
NET ASSETS CONSIST OF:
Distributions in excess of net investment income earned to date
$ (104,535)
Accumulated net realized loss on investments sold
(5,785,618)
Unrealized appreciation of investments
5,177,698
Par value
5,897
Paid-in capital in excess of par value
92,101,490
TOTAL NET ASSETS
$91,394,932
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (continued)
JANUARY 31, 1994
<TABLE>
<S>
<C>
NET ASSET VALUE:
CLASS A SHARES:
Net asset value and redemption price per share
($2,435,337 / 157,155 shares of beneficial interest outstanding)
$15.50
Maximum offering price per share ($15.50 / 0.95) (based on sales
charge of 5% of the offering price on January 31, 1994)
$16.32
CLASS B SHARES:
Net asset value and offering price per share+
($88,959,580 / 5,739,854 shares of beneficial interest outstanding)
$15.50
CLASS D SHARES:
Net asset value, offering and redemption price per share
($15.50 / 1 share of beneficial interest outstanding)
$15.50
<FN>
+ Redemption price per share for Class B shares is equal to net asset
value less any applicable contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, 1994
<TABLE>
<S> <C>
<C>
INVESTMENT INCOME:
Interest
$1,302,453
Dividends
1,216,501
TOTAL INVESTMENT INCOME
2,518,954
EXPENSES:
Investment advisory fee (Note 2) $205,423
Distribution fee (Note 3) 200,331
Service fee (Note 3) 102,711
Administration fee (Note 2) 82,169
Transfer agent fees (Notes 2 and 4) 65,554
Shareholder reports expense 52,811
Legal and audit fees 24,419
Custodian fees (Note 2) 17,275
Trustees' fees and expenses (Note 2) 6,963
Other 29,625
TOTAL EXPENSES
787,281
NET INVESTMENT INCOME
1,731,673
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTES 1 AND 5):
Net realized gain on investments sold during the period
2,755,098
Net unrealized appreciation of investments during the period
74,652
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
2,829,750
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$4,561,423
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX
MONTHS YEAR
ENDED
ENDED
1/31/94
7/31/93
(UNAUDITED)
<S> <C>
<C>
Net investment income $
1,731,673 $ 2,768,225
Net realized gain on investments sold during the period
2,755,098 4,424,311
Net unrealized appreciation on investments during the period
74,652 1,213,308
Net increase in net assets resulting from operations
4,561,423 8,405,844
Distributions to shareholders:
Distributions from net investment income:
Class A
(48,875) (24,877)
Class B
(1,732,700) (2,743,348)
Distributions in excess of net investment income:
Class A --
(617)
Class B --
(68,076)
Distributions in excess of net realized gains:
Class A --
(1,645)
Class B --
(202,411)
Net increase in net assets from share transactions (Note 6):
Class A
710,103 1,621,573
Class B
11,393,106 12,405,798
Class D --
15
Net increase in net assets
14,883,057 19,392,256
NET ASSETS:
Beginning of period
76,511,875 57,119,619
End of period (including distributions in excess of net invest-
ment income of $104,535 and $54,633, respectively)
$91,394,932 $76,511,875
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR
ENDED
ENDED
1/31/94
7/31/93*
(UNAUDITED)
<S> <C>
<C>
Net asset value, beginning of period $14.99
$13.82
Income from investment operations:
Net investment income 0.36
0.49
Net realized and unrealized gain on investments 0.52
1.22
Total from investment operations 0.88
1.71
Less distributions:
Dividends from net investment income (0.37)
(0.50)
Distributions in excess of net investment income --
(0.01)
Distributions in excess of net realized gains --
(0.03)
Total distributions (0.37)
(0.54)
Net asset value, end of period $15.50
$14.99
Total return++ 5.91%
12.63%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,435
$1,655
Ratio of operating expenses to average net assets 1.41%+
1.37%+
Ratio of net investment income to average net assets 4.72%+
4.86%+
Portfolio turnover rate 36%
95%
<FN>
* The Fund commenced selling Class A shares on November 6, 1992.
+ Annualized.
++ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charge.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS YEAR
YEAR YEAR
ENDED
ENDED ENDED ENDED
1/31/94
7/31/93 7/31/92 7/31/91
(UNAUDITED)
<S> <C> <C>
<C> <C>
Net asset value, beginning of period $14.99
$13.84 $12.51 $12.21
Income from investment operations:
Net investment income 0.32
0.61 0.64 0.68
Net realized and unrealized gain on investments 0.52
1.20 1.35 0.33
Total from investment operations 0.84
1.81 1.99 1.01
Less distributions:
Dividends from net investment income (0.33)
(0.60) (0.64) (0.68)
Distributions in excess of net investment income --
(0.02) -- --
Distributions from net realized gains -- --
- -- --
Distributions in excess of net realized gains --
(0.04) -- --
Distributions from capital -- --
(0.02) (0.03)
Total distributions (0.33)
(0.66) (0.66) (0.71)
Net asset value, end of period $15.50
$14.99 $13.84 $12.51
Total return++ 5.66%
13.40% 16.25% 8.86%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $88,960
$74,857 $57,120 $65,523
Ratio of operating expenses to average net assets 1.93%+
2.00% 1.88% 1.92%
Ratio of net investment income to average net assets 4.20%+
4.20% 4.76% 5.81%
Portfolio turnover rate 36%
95% 77% 26%
<FN>
+ Annualized.
++ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charge.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS (continued)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR YEAR
YEAR PERIOD
ENDED ENDED
ENDED ENDED
7/31/90 7/31/89
7/31/88 7/31/87*
<S> <C> <C>
<C> <C>
Net asset value, beginning of period $13.80 $13.04
$13.93 $13.00
Income from investment operations:
Net investment income 0.79 0.85
0.87 0.63
Net realized and unrealized gain on investments (1.40) 0.78
(0.64) 0.95
Total from investment operations (0.61) 1.63
0.23 1.58
Less distributions:
Dividends from net investment income (0.83)
(0.86) (0.85) (0.62)
Distributions in excess of net investment income -- --
- -- --
Distributions from net realized gains (0.11)
(0.01) (0.27) (0.03)
Distributions in excess of net realized gains -- --
- -- --
Distributions from capital (0.04) --
- -- --
Total distributions (0.98)
(0.87) (1.12) (0.65)
Net asset value, end of period $12.21 $13.80
$13.04 $13.93
Total return++ (4.53)%
13.09% 2.22% 12.34%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $97,157 $153,137
$172,587 $235,685
Ratio of operating expenses to average net assets 1.85%
1.74% 1.75% 1.78%+**
Ratio of net investment income to average net assets 6.10%
6.41% 6.74% 5.85%+
Portfolio turnover rate 24%
32% 45% 21%
<FN>
* The Fund commenced operations on September 2, 1986. Those shares in ex-
istence prior to November 6, 1992 were designated Class B Shares.
** Annualized expense ratio before waiver of fees by investment adviser
and sub-investment adviser and administrator was 1.82%.
+ Annualized.
++ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charge.
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Income Funds (the "Trust") was organized as a "Mas-
sachusetts business trust" under the laws of the Commonwealth of Massachu-
setts on March 12, 1985. The Trust is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. In July
1993, the Trust changed its name to Smith Barney Shearson Income Funds. As
of the date of this report, the Trust offered eight managed investment
funds: Smith Barney Shearson Premium Total Return Fund, Smith Barney
Shearson Convertible Fund (the "Fund"), Smith Barney Shearson Global Bond
Fund, Smith Barney Shearson High Income Fund, Smith Barney Shearson Tax-
Exempt Income Fund, Smith Barney Shearson Money Market Fund, Smith Barney
Shearson Diversified Strategic Income Fund and Smith Barney Shearson Util-
ities Fund. The Fund offers two classes of shares to the general public:
Class A shares and Class B shares. As of January 29, 1993, the Fund
offered a third class of shares, Class D shares, investors eligible to
participate in the Smith Barney Shearson 401(k) Program. Class A shares
are sold with a front-end sales charge. Class B shares may be subject to a
contingent deferred sales charge ("CDSC"). Class B shares will convert au-
tomatically to Class A shares eight years after the date of original pur-
chase. Class D shares are offered without a front-end sales charge or
CDSC. Each class of shares has identical rights and privileges except with
respect to the effect of the respective sales charges, the distribution
and/or service fees borne by each class, expenses allocable exclusively to
each class, voting rights on matters affecting a single class, the ex-
change privilege of each class and the conversion feature of Class B
shares. The following is a summary of significant accounting policies con-
sistently followed by the Fund in the preparation of its financial state-
ments.
Portfolio valuation: Generally, the Fund's investments are valued at mar-
ket value or, in the absence of market value with respect to any portfolio
securities, at fair value as determined by or under the direction of the
Trust's Board of Trustees. Portfolio securities that are traded primarily
on a domestic or foreign exchange are valued at the last sale price on
that exchange or, if there were no sales during the day, at the current
quoted bid price. Over-the-counter securities are valued on the basis of
the bid price at the close of business on each day. Debt securities are
valued by The Boston Company Advisors, Inc. ("Boston Advisors") after con-
sultation with an independent pricing service (the "Pricing Service") ap-
proved by the Board of Trustees. When, in the judgment of the Pricing Ser-
vice, quoted bid prices for investments are readily available and are rep-
resentative of the bid side of the market, these investments are valued at
the mean between the quoted bid prices and asked prices. Investments for
which, in the judgment of the Pricing Service, there are no readily ob-
tainable market quotations are carried at fair value as determined by the
Pricing Service. The procedures of the Pricing Service are reviewed peri-
odically by the officers of the Trust under the general supervision and
responsibility of the Board of Trustees. Restricted securities are valued
by or under the direction of the Trust's Board of Trustees in good faith
at fair value, taking into consideration all indications of value avail-
able. Short-term investments that mature in 60 days or less are valued at
amortized cost.
Repurchase Agreements: The Fund engages in repurchase agreement transac-
tions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of
the seller to repurchase, and the Fund to resell, the obligation at an
agreed- upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return
that is not subject to market fluctuations during the Fund's holding pe-
riod. The value of the collateral is at least equal at all times to the
total amount of the repurchase obligations, including interest. In the
event of counterparty default, the Fund has the right to use the collat-
eral to offset losses incurred. There is potential loss to the Fund in the
event that the Fund is delayed or prevented from exercising its rights to
dispose of the collateral securities including the risk of a possible de-
cline in the value of the underlying securities during the period while
the Fund seeks to assert its rights. The Fund's investment adviser or ad-
ministrator, acting under the supervision of the Trust's Board of Trust-
ees, reviews the value of the collateral and the creditworthiness of those
banks and dealers with which the Fund enters into repurchase agreements to
evaluate potential risks.
Securities transactions and investment income: Securities transactions
are recorded as of the trade date. Securities purchased or sold on a when-
issued or delayed-delivery basis may be settled a month or more after the
trade date. Realized gains and losses from securities sold are recorded on
the identified cost basis. Dividend income and distributions to sharehold-
ers are recorded on the ex-dividend date. Interest income is recorded on
the accrual basis. Investment income and realized and unrealized gains and
losses are allocated based upon the relative net assets of each class of
shares.
Dividends and distributions to shareholders: Dividends from net invest-
ment income, if any, are determined on a class level, are declared monthly
and are paid on the last day of the Smith Barney Shearson Inc. ("Smith
Barney Shearson") statement month. Distributions, if any, of net short-
and long-term capital gains earned by the Fund will be made annually after
the close of the fiscal year in which they are earned. Additional distri-
butions of net investment income and capital gains from the Fund may be
made at the discretion of the Trust's Board of Trustees in order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains. Income distributions and
capital gain distributions on a Fund level are determined in accordance
with income tax regulations which may differ from generally accepted ac-
counting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by
the Fund, timing differences and differing characterization of distribu-
tions made by the Fund as a whole.
Federal income taxes: The Trust intends that the Fund qualify as a regu-
lated investment company, if such qualification is in the best interest of
its shareholders, by complying with the requirements of the Internal Reve-
nue Code of 1986, as amended, applicable to regulated investment companies
and by distributing substantially all of its taxable income to its share-
holders. Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION
AGREEMENT AND OTHER PARTY TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual Manage-
ment Corp., which is controlled by Smith Barney Shearson Holdings Inc.
("Holdings"). Holdings is a wholly owned subsidiary of The Travelers Inc.
Under the Advisory Agreement, the Fund pays a monthly fee at the annual
rate of 0.50% of the value of its average daily net assets.
Boston Advisors, an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"), serves as the Fund's administrator pursuant to an
administration agreement (the "Administration Agreement"). Under the Ad-
ministration Agreement, the Fund pays a monthly fee at the annual rate of
0.20% of the value of the Fund's average daily net assets.
For the six months ended January 31, 1994, the Fund incurred total broker-
age commissions of $22,668, none of which was paid to Smith Barney Shear-
son.
For the six months ended January 31, 1994, Smith Barney Shearson received
from investors $11,518 representing commissions (sales charges) on sales
of Class A shares.
A CDSC is generally payable by a shareholder in connection with the re-
demption of Class B shares within five years (eight years in the case of
purchases by certain 401(k) plans) after the date of purchase. In circum-
stances in which the CDSC is imposed, the amount ranges between 5% and 1%
of net asset value depending on the number of years since the date of pur-
chase (except in the case of purchases by certain 401(k) plans in which
case a 3% charge is imposed for the eight year period after the date of
purchase). For the six months ended January 31, 1994, Smith Barney Shear-
son received from shareholders $24,608 in CDSCs on the redemption of Class
B shares.
No officer, director or employee of Smith Barney Shearson, Boston Advisors
or of any parent or subsidiary of those corporations receives any compen-
sation from the Trust for serving as a Trustee, or officer of the Trust.
The Trust pays each Trustee who is not an officer, director or employee of
Smith Barney Shearson, Boston Advisors or any of their affiliates $6,000
per annum plus $1,500 per meeting attended and reimburses each such
Trustee for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Trust's custodian. The Shareholder Services Group
Inc., a subsidiary of First Data Corporation, serves as the Trust's trans-
fer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Trust's shares pursuant
to a distribution agreement with the Trust and sells shares of the Fund
through Smith Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a Services
and Distribution Plan (the "Plan"). Under this Plan, the Fund compensates
Smith Barney Shearson for servicing shareholder accounts for Class A,
Class B and Class D shareholders, and covers expenses incurred in distrib-
uting Class B and Class D shares. Smith Barney Shearson is paid an annual
service fee with respect to Class A, Class B and Class D shares of the
Fund at the annual rate of 0.25% of the value of the average daily net as-
sets of each respective class of shares. Smith Barney Shearson is also
paid an annual distribution fee with respect to Class B and Class D shares
at the annual rate of 0.50% of the value of the average daily net assets
of each respective class of shares. For the six months ended January 31,
1994, the Fund incurred a service fee of $2,546 and $100,165 for Class A
and Class B shares, respectively. For the six months ended January 31,
1994, the Fund incurred a distribution fee of $200,331 for Class B shares.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any
class of shares are prorated among the classes based upon the relative net
assets of each class. Operating expenses directly attributable to a class
of shares are charged to that class' operations. In addition to the above
servicing and distribution fees, class specific operating expenses include
transfer agent fees. For the six months ended January 31, 1994, the Fund
incurred transfer agent fees of $1,439 and $64,115 for Class A and Class B
shares, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments and U.S. government securities, aggregated $37,628,175
and $26,685,864, respectively, for the six months ended January 31, 1994.
At January 31, 1994, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$6,167,628, and the aggregate gross unrealized depreciation for all secu-
rities in which there was an excess of tax cost over value was $989,930.
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest
of each class in each separate series with a $.001 par value. Changes in
shares of beneficial interest of the Fund which are divided into three
classes (Class A, Class B and Class D) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93*
CLASS A SHARES: SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C> <C>
<C>
Sold 61,833 $ 939,617
111,611 $1,639,937
Issued as reinvestment of dividends 3,117 47,533
1,808 26,716
Redeemed (18,146) (277,047)
(3,068) (45,080)
Net increase 46,804 $ 710,103
110,351 $1,621,573
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
1/31/94
7/31/93*
CLASS B SHARES: SHARES AMOUNT
SHARES AMOUNT
<S> <C> <C> <C>
<C>
Sold 1,113,551 $16,945,039
1,546,570 $ 22,196,105
Issued as reinvestment of dividends 92,598 1,411,927
170,622 2,450,981
Redeemed (458,795) (6,963,860)
(853,136) (12,241,287)
Net increase 747,354 $11,393,106
864,056 $ 12,405,799
<FN>
* The Fund commenced selling Class A shares on November 6, 1992. Any
shares outstanding prior to November 6, 1992 were designated Class B
shares.
</TABLE>
As of January 31, 1994, the Fund had issued one Class D share in the
amount of $15 to Smith Barney Shearson. During the period ended July 31,
1993 and the six months ended January 31, 1994, there was no income or ex-
pense allocated to the one Class D share.
7. LENDING OF PORTFOLIO SECURITIES
The Fund has the ability to lend its securities to brokers, dealers and
other financial organizations. Loans of securities by the Fund are collat-
eralized by cash, letters of credit or U.S. government securities that are
maintained at all times in an amount at least equal to the current market
value of the loaned securities.
As of January 31, 1994, the Fund loaned a security to a broker with an
aggregate market value of $212,721 which represents 0.23% of total net
assets, for which the Fund received $223,100 in cash as collateral. This
amount is invested in a repurchase agreement at January 31, 1994.
8. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Continental Bank N.A. under an Amended and Restated
Line of Credit Agreement (the "Agreement") dated April 30, 1992, primarily
for temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of securi-
ties. The Fund may borrow up to the lesser of $25 million or 10% of its
net assets. Interest is payable either at the bank's Money Market Rate or
the London Interbank Offered Rate (LIBOR) plus 0.375% on an annualized
basis. The Fund and the other affiliated entities are charged an aggregate
commitment fee of $125,000 which is allocated equally among each of the
participants. The Agreement requires, among other provisions, each partic-
ipating fund to maintain a ratio of net assets (not including funds bor-
rowed pursuant to the Agreement) to aggregate amount of indebtedness pur-
suant to the Agreement of no less than 5 to 1. During the six months ended
January 31, 1994, the Fund did not borrow under the Agreement.
9. CONCENTRATION OF RISK
The Fund invests in securities offering high current income which gener-
ally will be in the lower rating categories of recognized rating agencies.
These securities generally involve more credit risk than securities in the
higher rating categories. In addition, the trading market for high yield
securities may be relatively less liquid than the market for higher-rated
securities.
PARTICIPANTS
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services
Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit
and Trust Company
One Boston Place
Boston, Massachusetts 02108
GLOSSARY OF COMMONLY USED MUTUAL FUND TERMS
CAPITAL GAIN (OR LOSS) This is the increase (or decrease) in the market
value (price) of a security in your fund. If a stock or bond appreciates
in price, there is a capital gain; if it depreciates there is a capital
loss. A capital gain or loss is "realized" upon the sale of a security; if
net capital gains exceed net capital losses, there may be a capital gain
distribution to shareholders.
CDSC (CONTINGENT DEFERRED SALES CHARGE) A kind of back-end load, a CDSC
is imposed if shares are redeemed during the first few years of ownership.
The CDSC may be expressed as a percentage of either the original purchase
price or the redemption proceeds. Most CDSCs decline over time, and some
will not be charged if shares are redeemed under certain circumstances.
DISTRIBUTION RATE This is the rate at which a mutual fund pays out (or
distributes) interest, dividends and realized capital gains to sharehold-
ers. A fund's distribution rate is usually expressed as an annualized per-
cent of the fund's offering price.
DIVIDEND This is income generated by securities in a portfolio and dis-
tributed after expenses to shareholders.
FRONT-END SALES CHARGE This is the sales charge applied to an investment
at the time of initial purchase.
NET ASSET VALUE (NAV) Net Asset Value is the total market value of all
securities held by a fund, minus any liabilities, divided by the number of
shares outstanding. It is the value of a single share of a mutual fund on
a given day. The total value of your investment would be the NAV multi-
plied by the number of shares you own.
TOTAL RETURN Total return measures a fund's performance, taking into ac-
count the combination of dividends paid and the gain or loss in the value
of the securities held in the fund. It may be expressed on an average an-
nual basis or cumulative basis (total change over a given period). In ad-
dition, total return may be expressed with or without the effects of sales
charges or the reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the
average annual total return according to the standardized calculation de-
veloped by the SEC. This standardized calculation was introduced to insure
that investors can compare different funds on an equal basis. The SEC av-
erage annual total return calculation includes the effects of all fees and
sales charges and assumes the reinvestment of all dividends and capital
gains.
INVESTOR BENEFITS
MONTHLY DISTRIBUTIONS
It's your fund's policy to distribute dividend income monthly.
AUTOMATIC REINVESTMENT
You may reinvest your dividends and/or capital gains automatically in ad-
ditional shares of your fund at the current net asset value.
UNLIMITED EXCHANGES
If your investment goals change, you may exchange into another Smith Bar-
ney Shearson mutual fund with the same sales charge structure without in-
curring a sales charge.*
SYSTEMATIC INVESTMENT PLAN
This program allows you to invest equal dollar amounts automatically on a
regular basis, monthly or quarterly.
AUTOMATIC CASH
WITHDRAWAL PLAN
With this plan, you may withdraw money on a regular basis while maintain-
ing your investment.
MUTUAL FUND EVALUATION SERVICE
Through your Financial Consultant, you may obtain a free personalized
analysis of how your fund has performed for you, taking into account the
effect of every transaction. The analysis is based upon month-end data
from CDA Investment Technologies, Inc., a widely recognized mutual fund
information service. An evaluation also gives you other important facts
and figures about your investment.
For more information about these benefits, or if you have any other ques-
tions, please call your Financial Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY SHEARSON
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
* After written notification,
exchange privilege may be
modified or terminated at
any time.
CONVERTIBLE
FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Jack S. Levande
Vice President and
Investment Officer
Vincent Nave
Treasurer
Francis J. McNamara, III
Secretary
This report is submitted for
the general information of the
shareholders of Smith Barney
Shearson Convertible Fund. It is
not authorized for distribution
to prospective investors unless
accompanied or preceded by an
effective Prospectus for the Fund,
which contains information
concerning the Fund's investment
policies, fees and expenses as well
as other pertinent information.
SMITH BARNEY SHEARSON
SMITH BARNEY SHEARSON
INCOME FUNDS
Two World Trade Center
New York, New York 10048
Fund 27, 196, 245
FD2170 C4
<PAGE>
[GRAPHIC]
Small box above fund name showing
a black and white picture
of certificates, the American
flag and the globe.
SEMI- Smith Barney Shearson
ANNUAL Diversified
REPORT Strategic Income
Fund
.......................................
JANUARY 31, 1994
[LOGO]
<PAGE>
Diversified Strategic Income Fund
DEAR SHAREHOLDER:
The domestic economy continues to improve, due in large part
to
the impact of lower interest rates. Lower interest rates
encourage stronger construction spending, dramatically improve
home sales, and instill a greater sense of well-
being among consumers resulting in increased retail spending.
Despite the inflation fears of some investors, we believe inflation
will remain low. Factory orders, confirmed by industrial production
statistics, point toward a healthy economy. This rosy
scenario is marred only by increased reports of corporate layoffs
and a declining savings rate. We also are keeping a watchful
eye on health care reform, from both a consumer and cost
perspective,
which remains a wild card. Europe and Japan are still attempting to
recover economically, but appear to have six months to a year before
they reach bottom. We anticipate that foreign interest rates will
resume their downward path during the remainder of 1994, reaching
their low point perhaps in
early 1995.
Since our last report to you six months ago, it has been a period of
heightened interest rate volatility in the American markets.
There was a 77 basis point -- more than three-quarters of one percentage point
- -- swing in long-term interest rates between their high and low points with
volatile swings within this range. In a preemptive strike against inflation
and
potentially higher long-term interest rates, the Federal Reserve Board in
February raised the level of short-term interest rates and has signaled their
intent to raise rates even higher. Perversely, this move sent long-term rates
skyward. Looking ahead, we expect that short-term interest rates could rise
about 1% in 1994 and long-term interest rates (specifically the 30-year
Treasury
bond) will trade in a range of 6.25% to 7%.
INVESTMENT STRATEGY
The Fund's asset allocation is the same as it was six months ago: 30% in U.S.
mortgage-backed securities, 30% in domestic high-yielding corporates, and 40%
in
foreign government securities. We don't anticipate changing this composition.
We
believe that mortgage securities will provide good investment income and the
rise in domestic interest rates minimizes the risk of mortgage prepayments.
Corporate securities will offer some attractive opportunities but on a
selective
basis, and we are in the process of upgrading the credit quality of this
sector.
We are making some changes within the portfolio's foreign government holdings.
We are decreasing our holdings in
1
<PAGE>
the dollar bloc (Australia, Canada and New Zealand), increasing the
portfolio's
European holdings, and modestly increasing our exposure to the emerging
markets.
PERFORMANCE
The Fund generated attractive total return results in the past six months of
6.83% for A shares and 6.57% for B shares. Its net asset value increased to
$8.53 from $8.41 per share and paid $0.44 per share in income and capital
gains
to owners of A shares and $0.42 per share in income and capital gains to
owners
of B shares.
If you haven't already seen it, the March issue of KIPLINGER'S PERSONAL
FINANCE
MAGAZINE included Smith Barney Shearson Diversified Strategic Income Fund in
its
mutual fund review of "500 Winners." We are proud to be included in this
review
with some other very fine funds.
We will continue in our efforts to provide you with this level of
superior investment service. We look forward to reporting to you in our
Annual Report.
Sincerely,
Heath B. McLendon James E. Conroy
CHAIRMAN OF THE BOARD VICE PRESIDENT AND
AND INVESTMENT OFFICER INVESTMENT OFFICER
John Bianchi Pauline A.M. Barrett
VICE PRESIDENT AND VICE PRESIDENT AND
INVESTMENT OFFICER INVESTMENT OFFICER
MARCH 15, 1994
2
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31,
1994
PORTFOLIO BREAKDOWN
Pie chart depicting the allocation of the Income Funds--Diversified Strategic
Income Fund's investment securities held at January 31, 1994 by security
classification. The pie is broken in pieces representing securities in the
following percentages:
<TABLE>
<CAPTION>
SECURITY TYPE PERCENTAGE
<S> <C>
Preferred and Common Stocks 2.3%
Corporate Bonds and Notes 28.3%
U.S. Government and Agency Securities 1.1%
Mortgage-Backed Securities 23.9%
Purchased Put Options, Repurchase
Agreements and net Other Assets
and Liabilities 2.0%
Foreign Securities 38.1%
</TABLE>
AVERAGE MATURITY 5 years
3
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) JANUARY 31,
1994
<TABLE>
<S> <C> <C> <C> <C> <C>
KEY TO CURRENCY DESCRIPTIONS
AUD -- Australian Dollar GBP -- Great
Britain Pound
Sterling
CAD -- Canadian Dollar IEP -- Irish Punt
DEM -- German Deutschemark ITL -- Italian
Lira
DKK -- Danish Kroner MXP -- Mexican
Peso
ECU -- European Currency NZD -- New Zealand
Dollar
Unit
ESP -- Spanish Peseta PTE -- Portuguese
Escudo
FIM -- Finnish Markka SEK -- Swedish
Krona
</TABLE>
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
<C> <S> <C>
----------------------------------------------------------------------------
FOREIGN SECURITIES -- 38.1%
SPANISH PESETA BONDS -- 6.8%
ESP 300,000,000 Bancomext,
12.650% due 6/21/98 $ 2,377,157
400,000,000 Eurofima,
11.350% due 7/22/97 3,128,269
European Investment Bank:
250,000,000 14.000% due 2/21/01 2,325,209
240,000,000 11.700% due 2/10/03 2,077,125
350,000,000 11.250% due 4/20/03 2,951,432
Kingdom of Spain:
700,000,000 12.000% due 7/15/94 5,048,259
1,300,000,000 10.250% due 11/30/98 10,306,565
4,500,000,000 8.300% due 12/15/98 33,268,457
1,440,000,000 12.250% due 3/25/00 12,537,555
580,000,000 11.300% due 1/15/02 4,975,969
11,745,000,000 10.900% due 8/30/03 100,479,196
320,000,000 Nafinsa,
13.600% due 4/2/98 2,600,534
----------------------------------------------------------------------------
182,075,727
----------------------------------------------------------------------------
ITALIAN LIRA BONDS -- 5.6%
BTP Italian Government:
ITL 7,000,000,000 11.500% due 3/1/96 4,362,666
79,250,000,000 12.000% due 1/1/98 52,261,531
107,750,000,000 11.500% due 3/1/03 74,290,622
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
FOREIGN SECURITIES -- (CONTINUED)
ITALIAN LIRA BONDS -- (CONTINUED)
BTP Italian Government --
(continued):
ITL 15,000,000,000 11.000% due 6/1/03 $ 10,099,676
8,350,000,000 Cert Di Credito Del Tes,
Floating Rate Note,
15.400% due 8/1/99 4,988,823
3,000,000,000 Nordiska Investerin,
10.800% due 5/24/03 2,037,452
----------------------------------------------------------------------------
148,040,770
----------------------------------------------------------------------------
SWEDISH KRONA BONDS -- 5.6%
SEK 35,000,000 European Investment Bank,
10.000% due 2/26/99 5,008,853
Kingdom of Sweden:
424,000,000 11.000% due 1/21/99 64,282,401
77,000,000 13.000% due 6/15/01 13,374,812
311,500,000 10.250% due 5/5/03 48,881,054
60,000,000 9.000% due 4/20/09 8,978,941
50,000,000 Nordic Investment Bank,
10.250% due 1/7/99 7,199,772
----------------------------------------------------------------------------
147,725,833
----------------------------------------------------------------------------
CANADIAN DOLLAR BONDS -- 3.9%
CAD 7,000,000 Asfinag (Autobahn Schnell),
10.125% due 3/15/01 6,360,520
3,000,000 Asian Development Bank,
7.875% due 3/11/03 2,449,049
12,400,000 Canadian Government Bonds,
11.750% due 2/1/03 12,757,355
6,500,000 Electric Power Development,
8.750% due 6/11/97 5,421,360
11,000,000 Electricite de France,
9.750% due 9/8/99 9,708,344
6,000,000 Eurofima,
10.750% due 7/31/01 5,597,438
4,300,000 European Bank Reconstruction &
Development,
8.375% due 2/25/03 3,601,017
5,400,000 International Finance
Corporation,
7.750% due 8/18/98 4,392,014
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
FOREIGN SECURITIES -- (CONTINUED)
CANADIAN DOLLAR BONDS -- (CONTINUED)
CAD 12,500,000 KFW International Finance,
9.500% due 5/13/02 $ 1,135,807
10,000,000 Kingdom of Norway,
8.375% due 1/27/03 8,375,212
9,000,000 Kingdom of Sweden,
10.625% due 6/3/98 7,985,911
Oest KontrolBank:
2,000,000 9.000% due 5/21/97 1,677,152
8,000,000 10.250% due 7/27/99 7,152,232
2,000,000 9.000% due 6/19/02 1,728,386
10,000,000 Oesterreichische
Postsparkasse, Guaranteed
Note,
10.750% due 8/8/01 9,333,585
1,000,000 Republic of Austria,
9.125% due 5/7/02 867,960
8,525,000 Stelco Inc.,
10.400% due 11/30/09 6,423,055
----------------------------------------------------------------------------
104,966,397
----------------------------------------------------------------------------
AUSTRALIAN DOLLAR BONDS -- 3.0%
AUD 63,300,000 Commonwealth of Australia,
9.000% due 9/15/04 53,621,294
33,000,000 Queensland Treasury,
8.000% due 5/14/03 25,819,304
----------------------------------------------------------------------------
79,440,598
----------------------------------------------------------------------------
IRISH PUNT BONDS -- 2.6%
Republic of Ireland:
IEP 6,500,000 6.250% due 4/1/99 9,520,877
4,000,000 9.000% due 7/15/01 6,736,700
11,900,000 9.250% due 7/11/03 20,709,454
22,550,000 6.250% due 10/18/04 32,446,090
----------------------------------------------------------------------------
69,413,121
----------------------------------------------------------------------------
UNITED STATES DOLLAR BONDS -- 2.0%
$ 2,000,000 Development Bank of
Philippines,
8.000% due 7/22/98 2,047,600
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
FOREIGN SECURITIES -- (CONTINUED)
UNITED STATES DOLLAR BONDS -- (CONTINUED)
$ 1,000,000 Government of Brazil, Floating
Rate Note,
8.750% due 1/1/01 $ 1,717,500
Mexico Government Bonds:
2,000,000 5.001% due 3/31/08 1,970,000
19,000,000 Series B,
6.250% due 12/31/19 15,651,250
Republic of Argentina,
Floating Rate Note:
11,000,000 4.000% due 3/31/23 7,727,500
3,000,000 4.313% due 3/31/23 2,647,500
Republic of Venezuela:
1,000,000 9.000% due 5/27/96 1,017,500
1,000,000 4.625% due 12/28/98 904,000
3,500,000 4.375% due 3/31/20 2,419,375
3,500,000 Floating Rate Note,
4.188% due 12/30/03 2,428,125
7,925,000 Rogers Cablesystem Ltd.,
9.650% due 1/15/14 6,082,390
2,000,000 Trinidad & Tobago,
11.500% due 11/20/97 2,152,500
Uruguay Government Bonds:
1,500,000 8.250% due 6/8/95 1,541,250
2,000,000 Floating Rate Note,
4.438% due 2/18/07 1,660,000
4,500,000 Series A,
6.750% due 2/19/21 3,060,000
----------------------------------------------------------------------------
53,026,490
----------------------------------------------------------------------------
GREAT BRITAIN POUND STERLING BONDS -- 1.7%
GBP 2,000,000 Asfinag,
10.375% due 10/1/01 3,677,423
1,000,000 Kingdom of Norway,
10.500% due 2/14/94 1,501,906
7,500,000 Republic of Finland,
8.000% due 4/7/03 12,217,681
15,550,000 U.K. Treasury Note,
9.750% due 8/27/02 28,531,588
----------------------------------------------------------------------------
45,928,598
----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
FOREIGN SECURITIES -- (CONTINUED)
FINNISH MARKKA BONDS -- 1.7%
FIM 46,000,000 Finnish Export Credit,
6.000% due 1/15/99 $ 8,313,604
Finnish Treasury Notes:
58,000,000 11.000% due 1/15/99 12,825,179
104,000,000 9.500% due 3/15/04 23,062,659
----------------------------------------------------------------------------
44,201,442
----------------------------------------------------------------------------
DANISH KRONER BONDS -- 1.5%
Kingdom of Denmark:
DKK 54,000,000 8.000% due 8/20/94 8,089,401
39,500,000 9.000% due 11/15/00 6,894,726
140,000,000 8.000% due 5/15/03 23,584,624
----------------------------------------------------------------------------
38,568,751
----------------------------------------------------------------------------
NEW ZEALAND DOLLAR BOND -- 1.2%
NZD 45,500,000 New Zealand Government Bonds,
10.000% due 3/15/02 33,195,027
----------------------------------------------------------------------------
PORTUGUESE ESCUDO BONDS -- 0.9%
PTE 300,000,000 Eurofima,
8.875% due 12/6/00 1,724,828
European Investment Bank:
200,000,000 15.500% due 7/12/95 1,214,245
1,196,000,000 10.400% due 5/26/99 7,124,000
950,000,000 10.125% due 8/3/00 5,794,565
350,000,000 Republic of Ireland,
8.750% due 11/25/98 1,997,283
970,000,000 World Bank,
11.500% due 2/28/97 5,937,643
----------------------------------------------------------------------------
23,792,564
----------------------------------------------------------------------------
MEXICAN PESO BONDS -- 0.8%
Federal Treasury Certificates
(Cetes), 144A:
MXP 100,180,000 Series 940210,
38.350% due 2/10/94++ 3,215,426
19,872,850 Series 93710,
17.420% due 3/10/94++ 6,300,550
116,812,500 Series 940609,
12.060% due 6/9/94++ 3,607,774
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
FOREIGN SECURITIES -- (CONTINUED)
MEXICAN PESO BONDS -- (CONTINUED)
Federal Treasury Certificates
(Cetes), 144A --
(continued):
MXP 12,301,300 Series 941208,
9.210% due 12/8/94++ $ 3,604,847
19,525,000 Series 950907,
10.690% due 9/7/95++ 5,261,514
----------------------------------------------------------------------------
21,990,111
----------------------------------------------------------------------------
EUROPEAN CURRENCY UNIT BONDS -- 0.6%
Government of France:
ECU 8,000,000 7.250% due 3/16/98 9,539,182
5,500,000 8.000% due 4/25/03 6,990,075
----------------------------------------------------------------------------
16,529,257
----------------------------------------------------------------------------
GERMAN DEUTSCHEMARK BOND -- 0.2%
DEM 8,500,000 Hungary National Bank,
9.250% due 3/17/00 5,150,923
----------------------------------------------------------------------------
TOTAL FOREIGN SECURITIES
(Cost $968,757,713) 1,014,045,609
----------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 28.3%
HOTELS AND GAMING -- 2.6%
$ 13,175,000 Bally's Casino Holdings Inc.,
Sr. Discount Note, 144A,
Zero coupon due 6/15/98++ 8,860,187
5,900,000 Bally's Park Place Funding
Inc., First Mortgage,
11.875% due 8/15/99 6,408,875
7,525,000 Golden Nugget Financial
Corporation, First Mortgage,
Series B,
10.625% due 4/1/03 7,252,219
4,850,000 Santa Fe Hotel Inc.,
Guaranteed First Mortgage,
11.000% due 12/15/00 5,031,875
6,200,000 Showboat, Inc., First
Mortgage,
9.250% due 5/1/08 6,409,250
6,200,000 Station Casinos, Inc., Sr.
Sub. Note,
9.625% due 6/1/03 6,347,250
8,850,000 Trump Plaza Funding, Inc.,
Note,
10.875% due 6/15/01 8,872,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
HOTELS AND GAMING -- (CONTINUED)
$ 19,609,000 Trump Taj Mahal Funding Inc.,
First Mortgage, Pay-in-kind,
11.350% due 11/15/99 $ 20,564,939
----------------------------------------------------------------------------
69,746,720
----------------------------------------------------------------------------
PACKAGING AND CONTAINERS -- 2.3%
5,100,000 Anchor Glass Container
Company, Sr. Sub. Deb.,
9.875% due 12/15/08 5,406,000
17,350,000 Container Corporation of
America, Sr. Sub. Note,
13.500% due 12/1/99 19,410,312
7,300,000 Gaylord Container Corporation,
Sr. Note,
11.500% due 5/15/01 7,884,000
9,400,000 Silgan Holdings, Sr.
Discounted Deb., Non-interest
bearing until 6/15/96,
13.250% due 12/15/02 7,614,000
6,800,000 Stone-Consolidated
Corporation, Sr. Secured Note,
10.250% due 12/15/00 7,106,000
Sweetheart Cup Company, Inc.,
Sr. Sub. Note:
3,350,000 9.625% due 9/1/00 3,576,125
3,350,000 10.500% due 9/1/03 3,601,250
5,345,000 United States Can Company, Sr.
Sub. Note,
13.500% due 1/15/02 6,200,200
----------------------------------------------------------------------------
60,797,887
----------------------------------------------------------------------------
BUILDING AND CONSTRUCTION -- 2.3%
American Standard Inc.:
16,700,000 11.375% due 5/15/04 18,954,500
7,350,000 Sr. Sub. Discount Deb.,
Non-interest bearing until
6/1/98,
10.500% due 6/1/05 5,135,812
Hovnainan K Enterprises Inc.:
4,850,000 Guaranteed Note,
11.250% due 4/15/02 5,347,125
5,335,000 Sub. Note,
9.750% due 6/1/05 5,588,412
4,220,000 Kaufman & Broad Home
Corporation, Sr. Sub. Note,
9.375% due 5/1/03 4,431,000
8,325,000 UDC Homes, Inc., Sr. Note,
11.750% due 4/30/03 9,084,656
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
BUILDING AND CONSTRUCTION -- (CONTINUED)
$ 11,275,000 U.S. Home Corporation, Sr.
Note,
9.750% due 6/15/03 $ 11,726,000
----------------------------------------------------------------------------
60,267,505
----------------------------------------------------------------------------
HEALTH CARE -- 2.2%
4,370,000 Abbey Healthcare Group Inc.,
Sr. Sub. Note,
9.500% due 11/1/02 4,512,025
2,000,344 Alco Health District
Corporation, Sr. Deb.,
Pay-in-kind,
11.250% due 7/15/05** 2,092,860
American Medical International
Inc., Sr. Sub. Note:
12,540,000 13.500% due 8/15/01 14,765,850
3,750,000 Series B,
9.500% due 4/15/06 3,937,500
2,000,000 Epic Healthcare Group, Inc.,
Sr. Sub. Note,
10.875% due 6/1/03 2,360,000
9,115,000 Healthtrust Inc., The Hospital
Company, Sub. Note,
10.750% due 5/1/02 10,208,800
5,100,000 Hillhaven Corporation (The),
Sr. Sub. Note,
10.125% due 9/1/01 5,488,875
3,525,000 Hospital Corporation of
America, Deb.,
9.000% due 3/15/16 3,723,281
10,025,000 OrNda Healthcorp, Sr. Sub.
Note,
12.250% due 5/15/02 11,428,500
----------------------------------------------------------------------------
58,517,691
----------------------------------------------------------------------------
GROCERY AND CONVENIENCE STORES -- 2.1%
6,100,000 Big V Supermarkets Inc., Sr.
Sub. Note,
11.000% due 2/15/04 6,199,125
Grand Union Company:
6,015,000 Sr. Note,
11.250% due 7/15/00 6,368,381
8,260,000 Sr. Sub. Note,
12.750% due 7/15/02 8,765,925
3,195,000 P & C Food Markets Inc., Deb.,
11.500% due 10/15/01 3,618,337
Pathmark Stores, Inc.:
7,050,000 Sr. Sub. Note,
9.625% due 5/1/03 7,279,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
GROCERY AND CONVENIENCE STORES -- (CONTINUED)
Pathmark Stores, Inc. --
(continued):
Sub. Note:
$ 5,725,000 11.625% due 6/15/02 $ 6,361,906
6,515,000 12.625% due 6/15/02 7,427,100
8,850,000 Penn Traffic Company, Sr. Sub.
Note,
9.625% due 4/15/05 9,204,000
----------------------------------------------------------------------------
55,223,899
----------------------------------------------------------------------------
OIL AND NATURAL GAS -- 1.8%
9,650,000 Clark R & M Holdings Inc., Sr.
Secured Note,
Zero coupon due 2/15/00 5,452,250
2,000,000 Dual Drilling Company, Sr.
Sub. Note,
9.875% due 1/15/04 2,057,500
4,250,000 Giant Industries, Inc.,
Guaranteed Sr. Sub. Note,
9.750% due 11/15/03 4,404,062
10,275,000 Gulf Canada Resources Ltd.,
Sr. Sub. Deb.,
9.250% due 1/15/04 10,531,875
16,750,000 Mesa Capital Corporation,
Secured Discount Note,
12.750% due 6/30/98 15,242,500
5,050,000 Transco Energy Company, Note,
11.250% due 7/1/99 5,769,625
4,175,000 Trident NGL, Inc., Sub. Note,
10.250% due 4/15/03 4,373,313
----------------------------------------------------------------------------
47,831,125
----------------------------------------------------------------------------
METALS AND MINING -- 1.5%
6,450,000 Essex Group, Inc., Sr. Note,
10.000% due 5/1/03 6,643,500
1,765,000 Geneva Steel Company, Sr.
Note,
9.500% due 1/15/04 1,820,156
1,200,000 Inland Steel Company, First
Mortgage Note, Series T,
12.000% due 12/1/98 1,371,000
2,750,000 Jorgensen (Earle M.) Company,
Sr. Note,
10.750% due 3/1/00 2,983,750
8,400,000 Republic Engineered Steel,
First Mortgage Bond,
9.875% due 12/15/01 8,830,500
3,000,000 WCI Steel Inc., Sr. Note,
144A,
10.500% due 3/1/02++ 3,210,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
METALS AND MINING -- (CONTINUED)
$ 12,550,000 Wheeling-Pittsburg
Corporation, Sr. Note,
9.375% due 11/15/03 $ 13,318,688
----------------------------------------------------------------------------
38,177,594
----------------------------------------------------------------------------
TEXTILES AND APPAREL -- 1.3%
8,650,000 CMI Industries Inc., Sr. Sub.
Note,
9.500% due 10/1/03 8,779,750
2,500,000 Dan River, Inc., Sr. Sub.
Note,
10.125% due 12/15/03 2,606,250
JPS Textile Group, Inc.:
2,250,000 Sr. Sub. Discount Note,
10.850% due 6/1/99 2,266,875
Sr. Sub. Note:
1,675,000 11.750% due 6/1/96 1,714,781
3,315,000 10.250% due 6/1/99 3,306,713
3,625,000 Stevens (J.P.) & Company Inc.,
Deb.,
9.000% due 3/1/17 3,688,437
11,170,000 Westpoint Stevens Inc., Sr.
Sub. Deb.,
9.375% due 12/15/05 11,644,725
----------------------------------------------------------------------------
34,007,531
----------------------------------------------------------------------------
PUBLISHING -- 1.2%
14,600,000 Bell & Howell Holdings
Company, Sr. Deb., Series A,
Non-interest bearing until
3/1/00,
11.500% due 3/1/05 8,413,250
24,425,000 Marvel Holdings, Inc., Sr.
Secured Note, Series B,
Zero coupon due 4/15/98 16,639,531
10,750,000 News American Holdings Inc.,
Deb.,
8.625% due 2/7/14 7,652,387
----------------------------------------------------------------------------
32,705,168
----------------------------------------------------------------------------
BANKING AND FINANCE -- 1.2%
4,150,000 Coldwell Banker Corporation,
Sr. Sub. Note, 144A,
10.250% due 6/30/03++ 4,456,062
6,875,000 GPA Delaware Inc., Guaranteed
Note,
8.750% due 12/15/98 6,058,594
6,225,000 Lomas Mortgage USA Inc., Sr.
Note,
10.250% due 10/1/02 6,793,031
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
BANKING AND FINANCE -- (CONTINUED)
Reliance Group Holdings Inc.:
$ 8,125,000 Sr. Note,
9.000% due 11/15/00 $ 8,429,688
5,500,000 Sr. Sub. Deb.,
9.750% due 11/15/03** 5,809,375
----------------------------------------------------------------------------
31,546,750
----------------------------------------------------------------------------
CONSUMER DURABLES -- 1.2%
13,300,000 Coleman Holdings Inc., Sr.
Secured Note,
Zero coupon due 5/27/98 9,110,500
1,410,000 Congoleum Corporation Asset,
Sr. Note,
9.000% due 2/1/01 1,432,913
32,875,000 International Semi-Tech Micro,
Sr. Secured Note,
Non-interest bearing until
8/15/00,
11.500% due 8/15/03 17,629,219
----------------------------------------------------------------------------
28,172,632
----------------------------------------------------------------------------
PERSONAL CARE -- 1.0%
4,635,000 MacAndrews & Forbes Group,
Sub. Note,
12.250% due 7/1/96 4,820,400
6,700,000 Revlon Consumer Products
Corporation, Sr. Sub. Note,
Series B,
10.500% due 2/15/03 6,624,625
27,925,000 Revlon Worldwide Corporation,
Sr. Secured Note,
Series B,
Zero coupon due 3/15/98 14,521,000
----------------------------------------------------------------------------
25,966,025
----------------------------------------------------------------------------
BROADCASTING -- 0.9%
Continental Cablevision Inc.:
5,975,000 Sr. Deb.,
9.500% due 8/1/13 6,609,844
2,975,000 Sr. Sub. Deb.,
11.000% due 6/1/07 3,495,625
Rogers Cablesystems Ltd.:
3,550,000 Guaranteed Sr. Secured Note,
9.625% due 8/1/02 3,940,500
4,975,000 Sr. Secured Deb.,
10.125% due 9/1/12 5,702,594
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
BROADCASTING -- (CONTINUED)
$ 4,400,000 Rogers Communications Inc.,
Sr. Deb.,
10.875% due 4/15/04 $ 4,933,500
----------------------------------------------------------------------------
24,682,063
----------------------------------------------------------------------------
RETAIL -- 0.9%
7,975,000 Barnes & Noble Inc., Sr. Sub.
Note, Series B,
11.875% due 1/15/03 9,211,125
9,775,000 Bradlees Inc., Sr. Sub. Note,
11.000% due 8/1/02 10,569,219
3,000,000 Wickes Lumber Company, Sr.
Sub. Note,
11.625% due 12/15/03 3,183,750
----------------------------------------------------------------------------
22,964,094
----------------------------------------------------------------------------
CHEMICALS -- 0.8%
3,075,000 Buckeye Cellulose Corporation,
Sr. Note,
10.250% due 5/15/01 3,255,656
1,750,000 General Chemical Corporation,
Sr. Secured Second
Priority Note,
14.000% due 11/1/98 1,960,000
6,350,000 Harris Chemical N.A. Inc., Sr.
Sub. Note,
10.750% due 10/15/03 6,850,062
UCC Investors Holdings, Inc.:
2,400,000 Sr. Note,
10.500% due 5/1/02 2,628,000
5,750,000 Sr. Sub. Note,
11.000% due 5/1/03 6,339,375
2,100,000 Sub. Discount Note,
Non-interest bearing until
5/1/98,
12.000% due 5/1/05 1,407,000
----------------------------------------------------------------------------
22,440,093
----------------------------------------------------------------------------
AUTOMOBILES -- 0.8%
Chrysler Financial
Corporation, Sr. Note:
4,550,000 13.250% due 10/15/99 6,176,625
9,600,000 12.750% due 11/1/99 12,780,000
3,150,000 Fairfield Manufacturing Inc.,
Sr. Sub. Note,
11.375% due 7/1/01 3,346,875
----------------------------------------------------------------------------
22,303,500
----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
INSURANCE -- 0.7%
$ 7,455,000 Bankers Life Holding
Corporation, Sr. Sub. Note,
Series B,
13.000% due 11/1/02 $ 9,206,925
8,720,000 Life Partners Group, Inc., Sr.
Sub. Note,
12.750% due 7/15/02 10,376,800
----------------------------------------------------------------------------
19,583,725
----------------------------------------------------------------------------
COMPUTERS -- 0.7%
16,750,000 Anacomp, Inc., Sr. Sub. Note,
15.000% due 11/1/00** 19,513,750
----------------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 0.7%
Domtar, Inc.:
875,000 Deb.,
11.250% due 9/15/17 937,344
4,300,000 Sr. Note,
12.000% due 4/15/01 4,821,375
Riverwood International
Corporation, Sr. Sub. Note:
6,960,000 11.250% due 6/15/02 7,673,400
5,140,000 11.250% due 6/15/02 5,666,850
----------------------------------------------------------------------------
19,098,969
----------------------------------------------------------------------------
TELEPHONE AND COMMUNICATIONS -- 0.6%
5,750,000 CenCall Communications
Corporation,
Zero coupon due 1/15/04 3,751,875
5,275,000 MobileMedia Communication, Sr.
Sub. Note,
Non-interest bearing until
12/1/98,
10.500% due 12/1/03 3,303,469
5,250,000 Pagemart Inc., Discount Note,
144A, Non-interest
bearing until 11/1/98,
12.250% due 11/1/03++ 3,228,750
6,000,000 Paging Network Inc., Sr. Sub.
Note,
11.750% due 5/15/02 6,885,000
----------------------------------------------------------------------------
17,169,094
----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
ELECTRICAL EQUIPMENT -- 0.4%
$ 4,715,000 ADT Operations Inc.,
Guaranteed Sr. Sub. Note,
9.250% due 8/1/03 $ 4,891,812
6,504,057 Midland Funding Corporation I,
Sr. Secured Lease
Obligation Bond, Series C,
144A,
10.330% due 7/23/02++ 6,910,561
----------------------------------------------------------------------------
11,802,373
----------------------------------------------------------------------------
TRANSPORTATION -- 0.4%
5,300,000 Southern Pacific
Transportation Company, Sr.
Secured
Note, Series B,
10.500% due 7/1/99 5,883,000
3,975,000 Viking Star Shipping, Inc.,
First Preferred Ship Mortgage,
9.625% due 7/15/03 4,193,625
----------------------------------------------------------------------------
10,076,625
----------------------------------------------------------------------------
LEISURE AND ENTERTAINMENT -- 0.3%
4,200,000 Gillett Holdings Inc., Sr.
Sub. Note, Series A,
12.250% due 6/30/02 4,609,500
3,350,000 Remington Arms Inc., New, Sr.
Sub. Note, 144A,
9.500% due 12/1/03++ 3,421,188
----------------------------------------------------------------------------
8,030,688
----------------------------------------------------------------------------
DIVERSIFIED INDUSTRIAL AND CONGLOMERATE
MANUFACTURING -- 0.2%
4,675,000 Federal Industries Ltd., Sr.
Note,
10.250% due 6/15/00 4,867,844
910 Thermadyne Industries Inc.,
Sr. Note, Pay-in-kind,
15.000% due 5/1/99 (in
default) 991
----------------------------------------------------------------------------
4,868,835
----------------------------------------------------------------------------
FOOD -- 0.1%
3,300,000 PMI Acquisition Corporation,
Sr. Sub. Note,
10.250% due 9/1/03 3,539,250
----------------------------------------------------------------------------
AEROSPACE -- 0.1%
3,025,000 Tracor, Inc. Sr. Sub. Note,
10.875% due 8/15/01 3,210,281
----------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
AIRLINES -- 0.0%
$ 1,000,000 USAir Inc., Pass Through
Certificate, Series 1993-A2,
9.625% due 9/1/03 $ 1,032,500
----------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND
NOTES
(Cost $717,778,453) 753,276,367
----------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 23.9%
FEDERAL HOME LOAN MORTGAGE CORPORATION (FHLMC)
CERTIFICATES -- 10.7%
FHLMC:
59,647,188 Multi-class 6.500% due
1/15/16 60,523,405
3,700,862 7.000% due 1/1/08 - 2/1/08
Gold 3,846,565
16,791,593 7.500% due 12/1/22 - 2/1/23
Gold 17,499,862
105,419,811 8.000% due 1/1/22 - 1/1/23 110,591,707
16,837,153 8.500% due 10/1/03 - 7/1/21 17,700,057
43,717,140 9.000% due 5/1/03 - 9/1/21 46,345,823
8,864,189 9.500% due 8/1/16 - 10/1/20 9,551,164
16,422,188 10.000% due 7/1/15 - 8/1/20 17,982,296
----------------------------------------------------------------------------
TOTAL FHLMC POOLS - 447 284,040,879
----------------------------------------------------------------------------
GOVERNMENT NATIONAL MORTGAGE ASSOCATION (GNMA)
CERTIFICATES -- 8.7%
GNMA:
56,048,609 9.000% due 4/15/16 - 4/15/23 59,989,387
125,000,000 9.000% TBA 133,788,750
33,809,178 9.500% due 12/15/19 -
8/15/20 36,598,436
----------------------------------------------------------------------------
TOTAL GNMA POOLS - 150 230,376,573
----------------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FNMA) --
4.5%
FNMA:
11,616,155 8.000% due 3/1/02 - 1/1/08 12,186,043
14,750,000 12.950% due 3/9/95 8,923,750
19,000,000 FNMA Medium Term Note,
Canadian Dollar Reverse Yen,
Principal Exchange Rate Linked
Security,
13.050% due 6/7/95 10,450,000
FNMA Strip, Principal Only:
20,000,000 Zero coupon due 12/18/98 17,334,400
31,125,000 Zero coupon due 10/10/01 27,336,465
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
MORTGAGE-BACKED SECURITIES -- (CONTINUED)
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) -- (CONTINUED)
FNMA Strip, Principal Only --
(continued):
$ 20,000,000 Zero coupon due 11/22/01 $ 16,661,200
32,500,000 Zero coupon due 3/9/02 27,585,025
----------------------------------------------------------------------------
TOTAL FNMA POOLS - 48 120,476,883
----------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED
SECURITIES
(Cost $631,573,198) 634,894,335
----------------------------------------------------------------------------
U.S. TREASURY NOTES -- 4.3%
U.S. Treasury Notes:
15,000,000 5.250% due 7/31/98 15,209,550
99,800,000 4.750% due 9/30/98 99,174,254
----------------------------------------------------------------------------
TOTAL U.S. TREASURY NOTES
(Cost $115,111,792) 114,383,804
----------------------------------------------------------------------------
U.S. GOVERNMENT AND AGENCY SECURITIES -- 1.1%
STUDENT LOAN MARKETING ASSOCIATION (SLMA) --
1.1%
14,500,000 SLMA European Currency Unit
Reverse Yen, Principal
Exchange Rate Linked Security,
10.375% due 1/30/95 8,428,125
17,750,000 SLMA Multi Currency Index
Reverse European Currency
Unit, Principal Exchange Rate
Linked Security,
11.150% due 4/7/97 8,608,750
15,000,000 SLMA New Zealand Dollars
Reverse Yen, Principal
Exchange Rate Linked Security,
12.050% due 3/19/96 11,925,000
----------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND
AGENCY
SECURITIES (Cost $41,210,436) 28,961,875
----------------------------------------------------------------------------
<CAPTION>
SHARES
<C> <S> <C>
----------------------------------------------------------------------------
PREFERRED STOCKS -- 2.1%
2,300 Dime Savings Bank, New York,
Exchangeable Pfd.,
10.500% 2,432,250
25,350 Geneva Steel Company, Series
B, Exchangeable Pfd.,
14.000%, Pay-in-kind 3,346,200
647,950 Gulf Canada Resources Ltd.,
Series 1 1,952,792
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
PREFERRED STOCKS -- (CONTINUED)
K-III Communications
Corporation, Sr. Exchangable
Pfd.:
133,300 11.500% $ 3,665,750
69,854 Series B,
11.625% Pay-in-kind 7,055,208
19,193 LFC Holding Corporation,
Exchangable Pfd., Variable
Rate
143,300 Navistar International
Corporation, Series G, Conv.
Pfd., $6.00 7,523,250
582,100 Unisys Corporation, Series A,
Conv. Pfd., $3.75** 29,105,000
----------------------------------------------------------------------------
TOTAL PREFERRED STOCKS
(Cost $50,385,170) 55,080,450
----------------------------------------------------------------------------
COMMON STOCKS -- 0.2%
48,000 Kendall International Inc. 2,400,000
111,908 Mesa Capital Corporation 783,356
104,000 Station Casinos Inc.+ 1,924,000
----------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $3,062,203) 5,107,356
----------------------------------------------------------------------------
COMMON STOCK WARRANTS -- 0.0%
99,350 Gaylord Container Corporation,
Warrant, Expires 7/31/96+ 521,588
320 Trump Plaza Holdings
Association, Warrant,
Expires 6/15/03+ 252,800
----------------------------------------------------------------------------
TOTAL COMMON STOCK WARRANTS
(Cost $689,812) 774,388
----------------------------------------------------------------------------
<CAPTION>
FACE AMOUNT
<C> <S> <C>
----------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 4.7%
$ 11,525,000 Agreement with Citibank, dated
1/31/94 at 3.150%
to be repurchased at
$11,526,008 on 2/1/94,
collateralized by
$11,425,000 U.S. Treasury
Notes,
5.500% due 7/31/95*** 11,525,000
39,976,000 Agreement with Union Bank of
Switzerland Securities,
dated 1/31/94 at 3.150%, to
be repurchased at
$39,979,498 on 2/1/94,
collateralized by
$40,880,000 U.S. Treasury
Notes,
4.000% due 1/31/96 39,976,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE AMOUNT (NOTE 1)
----------------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENTS -- (CONTINUED)
$ 10,024,000 Agreement with Union Bank of
Switzerland Securities,
dated 1/31/94 at 3.150%, to
be repurchased at
$10,024,877 on 2/1/94,
collateralized by
$10,000,000 U.S. Treasury
Notes,
4.250% due 8/31/94 $ 10,024,000
64,770,000 Agreement with Prudential
Securities Inc.,
dated 1/31/94 at 3.150%, to
be repurchased at
$64,775,667 on 2/1/94,
collateralized by
$52,820,000 U.S. Treasury
Notes,
8.125% due 8/15/19 64,770,000
----------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost $126,295,000) 126,295,000
----------------------------------------------------------------------------
PURCHASED PUT OPTIONS -- 0.1%
CAD 5,000,000 Canadian Dollar Put, Strike
$127.00, Expires 2/8/94 0
DEM 81,300,000 German Deutschemark Put,
Strike $1.753,
Expires 4/15/94 1,406,490
----------------------------------------------------------------------------
TOTAL PURCHASED PUT OPTIONS
(Cost $2,031,896) 1,406,490
----------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $2,656,895,673*) 102.8% 2,734,225,674
OTHER ASSETS AND LIABILITIES (NET) (2.8) (74,541,820)
----------------------------------------------------------------------------
TOTAL NET ASSETS 100.0% $2,659,683,854
----------------------------------------------------------------------------
<FN>
*Aggregate cost for Federal tax purposes.
**Portions of securities loaned at January 31, 1994 have a market value of
$10,105,306 (See Note 7).
***Collateral for securities on loan at 1/31/94 (Note 7).
+Non-income producing security.
++Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt
from
registration, generally to qualified institutional buyers.
Definitions:
Gold - Payments are on accelerated 45-day payment cycle instead of a regular
75-day cycle
Strips - Separate Trading of Registered Interest and Principal of Securities
TBA - To Be Announced
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ------------------------------------------
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS (UNAUDITED)
- ------------------------------------------------------------- JANUARY 31,
1994
<TABLE>
<CAPTION>
CONTRACT MARKET VALUE
VALUE DATE (NOTE 1)
<S> <C> <C>
- -----------------------------------------------------------------------
FORWARD FOREIGN EXCHANGE CONTRACTS
TO BUY
(Contract Amount $29,801,281)
4,179,629,676 Spanish Pesetas 2/1/94 $ 29,742,961
- -----------------------------------------------------------------------
FORWARD FOREIGN EXCHANGE CONTRACTS
TO SELL
10,217,520 Finnish Marrka 2/1/94 $ (1,846,618)
53,037,543 New Zealand Dollars 2/1/94 (30,122,679)
26,840,265,236 Italian Lire 2/24/94 (15,775,986)
4,951,560,249 Spanish Pesetas 2/24/94 (35,105,590)
354,994,413 Swedish Krones 3/16/94 (44,663,689)
195,289,714 Finnish Marrka 3/23/94 (35,206,195)
31,479,115 Great Britain Pound
Sterling 4/27/94 (46,993,994)
9,847,849 Irish Punts 4/27/94 (14,075,171)
- -----------------------------------------------------------------------
TOTAL FORWARD FOREIGN EXCHANGE
CONTRACTS TO SELL
(Contract Amount $218,874,251) $ (223,789,922)
- -----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$2,656,895,673) (Note 1)
See accompanying schedule
$2,734,225,674
Cash and foreign currency (Cost
$1,787,230)
1,931,008
Receivable for forward foreign exchange
contracts to sell
218,874,251
Receivable for investment securities
sold
72,741,363
Dividends and interest receivable
56,373,918
Forward foreign exchange contracts to
buy, at value
(Contract cost $29,801,281) (Note 1)
See accompanying schedule
29,742,961
Receivable for Fund shares sold
27,317,671
Unamortized organization costs (Note 8)
32,438
- ------------------------------------------------------------------------------
- -
TOTAL ASSETS
3,141,239,284
- ------------------------------------------------------------------------------
- -
LIABILITIES:
Forward foreign exchange contracts to
sell, at value
(Contract cost $218,874,251) (Note 1)
See accompanying schedule $223,789,922
Payable for investment securities
purchased 199,976,196
Payable for foward foreign exchange
contracts to buy 29,801,281
Collateral for securities on loan (Note
7) 11,423,850
Dividends payable 11,154,754
Payable for Fund shares redeemed 1,586,893
Distribution fee payable (Note 3) 1,064,719
Investment advisory fee payable (Note
2) 770,592
Service fee payable (Note 3) 547,357
Custodian fees payable (Note 2) 465,000
Administration fee payable (Note 2) 440,338
Sub-investment advisory fee payable
(Note 2) 220,169
Transfer agent fees payable (Note 2) 116,567
Accrued expenses and other payables 197,792
- ------------------------------------------------------------------------------
- -
TOTAL LIABILITIES
481,555,430
- ------------------------------------------------------------------------------
- -
NET ASSETS
$2,659,683,854
- ------------------------------------------------------------------------------
- -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------- JANUARY 31,
1994
<TABLE>
<S> <C> <C>
NET ASSETS consist of:
Undistributed net investment income $
1,223,823
Accumulated net realized gain on
securities, written options, forward
foreign exchange contracts and
foreign currency transactions
7,018,623
Net unrealized appreciation of
securities, forward foreign exchange
contracts, foreign currencies and net
other assets
72,070,833
Par value
311,880
Paid-in capital in excess of par value
2,579,058,695
- ------------------------------------------------------------------------------
- -
TOTAL NET ASSETS
$2,659,683,854
- ------------------------------------------------------------------------------
- -
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($74,258,409 DIVIDED BY 8,707,736 shares of beneficial
interest outstanding)
$8.53
- ------------------------------------------------------------------------------
- -
MAXIMUM OFFERING PRICE PER SHARE ($8.53 DIVIDED BY
0.955)
(based on sales charge of 4.5% of the offering price on
January 31, 1994)
$8.93
- ------------------------------------------------------------------------------
- -
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($2,569,775,058 DIVIDED BY 301,336,704 shares of
beneficial interest outstanding)
$8.53
- ------------------------------------------------------------------------------
- -
CLASS C SHARES:
NET ASSET VALUE, offering and redemption price per share
($15,312,862 DIVIDED BY 1,795,651 shares of beneficial
interest outstanding)
$8.53
- ------------------------------------------------------------------------------
- -
CLASS D SHARES:
NET ASSET VALUE, offering price and redemption price per
share
($337,525 DIVIDED BY 39,578 shares of beneficial
interest outstanding)
$8.53
- ------------------------------------------------------------------------------
- -
<FN>
+Redemption price per share for Class B shares is equal to net asset value
less
any applicable contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED JANUARY 31,
1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of
$1,108,529) $
100,585,913
Dividends
2,618,738
- ------------------------------------------------------------------------------
- -------
TOTAL INVESTMENT INCOME
103,204,651
- ------------------------------------------------------------------------------
- -------
EXPENSES:
Distribution fee (Note 3) $5,882,092
Investment advisory fee (Note 2) 4,248,223
Service fee (Note 3) 3,017,325
Administration fee (Note 2) 2,427,556
Sub-investment advisory fee (Note 2) 1,213,778
Custodian fees (Note 2) 939,651
Transfer agent fees (Notes 2 and 4) 822,319
Legal and audit fees 39,419
Amortization of organization costs (Note 8) 18,096
Trustees' fees and expenses (Note 2) 3,247
Other 408,922
- ------------------------------------------------------------------------------
- -------
TOTAL EXPENSES
19,020,628
- ------------------------------------------------------------------------------
- -------
NET INVESTMENT INCOME
84,184,023
- ------------------------------------------------------------------------------
- -------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain/(loss) on:
Securities
26,540,492
Written options
50,948
Forward foreign exchange contracts
(4,230,990)
Foreign currency transactions
(1,179,612)
- ------------------------------------------------------------------------------
- -------
Net realized gain on investments sold during
the period
21,180,838
- ------------------------------------------------------------------------------
- -------
Net change in unrealized
appreciation/(depreciation) of:
Securities
59,584,106
Written options
284,139
Forward foreign exchange contracts
(10,636,948)
Foreign currencies and net other assets
380,079
- ------------------------------------------------------------------------------
- -------
Net unrealized appreciation of investments
during the period
49,611,376
- ------------------------------------------------------------------------------
- -------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
70,792,214
- ------------------------------------------------------------------------------
- -------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$154,976,237
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR
1/31/94
ENDED
(UNAUDITED)
7/31/93
<S> <C>
<C>
Net investment income $ 84,184,023
$ 138,378,605
Net realized gain on securities, written options,
forward foreign exchange contracts and foreign
currency transactions during the period 21,180,838
16,395,153
Net unrealized appreciation/(depreciation) of
securities, written options, foward foreign exchange
contracts, foreign currencies and net other assets
during the period 49,611,376
(24,475,949)
- ------------------------------------------------------------------------------
- -------
Net increase in net assets resulting from operations 154,976,237
130,297,809
Distributions to shareholders from net investment
income:
Class A (2,413,954)
(1,117,897)
Class B (88,048,404)
(121,525,007)
Class C (567,706)
(502,947)
Class D (5,067)
(103)
Distribution to shareholders from net realized gain on
investments:
Class A (764,707)
(172,715)
Class B (27,997,349)
(28,728,883)
Class C (162,730)
(119,317)
Class D (2,015)
(15)
Net increase in net assets from share transactions
(Note 6):
Class A 25,025,782
47,910,472
Class B 430,776,721
662,838,648
Class C 3,305,952
11,601,935
Class D 323,746
11,328
- ------------------------------------------------------------------------------
- -------
Net increase in net assets 494,446,506
700,493,308
NET ASSETS:
Beginning of period 2,165,237,348
1,464,744,040
- ------------------------------------------------------------------------------
- -------
End of period (including undistributed net investment
income of $1,223,823 and $8,074,931, respectively) $2,659,683,854
$2,165,237,348
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
PERIOD
1/31/94
ENDED
(UNAUDITED) 7/31/93*
<S> <C>
<C>
Net Asset Value, beginning of period $ 8.41
$ 8.24
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.32
0.47
Net realized and unrealized gain on investments 0.24
0.27
- ------------------------------------------------------------------------------
- -------
Total from investment operations 0.56
0.74
Distributions to shareholders:
Distributions from net investment income (0.34)
(0.45)
Distributions from net realized gains (0.10)
(0.12)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.44)
(0.57)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 8.53
$ 8.41
- ------------------------------------------------------------------------------
- -------
Total return+ 6.83%
9.30%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $74,258
$48,334
Ratio of operating expenses to average net assets
1.14%** 1.10%**
Ratio of net investment income to average net assets
7.38%** 8.26%**
Portfolio turnover rate 46%
116%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
YEAR YEAR PERIOD
1/31/94
ENDED ENDED ENDED ENDED
(UNAUDITED)
7/31/93 7/31/92 7/31/91 7/31/90*
<S> <C> <C>
<C> <C> <C>
Net Asset Value, beginning of period $ 8.41 $
8.55 $ 7.98 $ 8.06 $ 8.00
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.29
0.65 0.68 0.71 0.41
Net realized and unrealized gain/ (loss) on
investments 0.25
(0.07) 0.64 0.07 0.05
- ------------------------------------------------------------------------------
- -------
Total from investment operations 0.54
0.58 1.32 0.78 0.46
Distributions to shareholders:
Distributions from net investment income (0.32)
(0.58) (0.68) (0.71) (0.40)
Distributions from net realized gains (0.10)
(0.14) -- (0.06) --
Distributions from capital -- --
(0.07) (0.09) --
- ------------------------------------------------------------------------------
- -------
Total distributions (0.42)
(0.72) (0.75) (0.86) (0.40)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 8.53 $
8.41 $ 8.55 $ 7.98 $ 8.06
- ------------------------------------------------------------------------------
- -------
Total return+ 6.57%
7.28% 17.12% 10.42% 6.00%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/ supplemental data:
Net assets, end of period
(in 000's) $2,569,775
$2,105,089 $1,464,744 $502,571 $179,496
Ratio of operating expenses to average net assets 1.60%**
1.59% 1.62% 1.63% 1.74%**
Ratio of net investment income to average net assets 6.92%**
7.77% 7.99% 9.21% 9.59%**
Portfolio turnover rate 46%
116% 125% 131% 56%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced operations on December 28, 1989. On November 6, 1992 the
Fund commenced selling Class A and Class C shares. Those shares in existence
prior to November 6, 1992 were designated Class B shares.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
PERIOD
1/31/94
ENDED
(UNAUDITED) 7/31/93*
<S> <C>
<C>
Net Asset Value, beginning of period $ 8.41
$ 8.24
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.32
0.51
Net realized and unrealized gain on investments 0.25
0.25
- ------------------------------------------------------------------------------
- -------
Total from investment operations 0.57
0.76
Distributions to shareholders:
Distributions from net investment income (0.35)
(0.47)
Distributions from net realized gains (0.10)
(0.12)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.45)
(0.59)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 8.53
$ 8.41
- ------------------------------------------------------------------------------
- -------
Total return+ 6.97%
9.47%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $15,313
$11,803
Ratio of operating expenses to average net assets
0.85%** 0.80%**
Ratio of net investment income to average net assets
7.67%** 8.56%**
Portfolio turnover rate 46%
116%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class C shares on November 6, 1992.
**Annualized.
+Total return represents aggregate total return for the period indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED PERIOD
1/31/94 ENDED
(UNAUDITED) 7/31/93*
<S> <C> <C>
Net Asset Value, beginning of period $8.41 $8.36
- ------------------------------------------------------------------
Income from investment operations:
Net investment income 0.29 0.22
Net realized and unrealized gain on
investments 0.25 0.06
- ------------------------------------------------------------------
Total from investment operations 0.54 0.28
Distributions to shareholders:
Distributions from net investment income (0.32) (0.20)
Distributions from net realized gains (0.10) (0.03)
- ------------------------------------------------------------------
Total distributions (0.42) (0.23)
- ------------------------------------------------------------------
Net Asset Value, end of period $8.53 $8.41
- ------------------------------------------------------------------
Total return+ 6.57% 3.41%
- ------------------------------------------------------------------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $ 338 $ 11
Ratio of operating expenses to average net
assets 1.68%** 1.50%**
Ratio of net investment income to average
net assets 6.84%** 7.87%**
Portfolio turnover rate 46% 116%
- ------------------------------------------------------------------
<FN>
*The Fund commenced selling Class D shares on March 19, 1993.
**Annualized.
+Total return represents aggregate total return for the period indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Income Funds (the "Trust") was organized as a
"Massachusetts business trust" under the laws of the Commonwealth of
Massachusetts on March 12, 1985. The Trust is registered with the Securities
and
Exchange Commission under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. As of the date of
this report, the Trust offered eight managed investment funds: Smith Barney
Shearson Premium Total Return Fund, Smith Barney Shearson Convertible Fund,
Smith Barney Shearson Global Bond Fund, Smith Barney Shearson High Income
Fund,
Smith Barney Shearson Tax-Exempt Income Fund, Smith Barney Shearson Money
Market
Fund, Smith Barney Shearson Diversified Strategic Income Fund (the "Fund") and
Smith Barney Shearson Utilities Fund. As of November 6, 1992, the Fund offered
three classes of shares: Class A shares, Class B shares and Class C shares. As
of January 29, 1993, the Fund offered a fourth class of shares, Class D
shares,
to investors eligible to participate in the Smith Barney Shearson 401(k)
Program. Class A shares are sold with a front-end sales charge. Class B shares
may be subject to a contingent deferred sales charge ("CDSC"). Class B shares
will convert automatically to Class A shares eight years after the date of
original purchase. Class C shares are offered exclusively to tax-exempt
employee
benefit and retirement plans of Smith Barney Shearson Inc. ("Smith Barney
Shearson") and certain unit investment trusts sponsored by Smith Barney
Shearson
and its affiliates. Class C and Class D shares are offered without a front-end
sales charge or a CDSC. Each class of shares has identical rights and
privileges
except with respect to the effect of the respective sales charges, the
distribution and/or service fees borne by each class, expenses allocable
exclusively to each class, voting rights on matters affecting a single class,
the exchange privilege of each class and the conversion feature of Class B
shares. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
PORTFOLIO VALUATION: Generally, the Fund's investments are valued at market
value or, in the absence of market value with respect to any portfolio
securities, at fair value as determined by or under the direction of the
Trust's
Board of Trustees. Portfolio securities that are traded primarily on a
domestic
or foreign exchange are valued at the last sale price on that exchange or, if
there were no sales during the day, at the current quoted bid
31
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
price. Over-the-counter securities listed or traded on certain foreign
exchanges
whose operations are similar to the United States over-the-counter market are
valued on the basis of the bid price at the close of business on each day.
Portfolio securities that are traded primarily on foreign exchanges generally
are valued at the preceding closing values of such securities on their
respective exchanges, except that when an occurrence subsequent to the time a
value was so established is likely to have changed such value, then the fair
value of those securities will be determined by consideration of other factors
by or under the direction of the Board of Trustees or its delegates. Debt
securities are valued by The Boston Company Advisors, Inc. ("Boston
Advisors"),
after consultation with an independent pricing service (the "Pricing Service")
approved by the Board of Trustees. When, in the judgment of the Pricing
Service,
quoted bid prices for investments are readily available and are representative
of the bid side of the market, these investments are valued at the mean
between
the quoted bid prices and asked prices. Investments for which, in the judgment
of the Pricing Service, there are no readily obtainable market quotations are
carried at fair value as determined by the Pricing Service. The procedures of
the Pricing Service are reviewed periodically by the officers of the Fund
under
the general supervision and responsibility of the Trustees. Investments in
U.S.
government securities (other than short-term securities) are valued at the
average of the quoted bid and asked price in the over-the-counter market.
Other
securities including restricted securities and other assets are valued at fair
value as determined in accordance with policies established in good faith by
the
Board of Trustees. Short-term investments that mature in 60 days or less are
valued at amortized cost.
REPURCHASE AGREEMENTS: The Fund engages in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession
of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is
at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the
right
to use the collateral to offset losses incurred. There is potential loss to
the
Fund in the event that the Fund is delayed or prevented from
32
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
exercising its rights to dispose of the collateral securities including the
risk
of a possible decline in the value of the underlying securities during the
period while the Fund seeks to assert its rights. The Fund's investment
adviser
or administrator, acting under the supervision of the Board of Trustees,
reviews
the value of the collateral and the creditworthiness of those banks and
dealers
with which the Fund enters into repurchase agreements to evaluate potential
risks.
FOREIGN CURRENCY: The books and records of the Fund are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of
the
period, and purchases and sales of investment securities, income and expenses
are translated on the respective dates of such transactions. Unrealized gains
and losses which result from changes in foreign currency exchange rates have
been included in the unrealized appreciation/(depreciation) of currencies and
net other assets. Net realized foreign currency gains and losses resulting
from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of a Fund and the amount actually received.
The
portion of foreign currency gains and losses related to fluctuation in the
exchange rates between the initial purchase trade date and subsequent sale
trade
date is included in realized gains and losses on investment securities sold.
FORWARD FOREIGN EXCHANGE CONTRACTS: Forward foreign exchange contracts are
valued at the forward rate and are marked-to-market daily. The change in
market
value is recorded by the Fund as an unrealized gain or loss. When the contract
is closed, the Fund records a realized gain or loss equal to the difference
between the value of the contract at the time it was opened and the value at
the
time it was closed.
The use of forward foreign exchange contracts does not eliminate fluctuations
in
the underlying prices of the Fund's investment securities, but it does
establish
a rate of exchange that can be achieved in the future. Although forward
foreign
exchange contracts limit the risk of loss due to a decline in the value of the
hedged currency, they also limit any potential gain that
33
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
might result should the value of the currency increase. In addition, the Fund
could be exposed to risks if the counterparties to the contracts are unable to
meet the terms of their contracts.
OPTION CONTRACTS: Upon the purchase of a put option or a call option by the
Fund, the premium paid is recorded as an investment, the value of which is
marked-to-market daily to reflect the current market value. When a purchased
option expires, the Fund will realize a loss in the amount of the cost of the
option. When the Fund enters into a closing sale transaction, the Fund will
realize a gain or loss depending on whether the sales proceeds from the
closing
sale transaction are greater or less than the cost of the option. When the
Fund
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 Fund exercises a call option, the cost of
the
security which the Fund purchases upon exercise will be increased by the
premium
originally paid.
When the Fund writes a call option or a put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily to reflect the current market value of the written
option. When a written option expires, the Fund realizes a gain equal to the
amount of the premium received. When the Fund enters into a closing purchase
transaction, the Fund realizes a gain (or loss if the cost of the closing
purchase transaction exceeds the premium received when the option was sold)
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is eliminated. When a call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security and the proceeds from such sale are increased 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 Fund purchased upon
exercise.
The risk associated with purchasing options is limited to the premium
originally
paid. The risk in writing a call option is the Fund may forego the opportunity
of profit if the market price of the underlying security increases and the
option is exercised. The risk in writing a put option is that the Fund may
incur
a loss if the market price of the underlying security decreases and
34
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
the option is exercised. In addition, there is the risk the Fund may not be
able
to enter into a closing transaction because of an illiquid secondary market.
PAY-IN-KIND BONDS: The Fund may invest in pay-in-kind ("PIK") bonds. PIK bonds
pay interest through the issuance of additional bonds. PIK bonds are recorded
at
fair market value on the ex-dividend date. PIK bonds carry a risk in that,
unlike bonds which pay interest throughout the period to maturity, the Fund
will
realize no cash until the cash payment dates unless a portion of such
securities
is sold. If the issuer of a PIK bond defaults, the Fund may obtain no return
at
all on its investment.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income and distributions
to
shareholders are recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Pay-in-kind securities are recorded at fair market value
on the date of payment. Investment income and realized and unrealized gains
and
losses are allocated based upon the relative net assets of each class of
shares.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income, if any, are determined on a class level, are declared on each day that
the Fund is open for business and are paid on the last day of the Smith Barney
Shearson statement month. Distributions of any short-term and long-term
capital
gains earned will be paid annually after the close of the fiscal year in which
they are earned. Additional distributions of net investment income and capital
gains from the Fund may be made at the discretion of the Trust's Board of
Trustees in order to avoid the application of a 4% nondeductible excise tax on
certain amounts of undistributed ordinary income and capital gains. Income
distributions and capital gain distributions on a Fund level are determined in
accordance with income tax regulations which may differ from generally
accepted
accounting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by the
Fund, timing differences and differing characterization of distributions made
by
the Fund as a whole.
35
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEDERAL INCOME TAXES: The Trust intends that the Fund qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code
of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, SUB-INVESTMENT ADVISORY
FEE, ADMINISTRATION FEE AND OTHER PARTY TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual Management
Corp., which is controlled by Smith Barney Shearson Holdings Inc.
("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. Under the Advisory
Agreement, the Fund pays a monthly fee at the annual rate of 0.35% of the
value
of its average daily net assets.
The Fund has entered into a sub-investment advisory agreement (the "Sub-
Advisory
Agreement") with Lehman Brothers Global Asset Management Limited ("Global
Asset
Management"), a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Lehman Holdings"), which is in turn a wholly owned subsidiary of American
Express Company ("American Express"). American Express owns 100% of Lehman
Holdings' issued and outstanding common stock, which represents approximately
92% of the issued and outstanding voting stock. The remainder of Holdings'
voting stock is owned by Nippon Life Insurance Company. Under the Sub-Advisory
Agreement, the Fund pays a fee computed daily and paid monthly at the annual
rate of 0.10% of the value of its average daily net assets.
Boston Advisors, an indirect wholly owned subsidiary of Mellon Bank
Corporation
("Mellon"), serves as the Fund's administrator pursuant to an administration
agreement (the "Administration Agreement"). Under the Administration
Agreement,
the Fund pays a monthly fee at the annual rate of 0.20% of the value of the
Fund's average daily net assets.
For the six months ended January 31, 1994, the Fund incurred total brokerage
commissions of $18,465, none of which was paid to Smith Barney Shearson.
36
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
For the six months ended January 31, 1994, Smith Barney Shearson received
$500,359 from investors representing commissions (sales charges) on sales of
Class A shares.
A CDSC is generally payable by a shareholder in connection with the redemption
of Class B shares within five years (eight years in the case of purchases by
certain 401(k) plans) after the date of purchase. In circumstances in which
the
CDSC is imposed, the amount of the charge ranges between 4.5% and 1% of net
asset value depending on the number of years since the date of purchase
(except
in the case of purchases by certain 401(k) plans in which case a 3% CDSC is
imposed for the eight year period after the date of purchase). For the six
months ended January 31, 1994, Smith Barney Shearson received from
shareholders
$2,516,343 in CDSCs on the redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, Global Asset
Management, Boston Advisors or of any parent or subsidiary of those
corporations
receives any compensation from the Trust for serving as a Trustee or officer
of
the Trust. The Trust pays each Trustee who is not an officer, director or
employee of Smith Barney Shearson, Global Asset Management, Boston Advisors or
any of their affiliates $6,000 per annum plus $1,500 per meeting attended and
reimburses each such Trustee for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Trust's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Trust's shares pursuant to a
distribution agreement with the Trust and sells shares of the Fund through
Smith
Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund adopted a Services and
Distribution Plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney Shearson for servicing shareholder accounts for Class A,
37
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Class B and Class D shareholders, and covers expenses incurred in distributing
Class B and Class D shares. Smith Barney Shearson is paid an annual service
fee
with respect to Class A, Class B and Class D shares of the Fund at the annual
rate of 0.25% of the value of the average daily net assets of each respective
class of shares. Smith Barney Shearson is also paid an annual distribution fee
with respect to Class B and Class D shares at the annual rate of 0.50% of the
value of the average daily net assets of each respective class of shares. For
the six months ended January 31, 1994, the service fee for Class A, Class B
and
Class D shares was $76,279, $2,940,878 and $168, respectively. For the six
months ended January 31, 1994, the distribution fee for Class B and Class D
shares was $5,881,757 and $335, respectively.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class
of
shares are prorated among the classes based upon the relative net assets of
each
class. Operating expenses directly attributable to a class of shares are
charged
to that class' operations. In addition to the above service and distribution
fees, class specific operating expenses include transfer agent fees. For the
six
months ended January 31, 1994, transfer agent fees for Class A, Class B, Class
C
and Class D shares were $29,773, $787,943, $4,510 and $93, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments and U.S. government securities, aggregated $1,103,940,343 and
$950,550,670, respectively, for the six months ended January 31, 1994. Costs
of
purchases and proceeds from sales of long-term U.S. government securities
aggregated $310,382,413 and $108,656,083, respectively, for the six months
ended
January 31, 1994.
At January 31, 1994, aggregate gross unrealized appreciation for all
securities
in which there was an excess of value over tax cost was $131,238,159 and
aggregate gross unrealized depreciation for all securities in which there was
an
excess of tax cost over value was $53,908,158.
38
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Option activity for the six months ended January 31, 1994 was as follows:
<TABLE>
<CAPTION>
Number of
Contracts
Premiums
<S> <C> <C>
- ------------------------------------------------------------------------------
- ---
Options outstanding at July 31, 1993 18 $
50,948
Options expired (18)
(50,948)
- ------------------------------------------------------------------------------
- ---
Options outstanding at January 31, 1994 0 $
0
- ------------------------------------------------------------------------------
- ---
</TABLE>
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest of
each
class in each separate series with a $.001 par value. Changes in shares of
beneficial interest of the Fund which are divided into four classes (Class A,
Class B, Class C and Class D) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
CLASS A SHARES: Shares 1/31/94 Amount
Shares 7/31/93*Amount
<S> <C> <C>
<C> <C>
- ------------------------------------------------------------------------------
- -------
Sold 3,767,027 $ 31,887,359
5,992,384 $ 49,938,079
Issued as reinvestment of dividends 263,183 2,222,426
102,084 853,625
Redeemed (1,072,346) (9,084,003)
(344,596) (2,881,232)
- ------------------------------------------------------------------------------
- -------
Net increase 2,957,864 $ 25,025,782
5,749,872 $ 47,910,472
- ------------------------------------------------------------------------------
- -------
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
1/31/94
7/31/93*
CLASS B SHARES: Shares Amount
Shares Amount
<S> <C> <C>
<C> <C>
- ------------------------------------------------------------------------------
- -------
Sold 60,936,373 $ 515,874,792
101,351,160 $ 848,750,560
Issued as reinvestment of dividends 8,385,918 70,808,376
10,454,096 86,939,886
Redeemed (18,419,967) (155,906,447)
(32,720,132) (272,851,798)
- ------------------------------------------------------------------------------
- -------
Net increase 50,902,324 $ 430,776,721
79,085,124 $ 662,838,648
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated Class B shares.
</TABLE>
39
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
CLASS C SHARES: Shares 1/31/94 Amount
Shares 7/31/93*Amount
<S> <C> <C>
<C> <C>
- ------------------------------------------------------------------------------
- -------
Sold 450,118 $ 3,798,216
1,412,944 $ 11,675,446
Issued as reinvestment of dividends 85,447 721,735
74,661 619,916
Redeemed (144,061) (1,213,999)
(83,458) (693,427)
- ------------------------------------------------------------------------------
- -------
Net increase 391,504 $ 3,305,952
1,404,147 $ 11,601,935
- ------------------------------------------------------------------------------
- -------
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93*
CLASS D SHARES: Shares Amount
Shares Amount
<S> <C> <C>
<C> <C>
- ------------------------------------------------------------------------------
- -------
Sold 38,772 $ 328,318
1,349 $ 11,354
Issued as reinvestment of dividends 813 6,869
15 114
Redeemed (1,354) (11,441)
(17) (140)
- ------------------------------------------------------------------------------
- -------
Net increase 38,231 $ 323,746
1,347 $ 11,328
- ------------------------------------------------------------------------------
- -------
*The Fund commenced selling Class C shares on November 6, 1992. Any shares
outstanding prior to
November 6, 1992 were designated Class B shares.
**The Fund commenced selling Class D shares to the public on March 19, 1993.
</TABLE>
7. LENDING OF PORTFOLIO SECURITIES
The Fund has the ability to lend its securities to brokers, dealers and other
financial organizations. Loans of securities by the Fund are collateralized by
cash, letters of credit or U.S. government securities that are maintained at
all
times in an amount at least equal to the current market value of the loaned
securities.
As of January 31, 1994, the Fund loaned securities to certain brokers with an
aggregate market value of $10,105,306, which represents 0.38% of total net
assets, for which the Fund received $11,423,850 as collateral. This amount is
invested in a repurchase agreement at January 31, 1994.
8. ORGANIZATION COSTS
The Fund bears all costs in connection with its organization including the
fees
and expenses of registering and qualifying its shares for distribution under
Federal and state securities regulations. All such costs are being amortized
on
the straight-line method over a period of five years from December 28, 1989
(commencement of operations). In the event the initial shares of the Fund are
redeemed during such amortization period, the Fund
40
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
will be reimbursed for any unamortized organization costs in the same
proportion
as the number of shares redeemed bears to the number of initial shares held at
the time of redemption.
9. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments involves
special risks and considerations not typically associated with investing in
securities of U.S. companies and the United States government. These risks
include re-evaluation of currencies and future adverse political and economic
developments. Moreover, securities of many foreign companies and foreign
governments and their markets may be less liquid and their prices more
volatile
than securities of comparable U.S companies and the United States government.
10. CONCENTRATION OF CREDIT
The Fund invests in securities offering high current income which generally
will
be in the lower rating categories of recognized rating agencies. These
securities generally involve more credit risk than securities in higher rating
categories. In addition the trading market for high yield securities may be
relatively less liquid than the market for higher-rated securities.
11. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Continental Bank N.A. under an Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992, primarily for
temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. Under this
Agreement, the Fund may borrow up to the lesser of $25 million or 10% of its
net
assets. Interest is payable either at the bank's Money Market Rate or the
London
Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. The Fund and
the other affiliated entities are charged an aggregate commitment fee of
$125,000 which is allocated equally among each of the participants. The
Agreement requires, among other provisions, each participating fund to
maintain
a ratio of net assets (not including funds borrowed pursuant to the Agreement)
to aggregate amount of indebtedness pursuant to the Agreement of no less than
5
to 1. During
41
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
the six months ended January 31, 1994, the Fund had an average outstanding
balance of $8,696 with an interest rate of 3.375%. Interest expense totalled
$150 for the six months ended January 31, 1994, which has been included in
other
expenses on the Statement of Operations for the six months ended January 31,
1994. At January 31, 1994, the Fund had no outstanding borrowings under this
Agreement.
42
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
GLOSSARY OF COMMONLY USED MUTUAL FUND TERMS
CAPITAL GAIN (OR LOSS) This is the increase (or decrease) in the market value
(price) of a security in your portfolio. If a stock or bond appreciates in
price, there is a capital gain; if it depreciates, there is a capital loss. A
capital gain or loss is "realized" upon the sale of a security; if net capital
gains exceed net capital losses, there may be a capital gain distribution to
shareholders.
CDSC (CONTINGENT DEFERRED SALES CHARGE) One kind of back-end load, a CDSC is
imposed if shares are redeemed during the first few years of ownership. The
CDSC
may be expressed as a percentage of either the original purchase price or the
redemption proceeds. Most CDSCs decline over time, and some will not be
charged
if shares are redeemed after a certain period of time.
DISTRIBUTION RATE This is the rate at which a mutual fund pays out (or
distributes) interest, dividends and realized capital gains to shareholders. A
fund's distribution rate is usually expressed as an annualized percent of the
fund's offering price.
DIVIDEND This is income generated by securities in a portfolio and distributed
after expenses to shareholders.
FRONT-END SALES CHARGE This is the sales charge applied to an investment at
the
time of initial purchase.
NET ASSET VALUE (NAV) Net asset value is the total market value of all
securities held by a fund, minus any liabilities, divided by the number of
shares outstanding. It is the value of a single share of a mutual fund on a
given day. The total value of your investment would be the NAV multiplied by
the
number of shares you own.
SEC YIELD This standardized calculation of a mutual fund's yield is based on a
formula developed by the Securities and Exchange Commission (SEC) to allow
funds
to be compared on an equal basis. It is an annualized yield based on the
portfolio's potential earnings from dividends, interest and yield to maturity
of
its holdings, and it reflects the payments of all portfolio expenses for the
most recent 30-day period. Mutual funds are required to use this figure when
stating yield.
TOTAL RETURN Total return measures a fund's performance, taking into account
the
combination of dividends paid and the gain or loss in the value of the
securities held in the portfolio. It may be expressed on an AVERAGE ANNUAL
basis
or CUMULATIVE basis (total change over a given period). In addition, total
return may be expressed with or without the effects of sales charges or the
reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the
average
annual total return according to the standardized calculation developed by the
SEC. This standardized calculation was introduced to insure that investors can
compare different funds on an equal basis. The SEC AVERAGE ANNUAL TOTAL RETURN
calculation includes the effects of all fees and sales charges and assumes the
reinvestment of all dividends and capital gains.
43
<PAGE>
Smith Barney Shearson
Diversified Strategic Income Fund
- ---------------------------------------------------------------------------
INVESTOR BENEFITS
MONTHLY DISTRIBUTIONS
It's your fund's policy to distribute dividend income monthly.
AUTOMATIC REINVESTMENT
You may reinvest your dividends and/or capital gains automatically in
additional
shares of your fund at the current net asset value.
UNLIMITED EXCHANGES
If your investment goals change, you may exchange into another Smith Barney
Shearson mutual fund with the same sales charge structure without incurring a
sales charge.*
SYSTEMATIC
INVESTMENT PLAN
This program allows you to invest equal dollar amounts automatically on a
regular basis, monthly or quarterly.
AUTOMATIC CASH
WITHDRAWAL PLAN
With this plan, you may withdraw money on a regular basis while maintaining
your
investment.
MUTUAL FUND
EVALUATION SERVICE
Through your Financial Consultant, you may obtain a free personalized analysis
of how your fund has performed for you, taking into account the effect of
every
transaction.
For more information about these benefits, or if you have any other questions,
please call your Financial Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY SHEARSON
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
*AFTER WRITTEN NOTIFICATION,
EXCHANGE PRIVILEGE MAY BE
MODIFIED OR TERMINATED AT ANY TIME.
44
<PAGE>
DIVERSIFIED
STRATEGIC
INCOME FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
AND INVESTMENT OFFICER
Richard P. Roelofs
PRESIDENT
John Bianchi
VICE PRESIDENT AND
INVESTMENT OFFICER
James E. Conroy
VICE PRESIDENT AND
INVESTMENT OFFICER
Michael Zelouf
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND. IT IS NOT AUTHORIZED
FOR DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN
EFFECTIVE PROSPECTUS FOR THE FUND, WHICH CONTAINS INFORMATION CONCERNING THE
FUND'S INVESTMENT POLICIES AND EXPENSES AS WELL AS OTHER PERTINENT
INFORMATION.
[LOGO]
Smith Barney Shearson
Mutual Funds
Two World Trade Center
New York, New York 10048
Fund 128, 175, 176, 211
FD2174 C4
SEMI-
ANNUAL
REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a black and white picture
of the world map stretching from the United States to Japan.
Smith Barney Shearson
GLOBAL
BOND FUND
JANUARY 31, 1994
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
THE INVESTMENT OBJECTIVE
The Smith Barney Shearson Global Bond Fund seeks current income and capi-
tal appreciation by investing in the major government bond markets
throughout the world to capitalize on currency and interest rate opportu-
nities. It is a portfolio of the highest quality, 75% being exposed to
AAA government and supranational debt.
THE PERFORMANCE
The Fund's aggregate total return (without the effect of sales charges)
for Class A, Class B, and Class D shares for the six months ended January
31, 1994 was 5.34%, 5.07% and 5.08%, respectively. This compared with a
gain of 5.02% for the Salomon Brothers World Government Bond Index (a
weighted index of the world's major bond markets). For the twelve months
to December 31, 1993 the return was 11.92% versus 13.27% in the Salomon
Brothers World Government Bond Index. During the six month period the
Class A shares paid dividends of $0.8216 per share made up of six monthly
dividends of $0.0795 per share and an annual dividend from currency appre-
ciation and capital gains of $0.3446 per share. The Class B shares paid
dividends of $0.7781 per share, made up of six monthly dividends of
$0.0725 per share and an annual dividend from currency appreciation and
capital gains of $0.3431 per share. The Class D shares paid dividends of
$0.779 per share made up of six monthly dividends of $0.0725 per share and
an annual dividend from currency appreciation and capital gains of $0.344
per share.
Since the Fund is a total return fund, and not an income fund, there is no
requirement to meet a stated level of income for distribution each month.
However, from the portfolio of global bonds selected by the investment
manager the Fund provides for a monthly dividend from income as well as an
annual payment at the year end of currency appreciation and capital gains.
With global interest rates in decline, we would anticipate during the next
twelve months a marginal decrease in the level of the monthly dividends
paid. This results from the reduced coupon income available from bonds in
general. The corollary to this is that, as interest rates decline further,
there is the potential for capital gain, as well as the potential for cur-
rency gains in periods of a weak U.S. dollar.
PERFORMANCE DISCUSSION & ANALYSIS
To capitalize on currency and interest rate opportunities around the
globe, it is necessary to employ an active, disciplined approach to manag-
ing the assets, whereby the decisions on the currency and the bond expo-
sure are two separate investment decisions. For example, it is sometimes
more optimal to own a bond for its interest rate exposure and to hedge the
currency exposure of that bond into a more favoured currency.
In analyzing the contribution to return from the components of currency
and capital, the portfolio performance benefited throughout most of the
year from an overweighting to European bonds relative to the weighting of
European bonds in the Salomon Brothers World Government Bond Index, as in-
terest rates in Europe sharply declined. Performance was marginally im-
pacted by an overweight position to the U.S. dollar during the third quar-
ter of 1993. This overweight position to the U.S. dollar, to which we were
biased for most of the year, was however to benefit the portfolio in the
fourth quarter of 1993.
THE INVESTMENT ENVIRONMENT
Sluggish world growth and declining inflation have continued to provide
the backdrop for attractive returns in local currency terms from a number
of global bond markets over the past six months. The performance of inter-
national bonds easily outstripped that of U.S. bonds even after accounting
for currency movements versus the U.S. dollar. Interest rates declined
steadily across the yield curve throughout Europe as monetary policies
were relaxed in an attempt to kick start the sluggish domestic economies,
although the end of July saw the effective breakdown of the Exchange Rate
Mechanism ("ERM") with the move to wide-bands for all of the currencies
within the system barring the German Deutschemark and Netherlands Guilder.
Once more the peripheral markets of Spain (11.54%) and Italy (11.74%) were
the best performers over the six months, with the United Kingdom Gilt mar-
ket close behind, rallying strongly after a tight Budget and interest rate
cut in November. The Fund benefited from being invested in each of these
markets, together with Ireland, another strong performer which has quickly
become a respectable market amongst international investors due to its
splendid fundamentals. The Japanese bond market performed well during the
last quarter, although mounting political risks and concerns over the ex-
tent of forthcoming supply resulted in a sharp correction during January.
Overall, the Japanese market was one of the poorer performers, alongside
U.S. Treasuries which were dogged by increasing concern that the Federal
Reserve Bank would act pre-emptively and raise interest rates in the near
future.
The removal of the pent-up tension within the ERM resulted in a dramatic
weakening of the non-core currencies versus the Deutschemark, with the
French Franc and Danish Krone initially losing around 3-4% versus the
Deutschemark as their respective Central Banks were forced to purchase
Deutschemarks to repay the German Bundesbank for reserves borrowed during
the build-up to the crisis. These reserve rebuilding actions weighed
heavily on the U.S. dollar, resulting in a bout of weakness which culmi-
nated in the reduction in German interest rates in October, allowing the
U.S. dollar to recover back to the DM/$1.73 level. Towards the end of the
period, the peripheral currencies strengthened back to within sight of
their old ERM bands as interest rate cuts increased the likelihood of a
return to growth. In August, the intervention by the U.S. Federal Reserve
to curtail the incredible strength of the Yen reversed the trend, leading
to a weaker yen over the period, and further reducing the return from Jap-
anese bonds in dollar terms. Overall, the effect of currency movements was
minimal, reducing the return from the Salomon Brothers World Government
Bond Index to 5.02% in dollar terms.
PORTFOLIO ACTIVITY
During the period, and given the heightened volatility in both global
currencies and global interest rates, the portfolio was broadly diversi-
fied across a large range of markets to insulate it from the risks of any
one market, while capitalizing on the global opportunities. For most of
the year, we maintained a range of 20-25% in US$-Bloc bonds, where low in-
flationary expectations continued to indicate the prospect for positive
returns notably in Canada and Australia. The balance of the portfolio was
invested in a broad range of European markets, where the real returns were
most favourable, with a declining proportion in Japan. Cash was kept to a
minimum and the average life of the portfolio ranged between 7 and 9
years, thus ensuring that a substantial portion of the portfolio was par-
ticipating in capital growth as interest rates steadily declined.
For most of the period, despite the large but declining interest rate dif-
ferential with Europe, we favoured an overweight exposure to the U.S. dol-
lar which we felt was underpinned by improving economic fundamentals and
the currency turbulence in Europe. This policy translated into a large
part of our European bond exposure being hedged into U.S. dollars to pro-
tect the base currency of the portfolio.
INVESTMENT STRATEGY
Over the coming months, we expect the U.S. dollar to trend higher as the
interest rate gap between the United States and Europe narrows, brought
about through both interest rate cuts by the Europeans and rate rises by
the U.S. Federal Reserve. The progress made in the U.S. towards recovery
at a time when Europe and Japan are sliding into recession has already
been reflected to some extent in the rise of the U.S. dollar. However, the
trends in place are likely to persist and the portfolio is positioned for
further dollar strength. Turning to the Yen, we feel that the recent
breakdown in the trade negotiations between the U.S. and Japan are signif-
icant for the path of the Yen, and unless sufficient progress is made by
the Japanese Administration to open their markets to U.S. and foreign com-
petition, we believe the Yen will strengthen into the March year-end as
the U.S. Government makes a stronger Yen a policy objective in order to
reduce the Japanese trade surplus.
Economic growth prospects amongst the major economies for 1993 remain on a
divergent path. In the United States, the strong growth witnessed in the
last half of 1993 will be sustained and the Federal Reserve will embark on
a slow and cautious policy of raising interest rates to maintain faith in
the current low inflation environment. In Europe, most economies will
emerge from recession only slowly, continuing to require the boost from
lower interest rates. The benign inflationary environment will, however,
provide scope for long term yields to continue to fall, although in most
cases they will be constrained by large budget deficits, thus leading to
steeper yield curves. Most European bond markets should outperform German
bonds, benefiting from a faster pace of monetary easing, with Denmark,
Sweden, United Kingdom, Spain and Italy providing attractive returns from
longer dated bonds.
Japanese bonds will fare reasonably well as inflation falls further en-
hancing real yield levels, but performance will be tempered by relentless
government supply and continued political risk. Furthermore, Australian,
Canadian and New Zealand bond yields look set to converge around 6.5% at
the longer end given the combination of stable inflation and a pick-up of
economic activity.
In conclusion, our overweight exposure to European bonds, a feature of our
investment stance throughout 1993, will be maintained through at least the
first half of 1994 on expectations of further easing of interest rates by
European central banks to re-ignite or sustain economic recovery.
We very much appreciate your interest in Smith Barney Shearson Global Bond
Fund.
Sincerely,
Heath B. McLendon
Pauline A. M. Barrett
Heath B. McLendon
Chairman of the Board Pauline A. M. Barrett
Vice President
and Investment Officer
March 10, 1994
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31, 1994
COUNTRY BREAKDOWN
DESCRIPTION OF PIE CHART IN SHAREHOLDER REPORT
Pie chart depicting the allocation of the Income Funds -- Global Bond
Fund's investment securities held at January 31, 1994 by country
classification. The pie is broken in pieces representing countries in
the following percentages:
<TABLE>
<CAPTION>
COUNTRY PERCENTAGE
<S> <C>
OTHER BONDS 22.9%
FRENCH FRANC BONDS 18.3%
UNITED STATES DOLLAR BONDS 9.8%
JAPANESE YEN BONDS 8.8%
COMMERCIAL PAPER, CALL OPTIONS PURCHASED, CALL OPTIONS
WRITTEN AND NET OTHER ASSETS AND LIABILITIES 8.3%
SPANISH PESETA BONDS 8.0%
GREAT BRITAIN POUND STERLING BONDS 6.6%
IRISH PUNT BOND 5.5%
FINNISH MARRKA BONDS 5.0%
ITALIAN LIRA BONDS 6.8%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
PERCENTAGE OF
BOND NET ASSETS
<S> <C>
GOVERNMENT OF IRELAND 5.4%
REPUBLIC OF FINLAND 5.0
GOVERNMENT OF SWEDEN 4.7
CAISSE NATIONAL DE AUTOROUTE 4.6
KINGDOM OF DENMARK 4.5
ELECTRIC DE FRANCE 4.5
WESTERN AUSTRALIA TREASURY 4.4
DUTCH GOVERNMENT 4.4
INTELSAT 4.1
CREDIT LOCAL DE FRANCE 3.8
</TABLE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) JANUARY 31, 1994
KEY TO CURRENCY ABBREVIATIONS
AUD -- Australian Dollar
CAD -- Canadian Dollar
DKK -- Danish Kroner
ECU -- European Currency Unit
ESP -- Spanish Peseta
FIM -- Finnish Marrka
FRF -- French Franc
GBP -- Great Britain Pound Sterling
IEP -- Irish Punt
ITL -- Italian Lira
JPY -- Japanese Yen
NLG -- Netherland Guilder
SEK -- Swedish Krona
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE
(NOTE 1)
<S> <C>
<C>
FRENCH FRANC BONDS -- 18.3%
FRF 18,000,000 Caisse National de Autoroute,
9.000% due 7/9/01
$ 3,638,087
15,000,000 Credit Local de France,
8.875% due 6/10/02
3,027,930
10,000,000 Deutsche Bank Finance N.V.,
9.250% due 5/9/01
2,046,707
17,500,000 Electric de France,
8.600% due 4/9/04
3,559,247
Government of France:
3,000,000 6.750% due 10/25/03
546,932
11,000,000 6.000% due 10/25/25
1,797,241
TOTAL FRENCH FRANC BONDS
(Cost $14,239,818)
14,616,144
UNITED STATES DOLLAR BONDS -- 9.8%
$ 3,000,000 Intelsat,
7.375% due 8/6/02
3,253,800
2,000,000 Republic of Portugal,
5.750% due 10/8/03
1,945,600
2,600,000 United States Treasury Notes,
5.750% due 8/15/03
2,619,094
TOTAL UNITED STATES DOLLAR BONDS
(Cost $7,809,000)
7,818,494
JAPANESE YEN BONDS -- 8.8%
JPY 200,000,000 Asian Development Bank,
5.000% due 2/5/03
1,970,588
125,000,000 International Bank for Reconstruction & Development,
5.250% due 3/20/02
1,250,575
175,000,000 Japan Development Bank,
6.500% due 9/20/01
1,865,809
200,000,000 World Bank,
4.500% due 3/20/03
1,917,279
TOTAL JAPANESE YEN BONDS
(Cost $6,871,288)
7,004,251
SPANISH PESETA BONDS -- 8.0%
ESP 200,000,000 Eurofima,
11.350% due 7/22/97
1,564,134
270,000,000 European Investment Bank,
11.700% due 2/10/03
2,336,766
292,000,000 Kingdom of Spain,
10.900% due 8/30/03
2,498,078
TOTAL SPANISH PESETA BONDS
(Cost $6,254,934)
6,398,978
ITALIAN LIRA BONDS -- 6.8%
ITL 1,400,000,000 European Investment Bank,
12.200% due 2/18/03
1,022,648
2,500,000,000 LKB Baden Wurtenburg,
10.750% due 4/14/03
1,693,453
1,000,000,000 Nordiska Investerin,
10.800% due 5/24/03
679,151
3,300,000,000 Republic of Italy,
9.000% due 10/1/98
2,011,531
TOTAL ITALIAN LIRA BONDS
(Cost $5,361,711)
5,406,783
GREAT BRITAIN POUND STERLING BONDS -- 6.6%
GBP 1,500,000 Abbey National,
8.000% due 4/2/03
2,432,609
1,700,000 United Kingdom Treasury,
8.000% due 6/10/03
2,871,298
TOTAL GREAT BRITAIN POUND STERLING BONDS
(Cost $5,253,676)
5,303,907
IRISH PUNT BOND -- 5.5% (Cost $4,293,092)
IEP 2,500,000 Government of Ireland,
9.250% due 7/11/03
4,350,726
FINNISH MARRKA BONDS -- 5.0%
Republic of Finland:
FIM 9,000,000 11.000% due 1/15/99
1,990,114
9,000,000 9.500% due 3/15/04
1,995,807
TOTAL FINNISH MARRKA BONDS (Cost $3,394,535)
3,985,921
SWEDISH KRONA BONDS -- 4.7%
Government of Sweden:
SEK 12,000,000 11.000% due 1/21/99
1,819,313
12,500,000 10.250% due 5/5/03
1,961,519
TOTAL SWEDISH KRONA BONDS (Cost $3,539,212)
3,780,832
DANISH KRONER BONDS -- 4.5%
Kingdom of Denmark:
DKK 4,200,000 9.000% due 11/15/00
733,110
17,000,000 8.000% due 5/15/03
2,863,847
TOTAL DANISH KRONER BONDS (Cost $3,394,441)
3,596,957
AUSTRALIAN DOLLAR BOND -- 4.4% (Cost $3,480,660)
AUD 4,500,000 Western Australia Treasury,
8.000% due 7/15/03
3,495,778
NETHERLAND GUILDER BONDS -- 4.4%
Dutch Government:
NLG 850,000 7.000% due 3/15/99
471,650
5,000,000 7.500% due 1/15/23
3,005,745
TOTAL NETHERLAND GUILDER BONDS
(Cost $3,395,939)
3,477,395
CANADIAN DOLLAR BOND -- 3.1% (Cost $2,453,924)
CAD 3,000,000 Eurobank Reconstruction and Development,
8.375% due 2/25/03
2,512,337
EUROPEAN CURRENCY UNIT BOND -- 1.8% (Cost $1,500,888)
ECU 1,150,000 Credit Foncier,
8.375% due 3/17/94
1,470,810
COMMERCIAL PAPER -- 3.9% (Cost $3,125,000)
$ 3,125,000 Ford Motor Credit Corporation,
3.100% due 2/1/94
3,125,000
<CAPTION>
EXPIRATION STRIKE
DATE PRICE
<S> <C> <C> <C>
<C>
CALL OPTIONS PURCHASED -- 0.2%
FRF 3,000,000 French Treasury Bond,
8.500% due 2023 3/15/94 $129.20
6,602
JPY 400,000,000 Japan Government Bond,
4.700% due 3/2017 2/16/94 105.00
74
JPY 400,000,000 Japan Government Bond,
5.500% due 3/2002 3/9/94 116.20
404
ESP 150,000,000 Spanish Government Bond,
8.000% due 2004 3/15/94 98.85
22,523
GBP 1,500,000 United Kingdom Treasury
Bond,
8.750% due 2017 2/17/94 126.00
40,694
$ 7,600,000 United States Dollar 2/10/94 112.00
4,560
7,000 United States Treasury,
6.250% due 2023 2/17/94 105.03
280
4,000,000 United States Treasury,
6.250% due 2023 4/13/94 100.69
58,280
TOTAL CALL OPTIONS PURCHASED
(Cost $463,083)
133,417
TOTAL INVESTMENTS (Cost $74,831,201*)
95.8% 76,477,730
CALL OPTIONS WRITTEN -- 0.0%
(Premiums received $12,614)
GBP 1,500,000 United Kingdom Treasury
Bond,
8.750% due 2017 2/17/94 129.00
(8,058)
OTHER ASSETS AND LIABILITIES (NET)
4.2 3,395,358
NET ASSETS
100.0% $79,865,030
<FN>
* Aggregate cost for Federal tax purposes.
</TABLE>
SCHEDULE OF FORWARD FOREIGN EXCHANGE CONTRACTS (UNAUDITED)
JANUARY 31, 1994
<TABLE>
<CAPTION>
CONTRACT VALUE MARKET
VALUE
DATE (NOTE 1)
<S> <C> <C>
FORWARD FOREIGN EXCHANGE CONTRACTS TO BUY
4,765,111 European Currency Units 3/23/94 $
5,297,699
27,204,746 German Deutschemarks 3/23/94
15,562,742
34,443,952 Japanese Yen 4/20/94
317,243
506,831,802 Japanese Yen 4/27/94
4,669,179
TOTAL FORWARD FOREIGN EXCHANGE CONTRACTS TO BUY
(Contract Amount $25,649,631) $
25,846,863
FORWARD FOREIGN EXCHANGE CONTRACTS TO SELL
569,055,809 Spanish Pesetas 2/24/94 $
(4,034,494)
825,488 European Currency Units 3/16/94
(918,365)
76,693,140 French Francs 3/16/94
(12,931,667)
27,135,414 Swedish Krona 3/16/94
(3,414,047)
4,776,135 Australian Dollars 3/23/94
(3,377,721)
9,837,465 Danish Kroners 3/23/94
(1,450,387)
20,438,800 Finnish Marrka 3/23/94
(3,684,641)
23,507,843 German Deutschemarks 3/23/94
(13,447,892)
3,968,466,318 Italian Lire 3/23/94
(2,323,043)
4,178,829 Netherland Guilders 3/23/94
(2,136,587)
3,368,565 Great Britain Pounds Sterling 4/27/94
(5,028,805)
1,198,459 Irish Punts 4/27/94
(1,712,914)
TOTAL FORWARD FOREIGN EXCHANGE CONTRACTS TO SELL
(Contract Amount $53,968,714)
$(54,460,563)
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 1994
<TABLE>
<CAPTION>
<S>
<C> <C>
ASSETS:
Investments, at value (Cost $74,831,201) (Note 1)
See accompanying schedule
$ 76,477,730
Cash and foreign currency (Cost $2,568,098)
2,576,907
Receivable for forward foreign exchange contracts to sell
53,968,714
Forward foreign exchange contracts to buy, at value
(Contract cost $25,649,631) (Note 1)
See accompanying schedule
25,846,863
Receivable for investment securities sold
3,482,355
Dividends and interest receivable
3,053,790
Receivable for Fund shares sold
126,996
TOTAL ASSETS
165,533,355
LIABILITIES:
Forward foreign exchange contracts to sell, at value
(Contract cost $53,968,714) (Note 1)
See accompanying schedule $
54,460,563
Payable for forward foreign exchange contracts to buy
25,649,631
Payable for investment securities purchased
5,343,471
Investment advisory fee payable (Note 2)
40,196
Distribution fee payable (Note 3)
32,461
Custodian fees payable (Note 2)
28,500
Service fee payable (Note 3)
17,410
Administration fee payable (Note 2)
13,399
Options written, at value (premiums received $12,614) (Note 1)
See accompanying schedule
8,058
Transfer agent fees payable (Note 2)
7,867
Accrued Trustees' fees and expenses (Note 2)
2,833
Accrued expenses and other payables
63,936
TOTAL LIABILITIES
85,668,325
NET ASSETS
$ 79,865,030
NET ASSETS CONSIST OF:
Undistributed net investment income
$ 61,659
Accumulated net realized gain on securities, written options,
forward foreign exchange contracts and foreign currency
transactions
520,683
Net unrealized appreciation of securities, written options, forward
foreign exchange contracts, foreign currencies and net other
assets
1,309,400
Par value
4,818
Paid-in capital in excess of par value
77,968,470
TOTAL NET ASSETS
$ 79,865,030
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (continued)
JANUARY 31, 1994
<TABLE>
<CAPTION>
<S> <C>
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($2,731,798 / 164,799 shares of beneficial interest
outstanding)
$16.58
Maximum offering price per share ($16.58 / 0.955)
(based on sales charge of 4.5% of the offering
price on January 31, 1994)
$17.36
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($77,108,283 / 4,651,492 shares of beneficial in-
terest outstanding)
$16.58
CLASS D SHARES:
NET ASSET VALUE, offering and redemption price per
share ($24,949 / 1,505 shares of beneficial inter-
est outstanding)
$16.58
<FN>
+ Redemption price per share for Class B shares is equal to net asset
value less any applicable contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, 1994
<TABLE>
<CAPTION>
<S> <C>
<C>
INVESTMENT INCOME:
Interest (net of foreign withholding taxes of $12,333)
$ 2,793,512
EXPENSES:
Investment advisory fee (Note 2) $ 234,293
Distribution fee (Note 3) 186,862
Service fee (Note 3) 97,622
Administration fee (Note 2) 77,678
Custodian fees (Note 2) 58,837
Transfer agent fees (Notes 2 and 4) 47,263
Legal and audit fees 29,784
Trustees' fees and expenses (Note 2) 7,843
Other 69,396
TOTAL EXPENSES
809,578
NET INVESTMENT INCOME
1,983,934
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(NOTES 1 AND 5):
Net realized gain/(loss) on:
Securities
1,514,106
Forward foreign exchange contracts
(743,345)
Foreign currency transactions
269,176
Net realized gain on investments during the period
1,039,937
Net change in unrealized appreciation/(depreciation) of:
Securities
1,790,748
Written options
4,556
Forward foreign exchange contracts
(1,196,696)
Foreign currencies and net other assets
4,248
Net unrealized appreciation of investments during the period
602,856
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
1,642,793
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$ 3,626,727
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
1/31/94 7/31/93
(UNAUDITED)
<S>
<C> <C>
Net investment income $
1,983,934 $ 2,884,186
Net realized gain on securities, written options, forward foreign ex-
change contracts and foreign currency transactions during
the period
1,039,937 2,959,075
Net unrealized appreciation/(depreciation) of securities, written
options, foward foreign exchange contracts, foreign currencies
and net other assets during the period
602,856 (895,869)
Net increase in net assets resulting from operations
3,626,727 4,947,392
Distributions to shareholders from net investment income:
Class A
(102,505) (55,127)
Class B
(2,132,827) (3,602,906)
Class D
(666) (438)
Distributions in excess of net investment income:
Class A
- -- (7,615)
Class B
- -- (497,707)
Class D
- -- (61)
Distribution to shareholders from net realized gain on investments:
Class A
(45,205) --
Class B
(1,363,525) --
Class D
(431) --
Net increase in net assets from share transactions (Note 6):
Class A
316,481 2,341,075
Class B
10,735,373 14,054,689
Class D
2,062 22,824
Net increase in net assets
11,035,484 17,202,126
NET ASSETS:
Beginning of period
68,829,546 51,627,420
End of period (including undistributed net investment income of $61,659
and $313,723, respectively) $
79,865,030 $ 68,829,546
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD
ENDED
ENDED
1/31/94++
7/31/93*++
(UNAUDITED)
<S> <C>
<C>
Net Asset Value, beginning of period $16.53
$16.32
Income from investment operations:
Net investment income 0.50
0.61
Net realized and unrealized gain on investments 0.37
0.60
Total from investment operations 0.87
1.21
Distributions to shareholders:
Distributions from net investment income (0.52)
(0.88)
Distributions in excess of net investment income --
(0.12)
Distributions from net realized gains (0.30)
- --
Total distributions (0.82)
(1.00)
Net Asset Value, end of period $16.58
$16.53
Total return+ 5.34%
7.70%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,732
$2,389
Ratio of operating expenses to average net assets 1.60%**
1.71%**
Ratio of net investment income to average net assets 5.60%**
5.37%**
Portfolio turnover rate 124%
216%
<FN>
* The Fund commenced selling Class A shares on November 6, 1992.
** Annualized.
+ Total return represents aggregate total return for the period indicated
and does not reflect any applicable sales charges.
++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the
period since the use of the undistributed method does not accord with
results of operations.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR
ENDED
ENDED
1/31/94+++
7/31/93+++
(UNAUDITED)
<S> <C>
<C>
Net Asset Value, beginning of period $ 16.53
$ 16.32
Income from investment operations:
Net investment income# 0.43
0.79
Net realized and unrealized gain/(loss) on investments 0.40
0.57
Total from investment operations 0.83
1.36
Distributions to shareholders:
Distributions from net investment income (0.48)
(1.01)
Distributions in excess of net investment income --
(0.14)
Distributions from net realized gains (0.30)
- --
Distributions from capital --
- --
Total distributions (0.78)
(1.15)
Net Asset Value, end of period $ 16.58
$ 16.53
Total return+ 5.07%
8.67%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $77,108
$66,418
Ratio of operating expenses to average net assets++
2.11%** 2.22%
Ratio of net investment income to average net assets
5.09%** 4.85%
Portfolio turnover rate 124%
216%
<FN>
* The Fund commenced operations on October 27, 1986. The Fund commenced
selling Class A shares on November 6, 1992. Those shares in existence
prior to November 6, 1992 were designated Class
B shares.
** Annualized.
+ Total return represents aggregate total return for the period indi-
cated and does not reflect any applicable sales charges.
++ Annualized expense ratio before waiver of fees by investment adviser,
sub-investment adviser and administrator and distributor for the pe-
riod ended July 31, 1987 was 2.00%.
+++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the
period since the use of the undistributed method does not accord with
results of operations.
# Net investment income per share before waiver of fees by investment
adviser, sub-investment adviser and administrator and distributor for
the period ended July 31, 1987 was $0.23.
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
7/31/92 7/31/91 7/31/90 7/31/89 7/31/88
7/31/87*
<S> <C> <C> <C> <C> <C>
$ 15.24 $ 16.79 $ 16.60 $ 16.70 $ 16.35 $
15.00
0.94 1.12 1.04 1.05 0.94
0.24
1.43 (0.17) 0.29 0.02 0.73
1.35
2.37 0.95 1.33 1.07 1.67
1.59
(0.94) (1.39) (1.14) (0.94) (0.85)
(0.24)
-- -- -- -- -- --
(0.26) -- -- (0.23) (0.47) --
(0.09) (1.11) -- -- -- --
(1.29) (2.50) (1.14) (1.17) (1.32)
(0.24)
$ 16.32 $ 15.24 $ 16.79 $ 16.60 $ 16.70 $
16.35
16.11% 6.02% 8.43% 6.66% 10.53%
10.57%
$51,627 $48,951 $61,732 $101,273 $154,362
$162,757
2.02% 1.99% 2.04% 1.96% 2.00%
1.84%**
5.87% 6.65% 5.95% 5.82% 5.55%
4.61%**
230% 397% 309% 374% 241%
112%
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD
ENDED
ENDED
1/31/94++
7/31/93*++
(UNAUDITED)
<S> <C>
<C>
Net Asset Value, beginning of period $16.53
$15.98
Income from investment operations:
Net investment income 0.40
0.38
Net realized and unrealized gain on investments 0.43
0.61
Total from investment operations 0.83
0.99
Distributions to shareholders:
Distributions from net investment income (0.48)
(0.39)
Distributions in excess of net investment income --
(0.05)
Distributions from net realized gains (0.30)
- --
Total distributions (0.78)
(0.44)
Net Asset Value, end of period $16.58
$16.53
Total return+ 5.08%
6.19%
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 25
$ 23
Ratio of operating expenses to average net assets 2.41%**
2.18%**
Ratio of net investment income to average net assets 4.79%**
4.89%**
Portfolio turnover rate 124%
216%
<FN>
* The Fund commenced selling Class D shares on February 4, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indi-
cated.
++ Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the
period since the use of the undistributed method does not accord with
results of operations.
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Income Funds (the "Trust") was organized as a "Mas-
sachusetts business trust" under the laws of the Commonwealth of Massachu-
setts on March 12, 1985. The Trust is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. As of the
date of this report, the Trust offered eight managed investment funds:
Smith Barney Shearson Premium Total Return Fund, Smith Barney Shearson
Convertible Fund, Smith Barney Shearson Global Bond Fund (the "Fund"),
Smith Barney Shearson High Income Fund, Smith Barney Shearson Tax-Exempt
Income Fund, Smith Barney Shearson Money Market Fund, Smith Barney Shear-
son Diversified Strategic Income Fund and Smith Barney Shearson Utilities
Fund. As of November 6, 1992, the Fund offered two classes of shares:
Class A shares and Class B shares. As of January 29, 1993, the Fund of-
fered a third class of shares, Class D shares, to investors eligible to
participate in the Smith Barney Shearson 401(k) Program. Class A shares
are sold with a front-end sales charge. Class B shares may be subject to a
contingent deferred sales charge ("CDSC"). Class B shares will convert au-
tomatically to Class A shares eight years after the date of original pur-
chase. Class D shares are offered without a front-end sales charge or
CDSC. Each class of shares has identical rights and privileges except with
respect to the effect of the respective sales charges, the distribution
and/or service fees borne by each class, expenses allocable exclusively to
each class, voting rights on matters affecting a single class, the ex-
change privilege of each class and the conversion feature of Class B
shares. The following is a summary of significant accounting policies con-
sistently followed by the Fund in the preparation of its financial state-
ments.
Portfolio valuation: Generally, the Fund's investments are valued at
market value or, in the absence of market value with respect to any port-
folio securities, at fair value as determined by or under the direction of
the Trust's Board of Trustees. Portfolio securities that are traded
primarily on a domestic or foreign exchange are valued at the last sale
price on that exchange or, if there were no sales during the day, at the
current quoted bid price. Over-the-counter securities and securities
listed or traded on certain foreign exchanges whose operations are similar
to the United States over-the-counter market are valued on the basis of
the bid price at the close of business each day. Portfolio securities that
are traded primarily on foreign exchanges generally are valued at the
preceding closing values of such securities on their respective exchanges,
except that when an occurrence subsequent to the time that a value was so
established is likely to have changed such value, then the fair value of
those securities will be determined by consideration of other factors by
or under the direction of the Trust's Board of Trustees or its delegates.
Debt securities are valued by The Boston Company Advisors, Inc. ("Boston
Advisors"), after consultation with an independent pricing service (the
"Pricing Service") approved by the Trust's Board of Trustees. When, in the
judgment of the Pricing Service, quoted bid prices for investments are
readily available and are representative of the bid side of the market,
these investments are valued at the mean between the quoted bid prices and
asked prices. Investments for which, in the judgment of the Pricing
Service, there are no readily obtainable market quotations are carried at
fair value as determined by the Pricing Service. The procedures of the
Pricing Service are reviewed periodically by the officers of the Trust
under the general supervision and responsibility of the Trust's Board of
Trustees. Investments in U.S. government securities (other than short-term
securities) are valued at the average of the quoted bid and asked prices
in the over-the- counter market. Short-term investments that mature in 60
days or less are valued at amortized cost.
Option accounting principles: Upon the purchase of a put option or a call
option by the Fund, the premium paid is recorded as an investment, the
value of which is marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the cost of the option. When
the Fund enters into a closing sale transaction, the Fund will realize a
gain or loss depending on whether the sales proceeds from the closing sale
transaction are greater or less than the cost of the option. When the Fund
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 Fund exercises a call option, the
cost of the security which the Fund purchases upon exercise will be in-
creased by the premium originally paid.
When the Fund writes a call option or a put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of
which is marked-to-market daily. When a written option expires, the Fund
realizes a gain equal to the amount of the premium received. When the Fund
enters into a closing purchase transaction, the Fund realizes a gain (or
loss if the cost of the closing purchase transaction exceeds the premium
received when the option was sold) without regard to any unrealized gain
or loss on the underlying security, and the liability related to such op-
tion is eliminated. When a call option is exercised, the Fund realizes a
gain or loss from the sale of the underlying security and the proceeds
from such sale are increased 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 that the Fund purchased upon exer-
cise.
The risk associated with purchasing options is limited to the premium
originally paid. The risk in writing a call option is that the Fund may
forego the opportunity of profit if the market price of the underlying se-
curity or index increases and the option is exercised. The risk in writing
a put option is that the Fund may incur a loss if the market price of the
underlying security or index decreases and the option is exercised. In ad-
dition, there is the risk that the Fund may not be able to enter into a
closing transaction because of an illiquid secondary market.
Repurchase Agreements: The Fund engages in repurchase agreement transac-
tions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of
the seller to repurchase, and the Fund to resell, the obligation at an
agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return
that is not subject to market fluctuations during the Fund's holding
period. The value of the collateral is at least equal at all times to the
total amount of the repurchase obligations, including interest. In the event
of counterparty default, the Fund has the right to use the collateral to
offset losses incurred. There is potential loss to the Fund in the event
the Fund is delayed or prevented from exercising its rights to dispose of
the collateral securities, including the risk of a possible decline in the
value of the underlying securities during the period while the Fund seeks
to assert its rights. The Fund's investment adviser or administrator,
acting under the supervision of the Trust's Board of Trustees, reviews the
value of the collateral and the creditworthiness of those banks and dealers
with which the Fund enters into repurchase agreements to evaluate potential
risks.
Foreign Currency: The books and records of the Fund are maintained in
U.S. dollars. Foreign currencies, investments and other assets and
liabilities are translated into U.S. dollars at the exchange rates pre-
vailing at the end of the period, and purchases and sales of investment
securities, income and expenses are translated on the respective dates of
such transactions. Unrealized gains and losses which result from changes
in foreign currency exchange rates have been included in the unrealized
appreciation/ (depreciation) of currencies and net other assets. Net real-
ized foreign currency gains and losses resulting from changes in exchange
rates include foreign currency gains and losses between trade date and
settlement date on investment securities transactions, foreign currency
transactions and the difference between the amounts of interest and divi-
dends recorded on the books of the Fund and the amount actually received.
The portion of foreign currency gains and losses related to fluctuation in
the exchange rates between the initial purchase trade date and subsequent
sale trade date is included in realized gains and losses on investment se-
curities sold.
Forward Foreign Exchange Contracts: Forward foreign exchange contracts
are valued at the forward rate and are marked-to-market daily. The change
in market value is recorded by the Fund as an unrealized gain or loss.
When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the value of the contract at the time that
it was opened and the value at the time that it was closed.
The use of forward foreign exchange contracts does not eliminate fluctua-
tions in the underlying prices of the Fund's investment securities, but it
does establish a rate of exchange that can be achieved in the future. Al-
though forward foreign exchange contracts limit the risk of loss due to a
decline in the value of the hedged currency, they also limit any potential
gain that might result should the value of the currency increase. In addi-
tion, the Fund could be exposed to risks if the counterparties to the con-
tracts are unable to meet the terms of their contracts.
Securities transactions and investment income: Securities transactions
are recorded as of the trade date. Realized gains and losses from securi-
ties sold are recorded on the identified cost basis. Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Inter-
est income is recorded on the accrual basis. Investment income and real-
ized and unrealized gains and losses are allocated based upon the relative
net assets of each class of shares.
Dividends and distributions to shareholders: Dividends from net invest-
ment income, if any, are determined on a class level, are declared monthly
and are paid on the last day of the Smith Barney Shearson Inc. ("Smith
Barney Shearson") statement month. Distributions, if any, of net short-
and long-term capital gains earned by the Fund will be made annually after
the close of the fiscal year in which they are earned. Additional distri-
butions of net investment income and capital gains from the Fund may be
made at the discretion of the Trust's Board of Trustees in order to avoid
the application of a 4% nondeductible excise tax on certain undistributed
amounts of ordinary income and capital gains. Income distributions and
capital gain distributions on a Fund level are determined in accordance
with income tax regulations which may differ from generally accepted ac-
counting principles. These differences are primarily due to differing
treatments of income and gains on various investment securities held by
the Fund and timing differences.
Federal income taxes: The Trust intends that the Fund qualify as a
regulated investment company, if such qualification is in the best inter-
est of its shareholders, by complying with the requirements of the
Internal Revenue Code of 1986, as amended, applicable to regulated invest-
ment companies and by distributing substantially all of its taxable income
to its shareholders. Therefore, no Federal income tax provision is re-
quired.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION
FEE AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Lehman Brothers Global Asset Management Limited ("Global
Asset Management"), a wholly owned subsidiary of Lehman Brothers Holdings
Inc. ("Lehman Holdings"), which is in turn a wholly owned subsidiary of
American Express Company ("American Express"). American Express owns 100%
of Lehman Holdings' issued and outstanding common stock, which represents
approximately 92% of the issued and outstanding voting stock. The remain-
der of Holdings' voting stock is owned by Nippon Life Insurance Company.
Under the Advisory Agreement, the Fund pays a monthly fee at the annual
rate of 0.60% of the value of its average daily net assets.
Boston Advisors, an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"), serves as the Fund's administrator pursuant to an
administration agreement (the "Administration Agreement"). Under the Ad-
ministration Agreement, the Fund pays Boston Advisors a monthly fee at the
annual rate of 0.20% of the value of the Fund's average daily net assets.
For the six months ended January 31, 1994, Smith Barney Shearson received
$9,338 from investors representing commissions (sales charges) on sales of
Class A shares.
A CDSC is generally payable by a shareholder in connection with the
redemption of Class B shares within five years (eight years in the case of
certain 401(k) plans) after the date of purchase. In circumstances in
which the CDSC is imposed, the amount of the charge ranges between 4.5%
and 1% of net asset value depending on the number of years since the date
of purchase (except in the case of purchases by certain 401(k) plans in
which case a 3% CDSC is imposed for the eight year period after the date
of purchase). For the six months ended January 31, 1994, Smith Barney
Shearson received from shareholders $47,684 in CDSCs on the redemption of
Class B shares.
No officer, director or employee of Smith Barney Shearson, Global Asset
Management, Boston Advisors or of any parent or subsidiary of those
corporations receives any compensation from the Trust for serving as
Trustee or officer of the Trust. The Trust pays each Trustee who is not an
officer, director or employee of Smith Barney Shearson, Global Asset
Management, Boston Advisors or any of their affiliates $6,000 per annum
plus $1,500 per meeting attended and reimburses each such Trustee for
travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Trust's custodian. The Shareholder Services
Group, Inc., a subsidiary of First Data Corporation, serves as the Trust's
transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Fund's shares pursuant to
a distribution agreement with the Trust and sells shares of the Fund
through Smith Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a Services
and Distribution Plan (the "Plan"). Under this Plan, the Fund compensates
Smith Barney Shearson for servicing shareholder accounts for Class A,
Class B and Class D shareholders and covers expenses incurred in distrib-
uting Class B and Class D shares. Smith Barney Shearson is paid an annual
service fee with respect to Class A, Class B and Class D shares of the
Fund at the annual rate of 0.25% of the value of the average daily net as-
sets of each respective class of shares. Smith Barney Shearson is also
paid an annual distribution fee with respect to Class B and Class D shares
at the annual rate of 0.50% of the value of the average daily net assets
of each respective class of shares. For the six months ended January 31,
1994, the service fee for Class A, Class B and Class D shares was $3,741,
$93,851 and $30, respectively. For the six months ended January 31, 1994,
the distribution fee for Class B and Class D shares was $186,802 and $60,
respectively.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any
class of shares are prorated among the classes based upon the relative net
assets of each class. Operating expenses directly attributable to a class
of shares are charged to that class' operations. In addition to the above
service and distribution fees, class specific operating expenses include
transfer agent fees. For the six months ended January 31, 1994, transfer
agent fees for Class A, Class B and Class D shares were $1,658, $45,556
and $49, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-
term investments and U.S. government securities, aggregated $63,204,210
and $77,456,462, respectively, for the six months ended January 31, 1994.
Costs of purchases and proceeds from sales of long-term U.S. government
securities aggregated $33,739,500 and $9,432,828, respectively, for the
six months ended January 31, 1994.
At January 31, 1994, the aggregate gross unrealized appreciation for all
securities in which there was an excess of value over tax cost was
$2,604,647, and the aggregate gross unrealized depreciation for all secu-
rities in which there was an excess of tax cost over value was $958,118.
Option activity for the six months ended January 31, 1994 was as follows:
<TABLE>
<CAPTION>
FACE
PREMIUMS VALUE
<S> <C> <C>
Options outstanding at July 31, 1993 0
0
Options written $ 96,602 GBP
7,500,000
Options exercised (83,988)
(6,000,000)
Options outstanding at January 31, 1994 $ 12,614 GBP
1,500,000
</TABLE>
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest
of each class in each separate series with a $.001 par value. Changes in
shares of beneficial interest of the Fund which are divided into three
classes (Class A, Class B and Class D) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93*
CLASS A SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
Sold 655,718 $ 11,049,713 1,182,632
$ 19,303,134
Issued as reinvestment of dividends 8,645 144,140 3,797
61,933
Redeemed (644,116) (10,877,372) (1,041,877)
(17,023,992)
Net increase 20,247 $ 316,481 144,552
$ 2,341,075
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
1/31/94
7/31/93*
CLASS B SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
Sold 1,421,248 $ 24,151,107 2,174,986
$ 35,662,222
Issued as reinvestment of dividends 177,621 2,952,578 214,872
3,486,967
Redeemed (966,479) (16,368,312) (1,534,376)
(25,094,500)
Net increase 632,390 $ 10,735,373 855,482
$ 14,054,689
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93**
CLASS D SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
Sold 130 $ 2,183 1,422
$ 23,492
Issued as reinvestment of dividends 66 1,098 30
498
Redeemed (72) (1,219) (71)
(1,166)
Net increase 124 $ 2,062 1,381
$ 22,824
<FN>
* The Fund commenced selling Class A shares on November 6, 1992. Any
shares outstanding prior to November 6, 1992 were designated Class B
shares.
** The Fund commenced selling Class D shares to the public on February 4,
1993.
</TABLE>
7. LENDING OF PORTFOLIO SECURITIES
The Fund has the ability to lend its securities to brokers, dealers and
other financial organizations. Loans of securities by the Fund are collat-
eralized by cash, letters of credit or U.S. government securities that are
maintained at all times in an amount at least equal to the current market
value of the loaned securities. At January 31, 1994, the Fund had no secu-
rities on loan.
8. FOREIGN SECURITIES
Investing in securities of foreign companies and foreign governments in-
volves special risks and considerations not typically associated with in-
vesting in securities of U.S. companies and the United States government.
These risks include revaluation of currencies and future adverse political
and economic developments. Moreover, securities of many foreign companies
and foreign governments and their markets may be less liquid and their
prices more volatile than securities of comparable U.S. companies and the
United States government.
9. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Continental Bank N.A. under an Amended and Restated
Line of Credit Agreement (the "Agreement") dated April 30, 1992, primarily
for temporary or emergency purposes, including the meeting of redemption
requests that otherwise might require the untimely disposition of securi-
ties. Under this Agreement, the Fund may borrow up to the lesser of $25
million or 10% of its net assets. Interest is payable either at the bank's
Money Market Rate or the London Interbank Offered Rate (LIBOR) plus 0.375%
on an annualized basis. The Fund and the other affiliated entities are
charged an aggregate commitment fee of $125,000 which is allocated equally
among each of the participants. The Agreement requires, among other provi-
sions, each participating fund to maintain a ratio of net assets (not in-
cluding funds borrowed pursuant to the Agreement) to aggregate amount of
indebtedness pursuant to the Agreement of no less than 5 to 1. During the
six months ended January 31, 1994, the Fund did not borrow under the
Agreement.
10. SUBSEQUENT EVENT
On January 20, 1994, the Board of Trustees of the Fund terminated the
investment advisory agreement with Lehman Brothers Global Asset Management
Limited. In addition, the Board proposed that the Fund enter into a new
investment advisory agreement with Smith Barney Global Capital Management,
Inc. ("SBGCM"). This agreement would contain substantially the same terms,
conditions and fees as the Fund's previous agreement, however, SBGCM has
agreed to waive 50% of its investment advisory fees until such time as the
Fund's Board of Trustees and SBGCM mutually agree otherwise. Pending
shareholder approval, the new advisory agreement would become effective on
March 22, 1994. The Board of Trustees has called a shareholder meeting for
the purpose of considering the new agreement.
SBGCM is located at 10 Piccadilly, London, W1V 9LA England and has been in
the investment counseling business since 1988. SBGCM is a wholly-owned
subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"). Holdings
is a wholly owned subsidiary of The Travelers Inc., a financial services
holding company engaged through its subsidiaries principally in the busi-
nesses of consumer financial services, investment services and insurance
services.
GLOBAL BOND
FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Vincent Nave
Treasurer
Francis J. McNamara, III
Secretary
This report is submitted for
the general information of the
shareholders of Smith Barney
Shearson Global Bond Fund.
It is not authorized for distribution
to prospective investors unless
accompanied or preceded by an
effective Prospectus for the Fund,
which contains information
concerning the Fund's investment
policies, fees and expenses, as well
as other pertinent information.
SMITH BARNEY SHEARSON
SMITH BARNEY SHEARSON
MUTUAL FUNDS
Two World Trade Center
New York, New York 10048
Fund 30, 202, 244
FD2171 C4
SEMI-ANNUAL
REPORT
SMITH BARNEY SHEARSON
MONEY MARKET FUND
JANUARY 31, 1994
DEAR SHAREHOLDER:
We are pleased to provide the Semi-Annual Report for Smith Barney Shearson
Money Market Fund for the six month period ended January 31, 1994. During
the past six months the Fund paid dividend distributions totaling $.009
per share for an effective yield of 1.79%. The Fund's 7-day yield as of
January 31, 1994 was 1.99%.
Economic growth surged at an annual rate of 7.5% in the fourth quarter of
1993. This growth was broad based, with strong gains in capital equipment,
housing, durable goods and car production. In the first quarter of 1994,
gains in these sectors are expected to be more moderate but are not likely
to disappear altogether. Real gross domestic product ("GDP") which is the
broadest available measure of the nation's economic activity is expected
to rise in the range of 3.50%. The effects of poor weather across much of
the country which hindered consumer activity and the California earthquake
which is expected to spur consumer spending as the process of rebuilding
gets under way are expected to largely cancel each other out in the first
quarter but add to growth later in the year. In addition, many of the U.S.
trading partners are still in economic recession and will be unable to
maintain their purchases of American exports. Exports had jumped by $2
billion in December, which accounted for half the increase in GDP.
Consequently, economic growth is expected to continue at a moderate pace
for the remainder of the year, with the worst of the slowdown occurring in
the second quarter, due to a possible slowdown in the auto sector.
Federal Reserve Board Chairman Alan Greenspan has acknowledged concern
over rising inflationary pressures, and has stated that a Fed tightening
is imminent. The Federal Reserve Board is expected to continue raising
short-term rates to 3.50-4.00% by year end. The question is whether or not
the Federal Reserve Board will need to raise rates even more aggressively
to have any impact on economic growth and inflation.
Because of the uncertainty over the degree and timing of a tightening
by the Federal Reserve, we have allowed the weighted average maturity of
the Fund to roll down to the 40-50 day range. We feel that shortening the
average maturity will enable the Fund to take advantage of higher yields
and enhance the Fund's performance. We believe this strategy will best
serve the interest of the shareholders.
We appreciate the opportunity to help you meet your financial goals, and
look forward to reporting to you in the Fund's annual report.
Sincerely,
Heath B. McLendon
Chairman of the Board
and Investment Officer
Phyllis M. Zahorodny
Vice President
and Investment Officer
Evelyn R. Robertson
Investment Officer
March 21, 1994
PORTFOLIO OF INVESTMENTS (UNAUDITED)
JANUARY 31, 1994
<TABLE>
<CAPTION>
ANNUALIZED
YIELD AT
MARKET
DATE OF MATURITY
VALUE
FACE VALUE PURCHASE DATE
(NOTE 1)
<S> <C> <C> <C>
<C>
COMMERCIAL PAPER -- 26.0%
$7,000,000 Compagnie Bancaire U.S.A. Finance
Corporation 3.122 % 4/18/94 $
6,954,189
7,000,000 Compagnie de St. Gobain 3.338 2/9/94
6,994,851
7,000,000 General Electric Capital Corpora-
tion 3.255 5/6/94
6,941,157
7,000,000 Merrill Lynch & Company 3.158 2/3/94
6,998,775
5,000,000 National & Provincial Building
Society 3.232 4/28/94
4,961,778
7,000,000 Receivables Capital Corporation 3.080 3/4/94
6,981,495
4,000,000 Working Capital Management Com-
pany 3.481 2/25/94
3,990,800
TOTAL COMMERCIAL PAPER
(Cost $43,823,045)
43,823,045
EURODOLLAR CERTIFICATES OF DEPOSIT -- 17.2%
5,000,000 Abbey National PLC 3.290 7/13/94
4,999,947
5,000,000 Banque Franc du Commerence Ex-
terieor 3.300 7/14/94
4,999,285
7,000,000 Nationsbank Corporation 3.420 11/3/94
7,000,000
7,000,000 San Paolo Bank 3.420 2/9/94
7,000,031
5,000,000 Sanwa Bank 3.170 4/13/94
5,000,062
TOTAL EURODOLLAR CERTIFICATES OF DEPOSIT
(Cost $28,999,325)
28,999,325
CERTIFICATES OF DEPOSIT -- 15.3%
5,000,000 Bank Nova Scotia 3.220 6/3/94
5,000,000
5,000,000 Banque Paribas 3.700 12/8/94
5,000,000
6,000,000 Credit Agricole 3.330 4/20/94
6,000,101
5,000,000 Dresdner Bank 3.240 2/22/94
5,000,160
5,000,000 Rabo Bank 3.240 2/23/94
5,000,066
TOTAL CERTIFICATES OF DEPOSIT
(Cost $26,000,327)
26,000,327
EURODOLLAR TIME DEPOSITS -- 12.4%
7,000,000 Dai Ichi Kangyo Bank 3.250 2/1/94
7,000,000
7,000,000 Girocredit Bank 3.188 2/1/94
7,000,000
7,000,000 Z-Laenderbank 3.156 2/1/94
7,000,000
TOTAL EURODOLLAR TIME DEPOSITS
(Cost $21,000,000)
21,000,000
BANK NOTE -- 3.0% (COST $4,998,819)
$5,000,000 FCC National Bank, Wilmington 3.400% 9/29/94
$4,998,819
DISCOUNT NOTE -- 2.3% (COST $3,934,577)
4,000,000 Federal Farm Credit Bank 3.285 8/4/94
3,934,577
REPURCHASE AGREEMENTS -- 25.5%
7,539,000 Agreement with Citibank, N.A., 3.180% dated 1/31/94, to be
repurchased at $7,539,666 on 2/1/94, collateralized by
$15,969,000 FNMA, 5.700% due 12/25/22
7,539,000
7,000,000 Agreement with First Boston Corporation, 3.100% dated
1/20/94, to be repurchased at $7,017,481 on 2/18/94, col-
lateralized by $11,255,000 FHLMC ARM, 7.050% due 8/1/20
7,000,000
7,000,000 Agreement with Goldman Sachs and Company, 3.070% dated
1/28/94, to be repurchased at $7,004,179 on 2/4/94, col-
lateralized by $23,488,000 FNMA, 3.838% due 2/25/23
7,000,000
7,500,000 Agreement with Kidder Peabody Inc., 3.180% dated 1/31/94,
to be repurchased at $7,500,663 on 2/1/94, collateralized
by $7,630,000 FNMA, 6.500% due 2/25/23
7,500,000
7,000,000 Agreement with Prudential Securities Inc., 3.080% dated
1/24/94, to be repurchased at $7,017,967 on 2/23/94, col-
lateralized by $7,190,000 FNMA REMIC, 4.180% due 9/25/23
7,000,000
7,000,000 Agreement with Union Bank of Switzerland, 3.150% dated
1/31/94, to be repurchased at $7,000,613 on 2/1/94, col-
lateralized by $7,040,000 U.S. Treasury Notes 3.875% due
3/31/95
7,000,000
TOTAL REPURCHASE AGREEMENTS
(Cost $43,039,000)
43,039,000
TOTAL INVESTMENTS (Cost $171,795,093*) 101.7%
171,795,093
OTHER ASSETS AND LIABILITIES (Net) (1.7)
(2,895,158)
NET ASSETS 100.0%
$168,899,935
<FN>
* Aggregate cost for Federal tax purposes.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JANUARY 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$171,795,093) (Note 1)
See accompanying schedule
Investment securities $128,756,093
Repurchase agreements 43,039,000
$171,795,093
Cash
853
Interest receivable
468,208
Receivable for Fund shares sold
466,509
TOTAL ASSETS
172,730,663
LIABILITIES:
Payable for Fund shares redeemed 3,465,052
Dividends payable 139,781
Distribution fee payable (Note 3) 74,804
Investment advisory fee payable (Note 2) 44,883
Administration fee payable (Note 2) 29,922
Custodian fees payable (Note 2) 20,000
Transfer agent fees payable (Note 2) 18,000
Accrued expenses and other payables 38,286
TOTAL LIABILITIES
3,830,728
NET ASSETS
$168,899,935
NET ASSETS CONSIST OF:
Accumulated net realized loss on invest-
ments sold
(119,905)
Par value
169,020
Paid-in capital in excess of par value
168,850,820
TOTAL NET ASSETS
$168,899,935
NET ASSET VALUE and offering price per
share+ ($168,899,935 / 169,019,840
shares of beneficial interest out-
standing)
$1.00
<FN>
+ Redemption price per share is equal to net asset value less any applica-
ble contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JANUARY 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest $
2,710,193
EXPENSES:
Distribution fee (Note 3) $444,929
Investment advisory fee (Note 2) 267,105
Administration fee (Note 2) 178,070
Transfer agent fees (Note 2) 110,377
Custodian fees (Note 2) 44,893
Legal and audit fees 15,919
Trustees' fees and expenses (Note 2) 6,997
Other 46,167
TOTAL EXPENSES
1,114,457
NET INVESTMENT INCOME
1,595,736
NET REALIZED GAIN ON INVESTMENTS (NOTE 1)
36,843
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $
1,632,579
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
1/31/94 7/31/93
(UNAUDITED)
<S> <C> <C>
Net investment income $ 1,595,736 $
4,413,978
Net realized gain on investments sold 36,843
42,425
Net increase in net assets resulting from op-
erations 1,632,579
4,456,403
Distributions to shareholders from net invest-
ment income (1,595,736)
(4,413,978)
Net increase/(decrease) in net assets from
Fund share transactions (Note 4) 2,601,309
(59,256,639)
Net increase/(decrease) in net assets 2,638,152
(59,214,214)
NET ASSETS:
Beginning of period 166,261,783
225,475,997
End of period $ 168,899,935 $
166,261,783
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED ENDED
1/31/94
7/31/93
(UNAUDITED)
<S> <C> <C>
Net asset value, beginning of period $1.00
$1.00
Income from investment operations:
Net investment income 0.0090
0.0212
Less distributions:
Distributions from net investment income (0.0090)
(0.0212)
Net realized gain on investments 0.0002
0.0000
Net asset value, end of period $1.00
$1.00
Total return+ 0.90%
2.15%
Ratios to average net assets/Supplemental data:
Net assets, end of period (in 000's) $168,900
$166,262
Ratio of operating expenses to average net assets 1.25%**
1.25%
Ratio of net investment income to average net as-
sets 1.79%**
2.16%
<FN>
* The Fund commenced operations on July 8, 1986.
** Annualized.
+ Total return represents aggregate total return for the period indicated
and does not reflect any
applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
7/31/92 7/31/91 7/31/90 7/31/89 7/31/88 7/31/87
7/31/86*
<S> <C> <C> <C> <C> <C> <C>
$1.00 $1.00 $1.00 $1.00 $1.00 $1.00
$1.00
0.0400 0.0618 0.0740 0.0802 0.0566 0.0460
0.0032
(0.0400) (0.0618) (0.0740) (0.0802) (0.0566) (0.0460)
(0.0032)
0.0000 0.0000 0.0000 0.0000 0.0000 0.0000
0.0001
$1.00 $1.00 $1.00 $1.00 $1.00 $1.00
$1.00
4.06% 6.36% 7.62% 8.32% 5.85% 4.69%
0.32%
$225,476 $426,862 $686,756 $829,743 $215,731 $83,366
$2,778
1.22% 1.17% 1.15% 1.22% 1.46% 1.61%
1.50%**
4.13% 6.27% 7.42% 8.36% 5.69% 4.96%
4.78%**
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Income Funds (the "Trust") was organized as a "Mas-
sachusetts business trust" under the laws of the Commonwealth of Massachu-
setts on March 12, 1985. The Trust is registered with the Securities and
Exchange Commission under the Investment Company Act of 1940, as amended
(the "1940 Act"), as an open-end management investment company. As of the
date of this report, the Trust offered eight managed investment funds:
Smith Barney Shearson Premium Total Return Fund, Smith Barney Shearson
Convertible Fund, Smith Barney Shearson Global Bond Fund, Smith Barney
Shearson High Income Fund, Smith Barney Shearson Tax-Exempt Income Fund,
Smith Barney Shearson Money Market Fund (the "Fund"), Smith Barney Shear-
son Diversified Strategic Income Fund and Smith Barney Shearson Utilities
Fund. The following is a summary of significant accounting policies con-
sistently followed by the Fund in the preparation of its financial state-
ments.
Portfolio valuation: Securities are valued at amortized cost. Amortized
cost involves valuing a fund instrument at its cost initially and, there-
after, assuming a constant amortization to maturity of any discount or
premium, regardless of the impact of fluctuating interest rates on the
market value of the instrument.
Repurchase Agreements: The Fund engages in repurchase agreement transac-
tions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of
the seller to repurchase, and the Fund to resell, the obligation at an
agreed-upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return
that is not subject to market fluctuations during the Fund's holding pe-
riod. The value of the collateral is at least equal at all times to the
total amount of the repurchase obligations, including interest. In the
event of counterparty default, the Fund has the right to use the collat-
eral to offset losses incurred. There is potential loss to the Fund in the
event the Fund is delayed or prevented from exercising its rights to dis-
pose of the collateral securities including the risk of a possible decline
in the value of the underlying securities during the period while the Fund
seeks to assert its rights. The Fund's investment adviser or administrator
acting under the supervision of the Board of Trustees, reviews the value
of the collateral and the creditworthiness of those banks and dealers with
which the Fund enters into repurchase agreements to evaluate potential
risks.
Securities transactions and investment income: Securities transactions
are recorded as of the trade date. Realized gains and losses from securi-
ties sold are recorded on the identified cost basis. Interest income is
recorded on the accrual basis.
Dividends and distributions to shareholders: Dividends from net invest-
ment income, if any, of the Fund are declared on each day that the Fund is
open for business and are paid on the second Friday of the Smith Barney
Shearson Inc. ("Smith Barney Shearson") statement month. Distributions, if
any, of any net realized capital gains earned by the Fund will be made an-
nually after the close of the fiscal year in which they are earned. Addi-
tional distributions of net investment income and capital gains from the
Fund may be made at the discretion of the Trust's Board of Trustees in
order to avoid the application of a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains.
Federal income taxes: The Trust intends that the Fund qualify as a regu-
lated investment company, if such qualification is in the best interest of
its shareholders, by complying with the requirements of the Internal Reve-
nue Code of 1986, as amended, applicable to regulated investment companies
and by distributing substantially all of its taxable income to its share-
holders. Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION
FEE AND OTHER PARTY TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual
Management Corp., which is controlled by Smith Barney Shearson Holdings
Inc. ("Holdings"). Holdings is a wholly owned subsidiary of The Travelers
Inc. Under the Advisory Agreement, the Fund pays a monthly fee at the an-
nual rate of 0.30% of the value of its average daily net assets.
The Boston Company Advisors, Inc. ("Boston Advisors"), an indirect wholly
owned subsidiary of Mellon Bank Corporation ("Mellon"), serves as the
Fund's administrator pursuant to an administration agreement (the "Admin-
istration Agreement"). Under the Administration Agreement, the Fund pays a
monthly fee at the annual rate of 0.20% of the value of its average daily
net assets.
A contingent deferred sales charge ("CDSC") is generally payable by the
shareholder in connection with the redemption of shares within five years
(eight years in the case of purchase by certain 401(k) plans) after the
date of purchase. In circumstances in which the CDSC is imposed, the
amount of the CDSC ranges between 5% and 1% of net asset value depending
on the number of years since the date of purchase (except in the case of
purchases by certain 401(k) plans in which case a 3% CDSC is imposed for
the eight year period after the date of purchase). For the six months
ended January 31, 1994, Smith Barney Shearson received from shareholders
$537,960 in CDSCs.
No officer, director or employee of Smith Barney Shearson, Boston Advisors
or of any parent or subsidiary of those corporations receives any compen-
sation from the Trust for serving as a Trustee or officer of the Trust.
The Trust pays each Trustee who is not an officer, director or employee of
Smith Barney Shearson, Boston Advisors or any of their affiliates $6,000
per annum plus $1,500 per meeting attended and reimburses each such
Trustee for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Trust's custodian. The Shareholder Services
Group, Inc., a subsidiary of First Data Corporation, serves as the Trust's
transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as the distributor of the Trust's shares pursu-
ant to a distribution agreement with the Trust and sells shares of the
Fund through Smith Barney Shearson or its affiliates.
The Fund has adopted a plan of distribution (the "Plan") under Section
12b-1 of the 1940 Act. Under the Plan, the Fund pays an annual fee com-
puted daily and payable monthly at 0.50% of the value of its average daily
net assets to Smith Barney Shearson for activities primarily intended to
result in the sale of its shares.
4. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest
with a $.001 par value. Because the Fund has sold shares, issued shares as
reinvestments of dividends and redeemed shares only at a constant net
asset value of $1.00 per share, the number of shares represented by such
sales, reinvestments and redemptions is the same as the amounts shown
below for such transactions.
Changes in the Fund's shares of beneficial interest were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
1/31/94 7/31/93
<S> <C> <C>
Sold $ 259,954,654 $
388,033,399
Issued as reinvestment of
dividends 1,453,175
4,103,434
Redeemed (258,806,520)
(451,393,472)
Net increase/(decrease) $ 2,601,309 $
(59,256,639)
</TABLE>
PARTICIPANTS
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services
Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit
and Trust Company
One Boston Place
Boston, Massachusetts 02108
INVESTOR BENEFITS
MONTHLY DISTRIBUTIONS
It's your fund's policy to distribute dividend income monthly.
AUTOMATIC REINVESTMENT
You may reinvest your dividends and/or capital gains automatically in ad-
ditional shares of your fund at the current net asset value.
UNLIMITED EXCHANGES
If your investment goals change, you may exchange into another Smith Bar-
ney Shearson mutual fund with the same sales charge structure without in-
curring a sales charge.*
AUTOMATIC CASH
WITHDRAWAL PLAN
With this plan, you may withdraw money on a regular basis while maintain-
ing your investment.
MUTUAL FUND
EVALUATION SERVICE
Through your Financial Consultant, you may obtain a free personalized
analysis of how your fund has performed for you, taking into account the
effect of every transaction. The analysis is based upon month- end data
from CDA Investment Technologies, Inc., a widely recognized mutual fund
information service. An evaluation also gives you other important facts
and figures about your investment.
For more information about these benefits, or if you have any other ques-
tions, please call your Financial Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY SHEARSON
388 GREENWICH STREET 37TH FLOOR
NEW YORK, NY 10013
* After written notification, exchange privilege may be modified or termi-
nated at
any time.
OUR APPROACH TO MUTUAL FUND INVESTING
1. PERSONAL SERVICE
The Smith Barney Shearson Financial Consultant (FC) is highly trained and
deeply committed to client service. Your FC works with you to establish a
relationship based on one-to-one communication and the highest standards
of quality.
2. ANALYZING YOUR NEEDS
Defining your needs and establishing specific goals is the first step to-
ward any successful investment program. The Smith Barney Shearson Strate-
gic Asset Allocator -- a sophisticated financial planning tool -- can help
you and your Financial Consultant evaluate your resources and objectives.
This groundwork then becomes the basis for a strategy designed specifi-
cally for you. Your FC can use the Strategic Asset Allocator on a periodic
basis to ensure that your investment strategy is keeping pace with your
changing needs and goals.
3. A UNIQUE MUTUAL FUND INVESTMENT PROGRAM
Your Smith Barney Shearson Financial Consultant offers a number of mutual
fund assessment tools that are unmatched in the financial services
industry. Smith Barney Shearson FCs have access to a proprietary mutual
fund research database that provides information at their fingertips on
more than 2,100 funds. In addition, working with another proprietary sys-
tem known as the Mutual Fund Evaluation Service, your FC can help guide
you through the complex mutual fund maze. Specifically, the Evaluation
Service can provide a clear picture of the past performance of mutual
funds you currently own. Presented in both graphic and numerical form,
this illustration provides a wealth of easily understood data on more that
2,100 funds. This complimentary service allows you to judge whether your
mutual fund has helped meet your investment needs.
4. LOOKING AHEAD
Selecting a mutual fund should not be a one-event process that ends with
the purchase of shares. You can count on the expertise of your Financial
Consultant as he or she continues to monitor and evaluate your funds, to
suggest new strategies and to listen. That, in our opinion, is how to use
mutual funds to help achieve your financial goals.
MONEY MARKET FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
Phyllis M. Zahorodny
Vice President and
Investment Officer
Evelyn R. Robertson
Investment Officer
Vincent Nave
Treasurer
Francis J. McNamara, III
Secretary
This report is submitted for the general information of the shareholders
of Smith Barney Shearson Money Market Fund. It is not authorized for dis-
tribution to prospective investors unless accompanied or preceded by an
effective Prospectus for the Fund, which contains information concerning
the Fund's investment policies, fees and expenses, as well as other perti-
nent information.
[Logo]
SMITH BARNEY SHEARSON
MUTUAL FUNDS
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
Fund 26
FD2176 C4
<PAGE>
[GRAPHIC]
Small box above fund name showing
a black and white picture of
certificates, an ink pen and a clock.
SEMI- Smith Barney Shearson
ANNUAL Premium
REPORT Total
Return
Fund
.......................................
JANUARY 31, 1994
[LOGO]
<PAGE>
Premium Total Return Fund
DEAR SHAREHOLDER:
During the six months ended January 31, 1994, Smith Barney
Shearson Premium Total Return Fund did well, with total
returns
for Class A, Class B and Class D shares of 9.53%, 9.26%, and
9.26%, respectively. This compares favorably to the S&P 500's return
for the same period of 8.95%. The Fund opened on July 31, 1993 at
$15.65, and closed on January 31, 1994 at $16.47. In addition, we
distributed $0.64, $0.60 and $0.60 for Class A, Class B and Class D
shares, respectively, during the six month period. The Fund's
performance was particularly pleasing in light of the fact that the
Fund maintained a defensive posture during this period; cash and
cash
equivalents were generally greater than 10% of net assets, and, in
addition, short index options were employed to dampen portfolio
volatility.
SOURCE OF PERFORMANCE RESULTS
During the past six months, the Fund's performance was helped by low exposure
to
both public utilities companies and energy companies as compared to the
Standard
and Poor's Composite Index of 500 Stocks ("S&P 500"). Both of these sectors
performed relatively poorly during the period. Portfolio performance was also
assisted by a larger than average weighting in consumer durable stocks. The
consumer durable sector out-performed the S&P 500 by a wide margin. In
addition,
our value based stock selection process resulted in consistent out-performance
of the stocks held by the Fund WITHIN comparable S&P 500 sectors. For example,
the Health Care securities in the Fund significantly outperformed the
aggregate
performance of the Health Care securities in the S&P 500 stock universe.
Offsetting these positive factors, performance was somewhat retarded during
this
period by the Fund's holdings in the financial services sector. Anticipating
rising interest rates and related uncertainties, stocks in the financial
services sector generally underperformed the broad market indices. In
addition,
during the period the Fund's defensive position detracted from its
performance.
CURRENT MARKET VIEW AND PORTFOLIO CHARACTERISTICS
We feel that the market is currently priced at a relatively high level,
particularly with regard to such traditional indicators as dividend yield and
price/earnings and price/book ratios. For the past several years, these
indicators have been near the outer limits of their historic ranges. We will
continue to maintain a defensive strategy at these valuation levels.
1
<PAGE>
As to our individual stock selection, we continue to search for businesses
which
are selling in the market for less than intrinsic value and which are enjoying
stable or improving business conditions.
Our portfolio continues to reflect this combination of value and business
momentum. In the aggregate, the portfolio is selling at about 13 times
prospective 1994 earnings and 2 times book value; the S&P 500 is selling at
about 17 times estimated earnings and about 2.9 times book value. We feel
confident that this approach will continue to generate competitive results
over
the long term.
In conclusion, we would like to introduce Harry Rosenbluth, who will assume
responsibility for daily management of the Fund when John Fullerton takes a
sabbatical in 1995. Harry presently serves as Investment Administrator to the
Fund and has assisted John in the day-to-day operations of the Fund since
1992.
We are confident that Harry will continue to provide a high level of
professional management in helping you to meet your investment goals.
Sincerely,
Heath B. McLendon John B. Fullerton
CHAIRMAN OF THE BOARD AND INVESTMENT ADMINISTRATOR
INVESTMENT OFFICER
MARCH 21, 1994
2
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31,
1994
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Income Funds -- Premium Total Return
Fund's investment securities held at January 31, 1994 by industry
classification. The pie is broken in pieces representing industries in the
following percentages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Commercial Paper, Repurchase Agreements,
Class Options Written and Net Other
Assets and Liabilities 12.7%
Corporate Bonds and Notes 3.4%
Other Common Stocks 18.2%
Preferred Stocks 5.8%
Basic Industries 3.3%
Consumer Durables 5.4%
Energy 7.3%
Insurance 10.6%
Consumer Services 15.6%
Banking & Financial Services 17.7%
</TABLE>
TOP TEN EQUITY HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- ------------------------------------------------------------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION 2.6%
AETNA LIFE & CASUALTY COMPANY 2.5
LOEWS CORPORATION 2.5
FORD MOTOR COMPANY 2.2
PHILIP MORRIS COMPANIES INC. 2.2
MORGAN (J.P.) & COMPANY, INC. 2.0
REPUBLIC OF NEW YORK CORPORATION 2.0
GENERAL MOTORS CORPORATION 1.7
AMERICAN INTERNATIONAL GROUP INC. 1.6
VOLVO AKTIE BOLGET 1.5
</TABLE>
3
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
-----------------------------------------------------------------------------
- ---
COMMON STOCKS -- 78.1%
BANKING & FINANCIAL SERVICES -- 17.7%
561,800 American General Corporation $
16,081,525
105,600 AMR Corporation+
7,590,000
109,312 Bank of Boston Corporation
2,801,120
338,100 Bear Stearns Companies, Inc.
8,241,188
458,500 Continental Bank Corporation
16,104,812
447,200 Continental Corporation
12,633,400
142,900 Federal Home Loan Mortgage Corporation
8,323,925
488,500 Federal National Mortgage Association
42,682,688
373,000 First Chicago Corporation
17,531,000
113,100 Golden West Financial Corporation
5,018,812
323,800 Great Western Financial Corporation
6,273,625
143,700 JSB Financial, Inc.
3,358,988
453,500 Morgan (J.P.) & Company, Inc.
32,538,625
90,900 Morgan Stanley Group, Inc.
7,226,550
70,200 PHH Corporation
3,018,600
634,000 Republic of New York Corporation
32,254,750
227,900 SAFECO Corporation
13,446,100
446,000 Salomon Inc.
21,965,500
102,200 Security-Conn Corporation
2,222,850
456,300 Student Loan Marketing Association, New
22,301,662
109,550 Torchmark Corporation
5,217,319
-----------------------------------------------------------------------------
- ---
286,833,039
-----------------------------------------------------------------------------
- ---
CONSUMER SERVICES -- 15.6%
202,300 Bob Evans Farm Inc.
4,324,163
111,300 Dean Foods Company
3,617,250
109,100 Deluxe Corporation
3,804,862
243,500 Dillard Department Stores Inc., Class A
8,735,563
200,000 Emerson Electric Company
12,250,000
333,700 Family Dollar Stores Inc.
5,631,187
159,800 Federated Department Stores Inc.+
3,495,625
69,400 General Electric Company
7,477,850
356,500 Hormel (Geo A) & Company
7,486,500
315,700 King World Productions Inc.+
13,022,625
402,700 Loews Corporation
39,917,637
268,312 Luby's Cafeterias Inc.
6,104,098
380,500 May Department Stores Company
15,029,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
CONSUMER SERVICES -- (CONTINUED)
117,300 McDonald's Corporation $
7,125,975
100,000 Melville Corporation
3,975,000
74,900 Mercantile Stores Inc.
2,958,550
456,800 Nestle, S.A., Sponsored ADR
22,383,200
18,260 Nestle S.A., Sponsored ADR,
Represents One Regular Share, 144A**
894,740
138,800 Nordstrom, Inc.
4,858,000
219,700 Paine Webber Group Inc.
6,508,613
150,000 Penney (J.C.) Company, Inc.
7,856,250
744,800 Philips NV+
18,806,200
169,200 Pitney Bowes Inc.
7,592,850
513,100 Rite Aid Corporation
9,556,487
402,500 Sears, Roebuck & Company
22,087,187
102,700 Unifi, Inc.
2,541,825
230,800 United States Shoe Corporation
2,913,850
26,000 Venture Stores Inc.
565,500
-----------------------------------------------------------------------------
- ---
251,521,337
-----------------------------------------------------------------------------
- ---
INSURANCE -- 10.6%
300,900 ACE Ltd.
8,500,425
635,300 Aetna Life & Casualty Company
40,341,550
182,100 Allmerica Property & Casualty Companies
Inc.
3,642,000
108,600 Allstate Corporation
3,095,100
273,200 American International Group Inc.
25,305,150
172,300 Aon Corporation
8,442,700
350,600 Capital Holding Corporation
12,709,250
237,400 CIGNA Corporation
16,410,275
100 Enhance Financial Services Group Inc.
1,975
187,800 EXEL Ltd.
8,192,775
74,000 Merchants Group Inc.
1,239,500
234,900 Mercury General Corporation
7,047,000
123,300 Mid Ocean Ltd.+
3,174,975
83,300 MMI Companies Inc.
1,249,500
75,400 Paul Revere Corporation+
1,913,275
207,600 St. Paul Companies Inc.
18,346,650
129,900 Transatlantic Holdings, Inc.
6,917,175
85,200 Trenwik Group Inc.
3,131,100
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
INSURANCE -- (CONTINUED)
70,100 Zurich Reinsurance Centre Holdings Inc.+ $
1,883,938
-----------------------------------------------------------------------------
- ---
171,544,313
-----------------------------------------------------------------------------
- ---
ENERGY -- 7.3%
78,900 Amerada Hess Corporation
3,826,650
117,700 Amoco Corporation
6,326,375
140,500 British Petroleum PLC, ADR
9,589,125
172,000 Chevron Corporation
16,060,500
367,800 CMS Energy Corporation
8,919,150
125,500 Exxon Corporation
8,345,750
213,500 Mobil Corporation
17,293,500
467,800 Pacific Enterprises
10,525,500
531,000 Repsol S.A., Sponsored ADR
18,120,375
137,300 Royal Dutch Petroleum Company of New York
15,103,000
74,900 Tenneco Inc.
4,306,750
-----------------------------------------------------------------------------
- ---
118,416,675
-----------------------------------------------------------------------------
- ---
CONSUMER DURABLES -- 5.4%
159,000 Deere & Company
12,799,500
18,500 First Brands Corporation
668,313
442,900 General Motors Corporation
27,182,987
255,000 Genuine Parts Company
9,881,250
286,900 Volkswagen AG, Sponsored ADR
14,667,762
270,200 Volvo Aktie Bolget
23,811,375
-----------------------------------------------------------------------------
- ---
89,011,187
-----------------------------------------------------------------------------
- ---
BASIC INDUSTRIES -- 3.3%
525,000 Alumax Inc.+
14,043,750
376,000 British Steel PLC, ADR
8,084,000
250,000 Burlington Industries Equity Inc.+
3,656,250
300,000 Hanson PLC, ADR
6,487,500
174,100 James River Corporation
3,503,763
77,400 McGraw-Hill Inc.
5,359,950
35,400 NCH Corporation
2,053,200
156,000 Reynolds Metals Company
8,326,500
39,400 Temple-Inland Inc.
2,068,500
-----------------------------------------------------------------------------
- ---
53,583,413
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
TOBACCO -- 2.8%
599,300 Philip Morris Companies Inc. $
36,107,825
1,298,300 RJR Nabisco Holdings Corporation+
9,737,250
-----------------------------------------------------------------------------
- ---
45,845,075
-----------------------------------------------------------------------------
- ---
HEALTH CARE -- 2.7%
253,700 Abbott Labs
7,484,150
170,100 Bristol-Myers Squibb Company
9,844,537
483,700 Healthtrust-The Hospital Company+
13,604,063
199,800 Warner-Lambert Company
13,011,975
-----------------------------------------------------------------------------
- ---
43,944,725
-----------------------------------------------------------------------------
- ---
UTILITIES -- 2.5%
460,470 Entergy Corporation
17,152,508
618,400 Illinois Power Company
13,450,200
234,800 U.S. West, Inc.
10,272,500
-----------------------------------------------------------------------------
- ---
40,875,208
-----------------------------------------------------------------------------
- ---
TECHNOLOGY -- 2.2%
100,400 Cray Research Inc.+
3,150,050
87,100 Honeywell, Inc.
2,841,637
196,800 Martin Marietta Corporation
8,831,400
180,300 National Service Industries Inc.
4,868,100
141,000 Sun Microsystems Inc.+
3,736,500
157,800 Tandy Corporation
7,534,950
50,900 Xerox Corporation
4,994,562
-----------------------------------------------------------------------------
- ---
35,957,199
-----------------------------------------------------------------------------
- ---
TRANSPORTATION -- 2.1%
174,700 Conrail Inc.
11,355,500
731,300 KLM Royal Dutch Airlines
17,825,438
356,000 Motor Coach Industries International Inc.
5,162,000
-----------------------------------------------------------------------------
- ---
34,342,938
-----------------------------------------------------------------------------
- ---
CAPITAL GOODS -- 2.0%
177,000 ITT Corporation
17,412,375
200,000 Raytheon Company
13,550,000
-----------------------------------------------------------------------------
- ---
30,962,375
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
CONSUMER NON-DURABLES -- 1.8%
200,000 American Brands, Inc. $
7,150,000
99,084 Avon Products, Inc.
5,412,463
117,300 Bausch & Lomb Inc.
6,172,913
199,400 Heinz (H.J.) Company
6,929,150
70,400 Ralston-Purina Group
3,097,600
-----------------------------------------------------------------------------
- ---
28,762,126
-----------------------------------------------------------------------------
- ---
REAL ESTATE -- 0.7%
87,900 Associated Estates Realty Corporation
1,911,825
120,700 Avalon Properties Inc.
2,625,225
60,000 Chateau Properties Inc.
1,275,000
335,000 Crown American Realty Trust
4,773,750
46,400 RFS Hotel Investments Inc.
684,400
-----------------------------------------------------------------------------
- ---
11,270,200
-----------------------------------------------------------------------------
- ---
SHIPPING -- 0.3%
170,000 Alexander & Baldwin Inc.
4,505,000
-----------------------------------------------------------------------------
- ---
OTHER -- 1.1%
257,775 Amax Gold Inc.
1,772,203
525,000 Cyprus Amax Minerals Company
15,750,000
-----------------------------------------------------------------------------
- ---
17,522,203
-----------------------------------------------------------------------------
- ---
TOTAL COMMON STOCKS
(Cost $1,046,897,604)
1,264,897,013
-----------------------------------------------------------------------------
- ---
PREFERRED STOCKS -- 5.8%
400,000 Citicorp, Depositary Shares, Represents
1/10 Share Pfd.,
Exch. 15.000%
8,100,000
5,500 Dime Savings Bank NV, Pfd, Exch. 10.50%
5,830,000
325,400 Ford Motor Company, Depositary Shares,
Represents 1/1000 Share Pfd., Series A,
Exch. $51.68
36,404,125
760,000 Glendale Federal Bank, Federal Savings
Bank of California, Conv. Pfd., Series
E
19,095,000
76,700 Property Trust American, Pfd., Series A
2,138,013
76,900 Reynolds Metals Company, Pfd., Increased
Dividend Equity Securities, Conv. Pfd.,
Exch. 7.00%
4,229,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
PREFERRED STOCKS -- (CONTINUED)
329,767 Riggs National Corporation, Washington
DC, Pfd., Series B, Exch. 10.75% $
9,233,476
209,000 RJR Nabisco Holdings Corporation,
Depositary Shares, Represents 1/4 Share
Pfd., Exch. $0.835
1,645,875
196,400 Tandy Corporation, Depositary Shares,
Represents 1/100 Share Pfd., Series C,
Exch. $30.87
7,119,500
-----------------------------------------------------------------------------
- ---
TOTAL PREFERRED STOCKS
(Cost $79,991,948)
93,795,489
-----------------------------------------------------------------------------
- ---
<CAPTION>
FACE VALUE
<C> <S> <C>
-----------------------------------------------------------------------------
- ---
CORPORATE BONDS AND NOTES -- 3.4%
$ 7,000,000 Chevy Chase Savings Bank, Sub. Cap. Note,
9.250% due 12/1/05
7,262,500
Columbia Gas Systems Inc., Deb.:
3,750,000 9.000% due 11/1/13 (in bankruptcy)
4,481,250
2,039,000 10.150% due 11/1/13 (in bankruptcy)
2,543,653
7,000,000 Crossland Federal Savings Bank, Sub.
Deb.,
9.000% due 9/1/03
7,297,500
Gentra Inc., Sub. Deb.:
CAD 7,500,000 11.300% due 5/29/98
5,170,465
6,500,000 11.800% due 5/29/98
4,530,043
$ 10,750,000 MDC Holdings Insurance, Sr. Note,
11.125% due 12/15/03
10,965,000
6,000,000 Pacific Concord Financial, Conv., 144A,
4.750% due 12/10/98 **
6,150,000
6,000,000 WSFS Financial Corporation Inc., Sr.
Note,
11.000% due 12/31/05
6,240,000
-----------------------------------------------------------------------------
- ---
TOTAL CORPORATE BONDS
(Cost $52,930,202)
54,640,411
-----------------------------------------------------------------------------
- ---
COMMERCIAL PAPER -- 1.8% (Cost $30,000,000)
30,000,000 General Electric Capital Corporation,
3.125% due 2/1/94
30,000,000
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
REPURCHASE AGREEMENTS -- 13.1%
$ 60,000,000 Agreement with Morgan Stanley & Company,
3.100% dated 1/31/94, to be repurchased
at $60,005,167 on 2/1/94,
collateralized by: $20,165,000 U.S.
Treasury Note, 8.625% due 8/15/97 and
$26,355,000 U.S. Treasury Note, 10.375%
due 11/15/12 $
60,000,000
66,733,000 Agreement with Salomon Brothers Inc.,
3.100% dated 1/31/94, to be repurchased
at $66,738,746 on 2/1/94,
collateralized by $67,735,000 U.S.
Treasury Note, 4.250% due 7/31/94
66,733,000
85,000,000 Agreement with Union Bank of Switzerland,
3.100% dated 1/31/94, to be repurchased
at $85,007,319 on 2/1/94,
collateralized by: $21,000,000 U.S.
Treasury Note, 8.500% due 8/15/02 and
$55,310,000 U.S. Treasury Note, 12.500%
due 8/15/04
85,000,000
-----------------------------------------------------------------------------
- ---
TOTAL REPURCHASE AGREEMENTS
(Cost $211,733,000)
211,733,000
-----------------------------------------------------------------------------
- ---
TOTAL INVESTMENTS (Cost $1,421,552,754*) 102.2%
1,655,065,913
-----------------------------------------------------------------------------
- ---
</TABLE>
<TABLE>
<CAPTION>
NUMBER EXPIRATION STRIKE
OF CONTRACTS MONTH/YEAR PRICE
<C> <S> <C> <C>
<C> <C>
-----------------------------------------------------------------------------
- --------
CALL OPTIONS WRITTEN -- (1.5)%
6,000 S & P 500 Index March 1994 $ 460.00
(13,650,000)
4,000 S & P 500 Index June 1994 460.00
(11,350,000)
-----------------------------------------------------------------------------
- --------
TOTAL CALL OPTIONS WRITTEN (Premiums received
$18,156,914) (1.5) (25,000,000)
-----------------------------------------------------------------------------
- --------
OTHER ASSETS AND LIABILITIES (NET)
(0.7) (10,622,986)
-----------------------------------------------------------------------------
- --------
NET ASSETS
100.0% $1,619,442,927
-----------------------------------------------------------------------------
- --------
<FN>
*Aggregate cost for Federal tax purposes.
**Security exempt from registration under Rule 144A of the Securities Act of
1933, as amended. These securities may be resold in transactions exempt from
registration, generally to qualified institutional buyers.
+Non-income producing security.
Key to Currency Abbreviation:
CAD -- Canadian Dollar
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$1,421,552,754) (Note 1)
See accompanying schedule:
Securities $1,443,332,913
Repurchase agreements 211,733,000
- ------------------------------------------------------------------------------
1,655,065,913
Cash 1,390
Receivable for investment securities
sold 17,606,638
Receivable for Fund shares sold 9,993,506
Dividends and interest receivable 3,334,173
- ------------------------------------------------------------------------------
TOTAL ASSETS 1,686,001,620
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased $38,209,129
Options written, at value (Premiums
received $18,156,914)
(Note 1) See accompanying schedule 25,000,000
Payable for Fund shares redeemed 1,034,401
Investment advisory fee payable (Note
2) 729,107
Distribution fee payable (Note 3) 640,401
Service fee payable (Note 3) 332,169
Administration fee payable (Note 2) 265,130
Transfer agent fees payable (Note 2) 159,120
Custodian fees payable (Note 2) 48,000
Accrued expenses and other payables 141,236
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 66,558,693
- ------------------------------------------------------------------------------
NET ASSETS $1,619,442,927
- ------------------------------------------------------------------------------
NET ASSETS consist of:
Distributions in excess of net
investment income earned to date $
(40,122,689)
Accumulated net realized gain on
securities and written options 15,417,963
Net unrealized appreciation of securities, written
options and net other assets 226,678,899
Par value 98,341
Paid-in capital in excess of par value 1,417,370,413
- ------------------------------------------------------------------------------
TOTAL NET ASSETS $1,619,442,927
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------- JANUARY 31,
1994
<TABLE>
<S> <C>
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price
per share
($59,143,975 DIVIDED BY 3,591,459
shares of beneficial interest
outstanding) $16.47
- -------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
($16.47 DIVIDED BY 0.95)
(based on sales charge of 5% of the
offering price on January 31, 1994) $17.34
- -------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per
share+
($1,559,290,761 DIVIDED BY 94,688,628
shares of beneficial interest
outstanding) $16.47
- -------------------------------------------------------------
CLASS D SHARES:
NET ASSET VALUE, offering and
redemption price per share
($1,008,191 DIVIDED BY 61,228 shares
of beneficial interest outstanding) $16.47
- -------------------------------------------------------------
<FN>
+Redemption price per share for Class B shares is equal to net asset value
less
any applicable contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED JANUARY 31,
1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (Net of foreign withholding taxes of
$14,273) $
15,896,232
Interest
4,133,828
- ------------------------------------------------------------------------------
- ------
TOTAL INVESTMENT INCOME
20,030,060
- ------------------------------------------------------------------------------
- ------
EXPENSES:
Investment advisory fee (Note 2) $3,975,909
Distribution fee (Note 3) 3,490,404
Service fee (Note 3) 1,807,231
Administration fee (Note 2) 1,445,785
Transfer agent fees (Notes 2 and 4) 790,903
Custodian fees (Note 2) 79,053
Legal and audit fees 26,049
Trustees' fees and expenses (Note 2) 6,997
Other 349,896
- ------------------------------------------------------------------------------
- ------
TOTAL EXPENSES
11,972,227
- ------------------------------------------------------------------------------
- ------
NET INVESTMENT INCOME
8,057,833
- ------------------------------------------------------------------------------
- ------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain/(loss) on:
Securities
31,386,774
Written options
(3,955,334)
- ------------------------------------------------------------------------------
- ------
Net realized gain on investments during the
period
27,431,440
- ------------------------------------------------------------------------------
- ------
Net change in unrealized
appreciation/(depreciation) of:
Securities and net other assets
105,177,130
Written options
(10,850,517)
- ------------------------------------------------------------------------------
- ------
Net unrealized appreciation of investments during the period
94,326,613
- ------------------------------------------------------------------------------
- ------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
121,758,053
- ------------------------------------------------------------------------------
- ------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$129,815,886
- ------------------------------------------------------------------------------
- ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR
1/31/94
ENDED
(UNAUDITED)
7/31/93
<S> <C>
<C>
Net investment income $ 8,057,833
$ 10,154,816
Net realized gain on securities, forward foreign
exchange contracts, written options and foreign
currency transactions during the period 27,431,440
28,852,056
Net unrealized appreciation of securities, forward
foreign exchange contracts, written options, foreign
currencies and net other assets during the period 94,326,613
62,458,035
- ------------------------------------------------------------------------------
- -------
Net increase in net assets resulting from operations 129,815,886
101,464,907
Distributions to shareholders from net investment
income:
Class A (1,710,935)
(205,012)
Class B (44,645,489)
(9,085,716)
Class D (21,531)
(583)
Distributions in excess of net investment income:
Class A --
(39,774)
Class B --
(1,762,720)
Class D --
(113)
Distribution to shareholders from net realized gain on
investments:
Class A (287,325)
(474,748)
Class B (7,810,414)
(31,580,436)
Class D (4,073)
(1,858)
Distributions in excess of net realized gains:
Class A --
(56,783)
Class B --
(3,535,004)
Class D --
(228)
Distributions from capital (tax basis):
Class A --
(402,591)
Class B --
(25,063,193)
Class D --
(1,617)
Net increase in net assets from share transactions
(Note 6):
Class A 16,848,763
39,273,754
Class B 255,889,222
616,840,264
Class D 598,270
352,737
- ------------------------------------------------------------------------------
- -------
Net increase in net assets 348,672,374
685,721,286
NET ASSETS:
Beginning of period 1,270,770,553
585,049,267
- ------------------------------------------------------------------------------
- -------
End of period (including distributions in excess of net
investment income of $40,122,689 and $1,802,567,
respectively) $1,619,442,927
$1,270,770,553
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
PERIOD
1/31/94+++
ENDED
(UNAUDITED)
7/31/93*+++
<S> <C> <C>
Net Asset Value, beginning of period $ 15.65 $
15.15
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.13
0.19
Net realized and unrealized gain on investments 1.33
1.33
- ------------------------------------------------------------------------------
- -------
Total from investment operations 1.46
1.52
Distributions to shareholders:
Distributions from net investment income (0.55)
(0.17)
Distributions in excess of net investment income --
(0.03)
Distributions from net realized gains (0.09)
(0.44)
Distributions in excess of net realized gains --
(0.05)
Distributions from capital++ --
(0.33)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.64)
(1.02)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 16.47 $
15.65
- ------------------------------------------------------------------------------
- -------
Total return+ 9.53%
10.31%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 59,144
$39,677
Ratio of operating expenses to average net assets 1.20%**
1.20%**
Ratio of net investment income to average net assets 1.57%**
1.64%**
Portfolio turnover rate 17%
55%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
++Results from the Fund's level distribution policy.
+++Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since use of the undistributed method does not accord with results of
operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR
1/31/94+++
ENDED
(UNAUDITED)
7/31/93+++
<S> <C> <C>
Net Asset Value, beginning of period $ 15.65 $
15.21
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.09
0.23
Net realized and unrealized gain/(loss) on
investments 1.33
1.47
- ------------------------------------------------------------------------------
- -------
Total from investment operations 1.42
1.70
Distributions to shareholders:
Distributions from net investment income (0.51)
(0.16)
Distributions in excess of net investment income --
(0.03)
Distributions from net realized gains (0.09)
(0.57)
Distributions in excess of net realized gains --
(0.06)
Distributions from capital++ (book basis) --
- --
Distributions from capital++ (tax basis) --
(0.44)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.60)
(1.26)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 16.47 $
15.65
- ------------------------------------------------------------------------------
- -------
Total return+ 9.26%
11.68%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $1,559,291
$1,230,737
Ratio of operating expenses to average net assets 1.67%**
1.69%
Ratio of net investment income to average net assets 1.10%**
1.16%
Portfolio turnover rate 17%
55%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced operations on September 16, 1985. On November 6, 1992 the
Fund commenced selling Class A shares. Those shares in existence prior to
November 6, 1992 were designated Class B shares.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
++Results from the Fund's level distribution policy.
+++Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since use of the undistributed method does not accord with results of
operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR
YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED
ENDED ENDED ENDED
7/31/92 7/31/91 7/31/90+++ 7/31/89
7/31/88 7/31/87 7/31/86*
<S> <C> <C> <C>
<C> <C> <C>
$ 14.26 $ 13.30 $ 13.98 $ 12.90 $
14.47 $ 14.52 $ 13.00
- ------------------------------------------------------------------------------
- -------
0.22 0.24 0.22 0.56
0.51 0.28 0.43
1.93 1.92 0.38 2.00
(0.62) 1.37 2.27
- ------------------------------------------------------------------------------
- -------
2.15 2.16 0.60 2.56
(0.11) 1.65 2.70
(0.22) (0.24) (0.22) (0.89)
(0.18) (0.28) (0.42)
-- -- -- --
- -- -- --
-- -- -- (0.26)
(1.28) (1.42) (0.76)
-- -- -- --
- -- -- --
(0.98) (0.96) (1.06) (0.33)
- -- -- --
-- -- -- --
- -- -- --
- ------------------------------------------------------------------------------
- -------
(1.20) (1.20) (1.28) (1.48)
(1.46) (1.70) (1.18)
- ------------------------------------------------------------------------------
- -------
$ 15.21 $ 14.26 $ 13.30 $ 13.98 $
12.90 $ 14.47 $ 14.52
- ------------------------------------------------------------------------------
- -------
15.68% 17.53% 4.62% 21.49%
0.21% 12.07% 21.28%
- ------------------------------------------------------------------------------
- -------
$ 585,049 $ 470,381 $ 507,762 $ 599,849 $
585,634 $ 960,898 $ 533,487
1.69% 1.75% 1.78% 1.75%
1.70% 1.74% 1.87%**
1.53% 1.84% 1.66% 4.17%
3.58% 1.97% 2.99%**
57% 43% 47% 41%
56% 294% 212%
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
PERIOD
1/31/94+++ ENDED
(UNAUDITED)
7/31/93*+++
<S> <C> <C>
Net Asset Value, beginning of period $ 15.65 $
15.45
- ------------------------------------------------------------------------------
- --
Income from investment operations:
Net investment income 0.09
0.05
Net realized and unrealized gain on investments 1.33
0.35
- ------------------------------------------------------------------------------
- --
Total from investment operations 1.42
0.40
Distributions to shareholders:
Distributions from net investment income (0.51)
(0.03)
Distributions in excess of net investment income --
(0.01)
Distributions from net realized gains (0.09)
(0.08)
Distributions in excess of net realized gains --
(0.01)
Distributions from capital++ --
(0.07)
- ------------------------------------------------------------------------------
- --
Total distributions (0.60)
(0.20)
- ------------------------------------------------------------------------------
- --
Net Asset Value, end of period $ 16.47 $
15.65
- ------------------------------------------------------------------------------
- --
Total return+ 9.26%
2.60%
- ------------------------------------------------------------------------------
- --
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,008 $
357
Ratio of operating expenses to average net assets 1.63%**
1.31%**
Ratio of net investment income to average net assets 1.14%**
1.54%**
Portfolio turnover rate 17%
55%
- ------------------------------------------------------------------------------
- --
<FN>
*The Fund commenced selling Class D shares on June 1, 1993.
**Annualized.
+Total return represents aggregate total return for the period indicated.
++Results from the Fund's level distribution policy.
+++Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since use of the undistributed method does not accord with results of
operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Income Funds (the "Trust") was organized as a
"Massachusetts business trust" under the laws of the Commonwealth of
Massachusetts on March 12, 1985. The Trust is registered with the Securities
and
Exchange Commission under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. As of the date of
this report, the Trust offered eight managed investment funds: Smith Barney
Shearson Premium Total Return Fund (the "Fund"), Smith Barney Shearson
Convertible Fund, Smith Barney Shearson Global Bond Fund, Smith Barney
Shearson
High Income Fund, Smith Barney Shearson Tax-Exempt Income Fund, Smith Barney
Shearson Money Market Fund, Smith Barney Shearson Diversified Strategic Income
Fund and Smith Barney Shearson Utilities Fund. As of November 6, 1992, the
Fund
offered two classes of shares: Class A shares and Class B shares. As of
January
29, 1993, the Fund offered a third class of shares, Class D shares, to
investors
eligible to participate in Smith Barney Shearson 401(k) Program. Class A
shares
are sold with a front-end sales charge. Class B shares may be subject to a
contingent deferred sales charge ("CDSC"). Class B shares will convert
automatically to Class A shares eight years after the date of original
purchase.
Class D shares are offered without a front-end sales charge or CDSC. Each
class
of shares has identical rights and privileges except with respect to the
effect
of the respective sales charges, the distribution and/or service fees borne by
each class, expenses allocable exclusively to each class, voting rights on
matters affecting a single class, the exchange privilege of each class and the
conversion feature of Class B shares. The following is a summary of
significant
accounting policies consistently followed by the Fund in the preparation of
its
financial statements.
PORTFOLIO VALUATION: Generally, the Fund's investments are valued at market
value or, in the absence of market value with respect to any portfolio
securities, at fair value as determined by or under the direction of the
Trust's
Board of Trustees. Portfolio securities that are traded primarily on a
domestic
or foreign exchange are valued at the last sale price on that exchange or, if
there were no sales during the day, at the current quoted bid price.
Over-the-counter securities are valued on the basis of the bid price at the
close of business each day. An option generally is valued at the last sale
price
or, in the absence of the last sale price, the last offer price. Investments
in
U.S. government securities (other than short-term securities) are valued at
19
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
the average of the quoted bid and asked price in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost.
OPTION ACCOUNTING PRINCIPLES: Upon the purchase of a put option or a call
option
by the Fund, the premium paid is recorded as an investment, the value of which
is marked-to-market daily. When a purchased option expires, the Fund will
realize a loss in the amount of the cost of the option. When the Fund enters
into a closing sale transaction, the Fund will realize a gain or loss
depending
on whether the sales proceeds from the closing sale transaction are greater or
less than the cost of the option. When the Fund 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 Fund
exercises a call option, the cost of the security which the Fund purchases
upon
exercise will be increased by the premium originally paid.
When the Fund writes a call option or a put option, an amount equal to the
premium received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a
gain
equal to the amount of the premium received. When the Fund enters into a
closing
purchase transaction, the Fund realizes a gain (or loss if the cost of the
closing purchase transaction exceeds the premium received when the option was
sold) without regard to any unrealized gain or loss on the underlying
security,
and the liability related to such option is eliminated. When a call option is
exercised, the Fund realizes a gain or loss from the sale of the underlying
security and the proceeds from such sale are increased 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 that the Fund purchased upon
exercise.
The risk associated with purchasing options is limited to the premium
originally
paid. The risk in writing a call option is that the Fund may forego the
opportunity of profit if the market price of the underlying security or index
increases and the option is exercised. The risk in writing a put option is
that
the Fund may incur a loss if the market price of the underlying
20
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
security or index decreases and the option is exercised. In addition, there is
the risk that the Fund may not be able to enter into a closing transaction
because of an illiquid secondary market.
REPURCHASE AGREEMENTS: The Fund may engage in repurchase agreement
transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession
of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is
at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the
right
to use the collateral to offset losses incurred. There is potential loss to
the
Fund in the event that the Fund is delayed or prevented from exercising its
rights to dispose of the collateral securities, including the risk of a
possible
decline in the value of the underlying securities during the period while the
Fund seeks to assert its rights. The Fund's investment adviser, acting under
the
supervision of the Trust's Board of Trustees, reviews the value of the
collateral and the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate potential risks.
FOREIGN CURRENCY: The books and records of the Fund are maintained in U.S.
dollars. Foreign currencies, investments and other assets and liabilities are
translated into U.S. dollars at the exchange rates prevailing at the end of
the
period, and purchases and sales of investment securities, income and expenses
are translated on the respective dates of such transactions. Unrealized gains
and losses which result from changes in foreign currency exchange rates have
been included in the unrealized appreciation/ (depreciation) of currencies and
net other assets. Net realized foreign currency gains and losses resulting
from
changes in exchange rates include foreign currency gains and losses between
trade date and settlement date on investment securities transactions, foreign
currency transactions and the difference between the amounts of interest and
dividends recorded on the books of the Fund and the amount actually received.
The portion of foreign currency
21
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
gains and losses related to fluctuation in the exchange rates between the
initial purchase trade date and subsequent sale trade date is included in
realized gains and losses on investment securities sold.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued
or
delayed-delivery basis may be settled a month or more after the trade date.
Realized gains and losses from securities sold are recorded on the identified
cost basis. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income is recorded on the accrual basis.
Investment income and realized and unrealized gains and losses are allocated
based upon the relative net assets of each class of shares.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income, if any, are determined on a class level, declared monthly and are paid
on the last day of the Smith Barney Shearson Inc. ("Smith Barney Shearson")
statement month. The Fund's final distribution for each calendar year will
include any remaining net investment income and net realized short-term
capital
gains deemed undistributed during the year for Federal income tax purposes, as
well as all net long-term capital gains realized during the year. Additional
distributions of net investment income and capital gains from the Fund may be
made at the discretion of the Trust's Board of Trustees in order to avoid the
application of a 4% nondeductible excise tax on certain amounts of
undistributed
ordinary income and capital gains. Income distributions and capital gain
distributions on a Fund level are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles.
These differences are primarily due to differing treatments of income and
gains
on various investment securities held by the Fund, timing differences and
differing characterization of distributions made by the Fund as a whole.
FEDERAL INCOME TAXES: The Trust intends that the Fund qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code
of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
22
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE
AND OTHER PARTY TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Advisory Agreement, the Fund pays a monthly fee at the annual rate of
0.55%
of the value of its average daily net assets.
Boston Advisors also serves as the Fund's administrator pursuant to a separate
administration agreement (the "Administration Agreement"). Under the
Administration Agreement, the Fund pays a monthly fee at the annual rate of
0.20% of the value of its average daily net assets.
For the six months ended January 31, 1994, the Fund incurred total brokerage
commissions of $752,003, of which $102,711 was paid to Smith Barney Shearson.
For the six months ended January 31, 1994, Smith Barney Shearson received
$278,232 from investors representing commissions (sales charges) on sales of
Class A shares.
A CDSC is generally payable by a shareholder in connection with the redemption
of Class B shares within five years (eight years in the case of purchases by
certain 401(k) plans) after the date of purchase. In circumstances in which
the
CDSC is imposed, the amount of the charge ranges between 5% and 1% of net
asset
value depending on the number of years since the date of purchases (except in
the case of purchases by certain 401(k) plans in which case a 3% CDSC is
imposed
for the eight year period after the date of purchase). For the six months
ended
January 31, 1994, Smith Barney Shearson received from shareholders $845,361 in
CDSCs on the redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, Boston Advisors or
any of their affiliates receives any compensation from the Trust for serving
as
a Trustee or officer of the Trust. The Trust pays each Trustee who is not
23
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
an officer, director or employee of Smith Barney Shearson, Boston Advisors or
any of their affiliates $6,000 per annum plus $1,500 per meeting attended and
reimburses each such Trustee for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Trust's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Trust's shares pursuant to a
distribution agreement with the Trust, and sells shares of the Fund through
Smith Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a Services and
Distribution Plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney Shearson for servicing shareholder accounts for Class A, Class B and
Class D shareholders and covers expenses incurred in distributing Class B and
Class D shares. Smith Barney Shearson is paid an annual service fee with
respect
to Class A, Class B and Class D shares of the Fund at the annual rate of 0.25%
of the value of the average daily net assets of each respective class of
shares.
Smith Barney Shearson is also paid an annual distribution fee with respect to
Class B and Class D shares at the annual rate of 0.50% of the value of the
average daily net assets of each respective class of shares. For the six
months
ended January 31, 1994, the service fee for Class A, Class B and Class D
shares
was $62,029, $1,744,390 and $812, respectively. For the six months ended
January
31, 1994, the distribution fee for Class B and Class D shares was $3,488,780
and
$1,624, respectively.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class
of
shares are prorated among the classes based upon the relative net assets of
each
class. Operating expenses directly attributable to a class of shares are
charged
to that class' operations. In addition to the above service and distribution
fees, class specific operating expenses for the six months ended
24
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
January 31, 1994 include the transfer agent fees. For the six months ended
January 31, 1994, transfer agent fees for Class A, Class B and Class D shares
were $33,545, $757,156 and $202, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments and U.S. government securities, aggregated $395,563,769 and
$202,323,461, respectively, for the six months ended January 31, 1994.
Option activity for the six months ended January 31, 1994 was as follows:
<TABLE>
<CAPTION>
Number of
Premiums
Contracts
<S> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Options outstanding at July 31, 1993 $ 18,826,181
14,500
Options written 19,932,654
16,500
Options cancelled in closing purchase transactions (20,601,921)
(21,000)
- ------------------------------------------------------------------------------
- -------
Options outstanding at January 31, 1994 $ 18,156,914
10,000
- ------------------------------------------------------------------------------
- -------
</TABLE>
At January 31, 1994, the aggregate gross unrealized appreciation for all
securities in which there is an excess of value over tax cost was $253,793,507
and the aggregate gross unrealized depreciation for all securities in which
there is an excess of tax cost over value was $20,280,348.
25
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest of
each
class in each separate series with a $.001 par value. Changes in shares of
beneficial interest of the Fund which are divided into three classes (Class A,
Class B and Class D) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93*
CLASS A SHARES: Shares Amount
Shares Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 1,332,929 $ 21,247,612
2,714,964 $ 42,071,154
Issued as reinvestment of dividends 106,093 1,693,127
63,945 988,218
Redeemed (382,194) (6,091,976)
(244,278) (3,785,618)
- ------------------------------------------------------------------------------
- -------
Net increase 1,056,828 $ 16,848,763
2,534,631 $ 39,273,754
- ------------------------------------------------------------------------------
- -------
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
1/31/94
7/31/93*
CLASS B SHARES: Shares Amount
Shares Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 18,117,486 $288,732,687
42,591,133 $654,124,021
Issued as reinvestment of dividends 2,565,296 40,930,207
3,572,456 54,752,129
Redeemed (4,630,604) (73,773,672)
(5,985,843) (92,035,886)
- ------------------------------------------------------------------------------
- -------
Net increase 16,052,178 $255,889,222
40,177,746 $616,840,264
- ------------------------------------------------------------------------------
- -------
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93**
CLASS D SHARES: Shares Amount
Shares Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 41,081 $ 640,609
23,082 $ 356,761
Issued as reinvestment of dividends 1,602 25,605
284 4,400
Redeemed (4,283) (67,944)
(538) (8,424)
- ------------------------------------------------------------------------------
- -------
Net increase 38,400 $ 598,270
22,828 $ 352,737
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated Class B shares.
**The Fund commenced selling Class D shares to the public on June 1, 1993.
</TABLE>
7. LENDING OF PORTFOLIO SECURITIES
The Fund has the ability to lend its securities to brokers, dealers and other
financial organizations. Loans of securities by the Fund are collateralized by
26
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
cash, letters of credit or U.S. government securities that are maintained at
all
times in an amount at least equal to the current market value of the loaned
securities. At January 31, 1994, the Fund had no securities on loan.
8. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Continental Bank N.A. under an Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992, primarily for
temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. The Fund may
borrow up to the lesser of $25 million or 10% of its net assets. Interest is
payable either at the bank's Money Market Rate or the London Interbank Offered
Rate (LIBOR) plus .375% on an annualized basis. The Fund and the other
affiliated entities are charged an aggregate commitment fee of $125,000 which
is
allocated equally among each of the participants. The Agreement requires,
among
other provisions, each participating fund to maintain a ratio of net assets
(not
including funds borrowed pursuant to the Agreement) to aggregate amount of
indebtedness pursuant to the Agreement of no less than 5 to 1. During the six
months ended January 31, 1994, the Fund did not borrow under the Agreement.
27
<PAGE>
Smith Barney Shearson
Premium Total Return Fund
- ---------------------------------------------------------------------------
PARTICIPANTS
DISTRIBUTOR
Smith Barney Shearson Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
AND ADMINISTRATOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholders Services Group Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
28
<PAGE>
PREMIUM TOTAL
RETURN FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
AND INVESTMENT OFFICER
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT,
TREASURER AND SECRETARY
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND. IT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN
EFFECTIVE PROSPECTUS FOR THE FUND, WHICH CONTAINS INFORMATION CONCERNING THE
FUND'S INVESTMENT POLICIES AND EXPENSES AS WELL AS OTHER PERTINENT
INFORMATION.
[LOGO]
Smith Barney Shearson
Mutual Funds
Two World Trade Center
New York, New York 10048
Fund 17, 178, 247
<PAGE>
FD2169 C4
<PAGE>
[GRAPHIC]
Small box above fund name showing
a black and white picture
of various road, hospital
and airport signs.
SEMI- Smith Barney Shearson
ANNUAL Tax-Exempt
REPORT Income
Fund
.......................................
JANUARY 31, 1994
[LOGO]
<PAGE>
Tax-Exempt Income Fund
DEAR SHAREHOLDER:
For most of the period since our annual report to you in July
of
1993, the tax-exempt market followed the lead of the Treasury
bond market and rallied to higher prices. However, as investors
became concerned that the economy and inflation were rising and that
the Federal Reserve Board was likely to increase short-term interest
rates, a standoff between investors and the market developed and
cash
flows to the fixed income market dwindled to a trickle. In turn,
bond
prices came under downward price pressure. This slowdown in cash
flow
and weakness in prices also took its toll on the issuance of new
bonds. As we reported in past letters, bond volume in 1993 set a
record of over $290 billion and is expected to decline to below $200
billion in 1994. The decrease in bond prices, which move in the
opposite direction to interest rates, made bond issuers reluctant to
enter the market and many postponed their deals. We expect this
trend
to continue until interest rates stabilize.
While these issues are a concern to us, we believe that the markets are
oversold
and offer a buying opportunity at present levels. We are entering the tax-
paying
season which will be more painful than usual as taxpayers face not only
higher,
retroactive tax rates but also the loss of deductions. In conjunction with
dwindling new issue supply, a higher demand for tax-exempt income should
eventually stabilize the municipal market.
INVESTMENT STRATEGY
Over the near term we will tread cautiously as market forces continue to dwell
on fears of increased inflation. Until this atmosphere improves, we will
continue to be defensive in our asset allocation. The majority of the
portfolio
- -- 89% -- is invested in securities rated BBB/BAA or higher by Moody's
Investors
Services, Inc. or Standard & Poor's Corporation, two nationally recognized
bond
rating organizations. Bonds in these rating categories are considered to be
investment grade. We have invested the majority of the Fund's assets in
pollution control, utility revenue, hospital and general obligation bonds. On
January 31, 1994, the Fund had an average maturity of 22 years.
1
<PAGE>
PERFORMANCE
The Fund generated attractive total return results in the past six months of
5.45% for Class A shares and 5.17% for Class B shares. Its net asset value
increased to $18.56 from $18.24 per share and paid $0.65 per share in income
and
capital gains to owners of Class A shares and $0.60 per share in income and
capital gains to owners of Class B shares.
We are pleased to share with you that Morningstar Mutual Fund Values, a mutual
fund evaluation agency, continues to award the Fund four stars out of a
possible
five for the attractive returns and low risk its offers investors.
We thank you for your continued trust, and look forward to reporting to you in
our annual report.
Sincerely,
Heath B. McLendon Lawrence T. McDermott
CHAIRMAN OF THE BOARD VICE PRESIDENT AND
INVESTMENT OFFICER
MARCH 15, 1994
2
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31,
1994
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Income Funds--Tax-Exempt Income
Fund's
investment securities held at January 31, 1994 by industry classification. The
pie is broken in pieces representing industries in the following percentages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Education 3.5%
Pollution Control 19.6%
Housing 7.4%
Hospitals 14.7%
Transportation 6.5%
Other Municipal Bonds and Net
Other Assets and Liabilities 10.4%
Industrial Control 7.4%
Utility Revenue 15.5%
General Obligation 14.5%
Short-Term Tax-Exempt
Investments 0.5%
</TABLE>
TOP FIVE STATES REPRESENTED
<TABLE>
<CAPTION>
Percentage
of
State Net Assets
<S> <C>
--------------------------------------------------------------------
TEXAS 10.9%
PENNSYLVANIA 9.5
MASSACHUSETTS 5.7
FLORIDA 5.3
NEW YORK 4.8
</TABLE>
3
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) JANUARY 31,
1994
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------
KEY TO INSURANCE ABBREVIATIONS
American Municipal Bond Assurance
AMBAC -- Corporation
BIGI -- Bond Investors Guaranty Insurance
Cap G -- Capital Guaranty
Co Lee -- College Construction Loan Association
FGIC -- Federal Guaranty Insurance Corporation
FHA -- Federal Housing Administration
FSA -- Financial Security Assurance
MBIA -- Municipal Bond Investors Assurance
</TABLE>
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
<C> <S> <C> <C> <C>
-----------------------------------------------------------------------------
- --
MUNICIPAL BONDS AND NOTES -- 99.7%
ALABAMA -- 0.7%
Alabama Special Care
Facilities Finance
Authority, (Daughters of
Charity Health Systems),
Hospital Revenue:
$ 500,000 Mobile, Alabama,
(Providence Hospital),
10.125% due 6/1/15 AA NR $
553,125
500,000 Montgomery, Alabama,
(St. Margaret's Hospital),
10.125% due 11/1/15 Aa NR
563,125
4,000,000 Courtland, Alabama,
Industrial Waste Disposal,
(Champion International
Corporation, Inc. Project),
Series A,
6.375% due 3/1/29 Baa1 BBB
4,210,000
3,000,000 Huntsville, Alabama, Health
Care Facilities Authority,
Series A,
(MBIA Insured),
6.375% due 6/1/12 Aaa AAA
3,273,750
ALASKA -- 0.8%
Alaska State Housing
Finance Corporation:
2,250,000 Series A,
6.680% due 12/1/23 Aa A+
2,410,313
1,000,000 Series B, Veteran's
Mortgage Purchase,
5.875% due 12/1/35 Aaa AAA
1,015,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ALASKA -- (CONTINUED)
$6,000,000 Valdez, Alaska, Marine
Terminal Revenue,
(Pipelines, Inc. Project),
Series A,
5.850% due 8/1/25 A1 AA- $
6,082,500
ARIZONA -- 2.2%
1,000,000 Arizona Educational Loan
Marketing Corporation,
6.375% due 9/1/05 Aa NR
1,078,750
850,000 Arizona Health Facilities
Authority, Hospital
Revenue, (St. Luke's
Hospital), Series A,
10.125% due 11/1/15 Ba NR
915,875
1,170,000 Arizona State, Certificates
of Participation, (FSA
Insured),
6.625% due 9/1/08 Aaa AAA
1,308,938
Arizona State, Certificates
of Participation, Refunding
Revenue Bonds:
1,730,000 Series B, (AMBAC Insured),
6.250% due 9/1/10 Aaa AAA
1,883,537
1,000,000 (FSA Insured),
6.500% due 3/1/08 Aaa AAA
1,112,500
70,000 Arizona State Municipal
Financing, Certificates of
Participation, Series 10,
(BIGI Insured),
7.900% due 8/1/17
(prerefunded 8/1/97) Aaa AAA
80,238
1,000,000 Gila County, Arizona,
Industrial Development
Authority, Pollution
Control Revenue, Series
1987, (ASARCO Inc.
Project),
8.900% due 7/1/06 Baa2 BBB
1,162,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARIZONA -- (CONTINUED)
$1,860,000 Maricopa County, Arizona,
Industrial Development,
Mortgage Loan, Multi-Family
Housing Revenue, Series A,
(FHA Insured),
5.900% due 7/1/24 NR AAA $
1,894,875
5,000,000 Maricopa County, Arizona,
Pollution Control, Public
Service Company, Palo
Verde, Series A,
6.375% due 8/15/23 Ba2 BB
5,156,250
1,300,000 Maricopa County, Arizona,
School District, Fountain
Hills, No. 98, (FGIC
Insured),
6.625% due 7/1/10 Aaa AAA
1,454,375
1,085,000 Mohave County, Arizona,
Hospital Systems Revenue,
(Medical Environments Inc.
Project),
8.800% due 1/1/06 Baa NR
1,249,106
6,500,000 Navajo County, Arizona,
Pollution Contol, Arizona
Public Service Company,
Series A,
5.875% due 8/15/28 Baa2 BBB
6,605,625
420,000 Peoria, Arizona, Industrial
Development Revenue,
(Sierra Winds Life Care),
10.750% due 1/1/18 (in
default) NR NR
172,200
665,000 Pinal County, Arizona,
Industrial Development
Revenue, (Casa Grande
Regional Medical Center),
9.000% due 12/1/13 NR NR
709,887
1,225,000 Tucson, Arizona, Local
Business Development, Lease
Revenue Refunding Bonds,
(FGIC Insured),
6.250% due 7/1/12 Aaa AAA
1,336,781
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ARKANSAS -- 0.1%
$1,000,000 Independence County,
Arkansas, Pollution
Control, (Arkansas Power
and Light Company Project),
6.250% due 1/1/21 Baa2 BBB $
1,057,500
CALIFORNIA -- 3.1%
4,000,000 Burbank, California,
Redevelopment Agency,
Series A, (Golden State
Redevelopment Project),
6.250% due 12/1/24 Baa1 A-
4,075,000
1,500,000 California Housing Finance
Agency Revenue, Multi-Unit
Rental Housing, Series
B-II,
6.700% due 8/1/15 A1 A+
1,629,375
2,250,000 California Public Works
Board, Revenue (University
of California Project),
Series A,
5.500% due 6/1/21 A1 A-
2,233,125
2,500,000 California Statewide
Community Development
Authority Revenue,
Certificates of
Participation,
Sutter Health, (AMBAC
Insured),
6.125% due 8/15/22 Aaa AAA
2,665,625
2,000,000 Central Coast Water
Project, Corporate Lease
Revenue, (California State
Water Project), (AMBAC
Insured),
6.600% due 10/1/22 Aaa AAA
2,225,000
2,600,000 Central Valley Finance
Authority, California,
(Cogeneration/Carson Ice
Project),
6.200% due 7/1/20 NR BBB-
2,678,000
3,000,000 Duarte, California, Hope
Medical Center,
6.250% due 4/1/23 Baa1 NR
3,131,250
4,000,000 Los Angeles, California,
Regional Corporate Lease
Revenue, (Los Angeles
International Airport),
6.800% due 1/1/27 NR A-
4,340,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CALIFORNIA -- (CONTINUED)
$ 700,000 Mojave, California, Water
Agency Improvement
District, Morongo Basin,
Series M,
6.600% due 9/1/22 Baa BBB+ $
750,750
1,000,000 Norwalk, California,
Redevelopment Agency, Tax
Allocation, Area 1,
9.100% due 12/1/15 NR NR
1,105,000
2,500,000 San Diego County,
California, Water
Authority, Water Revenue,
Series B, (MBIA Insured),
10.040% due 4/8/21 Aaa AAA
3,084,375
9,150,000 San Joaquin Hills,
California, Transportation
Authority, (Transcondor
Agency Project), Toll Road,
Sr. Lien,
6.750% due 1/1/32 NR NR
9,504,562
COLORADO -- 1.8%
1,560,000 Arapahoe Colorado, Water
and Sanitation District
Revenue, Series B,
9.250% due 12/1/13 NR NR
1,597,050
Arvada, Colorado, Urban
Renewal Authority, Tax
Increment Revenue, (Arvada
City Center Urban):
890,000 Series B1, (prerefunded
2/1/95),
12.500% due 2/1/05 Aaa NR
1,000,137
1,500,000 8.750% due 3/1/06 B NR
1,125,000
4,750,000 Colorado Springs, Colorado,
Airport Revenue, Series A,
7.000% due 1/1/22 NR BBB
5,201,250
1,000,000 Cottonwood, Colorado, Water
and Sanitation District
Revenue, (Refunded
12/1/97),
10.250% due 12/1/97 NR NR
1,065,000
2,000,000 Denver, Colorado, City and
County Revenue, (Sisters of
Charity, Leavenworth),
5.000% due 12/1/23 Aa NR
1,925,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
COLORADO -- (CONTINUED)
$1,000,000 Dove Valley, Arapahoe
County, Colorado,
Metropolitan District,
Improvement Authority,
9.500% due 12/1/08 NR NR $
1,050,000
2,250,000 Jefferson County, Colorado,
Certificates of
Participation, (MBIA
Insured),
6.650% due 12/1/08 Aaa AAA
2,567,813
655,000 Jefferson County, Colorado,
Single Family Mortgage,
Series A, (MBIA Insured),
8.875% due 10/1/13 Aaa AAA
713,131
1,500,000 Larimer County, Colorado,
School District No. R-1
(Poudre-Ft. Collins),
Colorado School Board
Lease, Certificates of
Participation,
6.700% due 12/1/13 A NR
1,678,125
500,000 Meridian, Colorado,
Metropolitian District,
7.000% due 12/1/98 A3 NR
543,750
250,000 Poudre Valley, Colorado,
Hospital District, (AMBAC
Insured),
6.625% due 12/1/11 Aaa AAA
290,000
3,000,000 Pueblo County, Colorado,
Single Family Housing
Authority, Series A, (FNMA/
GNMA Mortgage Backed),
6.850% due 12/1/25 NR AAA
3,266,250
CONNECTICUT -- 2.0%
2,000,000 Connecticut Development
Authority, Airport Revenue,
(Bradley Airport), (FGIC
Insured),
7.650% due 10/1/12 Aaa AAA
2,447,500
495,000 Connecticut Development
Authority, Industrial
Development, (Nutmeg
Partnership Project),
Series B,
12.750% due 5/15/15 NR NR
504,900
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
CONNECTICUT -- (CONTINUED)
$1,930,000 Connecticut Development
Authority, Resource
Recovery Authority,
(Bridgeport Project),
Series B,
8.500% due 1/1/00 A A $
2,110,938
Connecticut Development
Authority, Solid Waste and
Electric Revenue, (Ogden
Martin System, Inc.,
Bristol):
1,670,000 9.900% due 7/1/99 NR BBB+
1,837,000
3,000,000 10.000% due 7/1/14 NR BBB+
3,303,750
Connecticut State Health
and Educational Facilities:
2,000,000 Lawrence and Mern Hospital,
Series D, (MBIA Insured),
5.000% due 7/1/22 Aaa AAA
1,945,000
1,200,000 Quinipiac College, Series
D,
6.000% due 7/1/23 NR BBB-
1,234,500
3,500,000 St. Francis Hospital and
Medical, Series C, (FGIC
Insured),
5.000% due 7/1/23 Aaa AAA
3,399,375
Series D, (University of
Hartford):
1,655,000 6.750% due 7/1/12 Baa BBB
1,826,706
1,450,000 6.800% due 7/1/22 Baa BBB
1,605,875
3,000,000 Connecticut State, Housing
Finance Authority, Series
A,
6.200% due 5/15/14 Aa AA
3,172,500
DELAWARE -- 0.4%
2,500,000 Delaware River & Bay
Authority, (MBIA Insured),
5.000 due 1/1/17 Aaa AAA
2,471,875
2,500,000 Delaware State Economic
Development Power
Authority, Series B, (AMBAC
Insured),
6.750% due 5/1/19 Aaa AAA
2,831,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
DISTRICT OF COLUMBIA --
0.8%
$3,500,000 District of Columbia,
Certificates of
Participation,
7.300% due 1/1/13 NR BBB $
3,714,375
1,000,000 District of Columbia,
Revenue, (Georgetown
University),
5.375% due 4/1/23 A1 A+
990,000
4,350,000 District of Columbia,
Series A,
6.000% due 6/1/07 Baa A-
4,605,563
FLORIDA -- 5.3%
Alachua County, Florida,
Health Facilities
Authority, Health
Facilities Revenue, (Santa
Fe Healthcare Facilities
Project):
465,000 6.875% due 11/15/02 Baa BBB+
496,387
500,000 7.600% due 11/15/13 Baa BBB+
562,500
1,100,000 Brevard County, Florida,
School Board, Certificates
of Participation,
Series A, (AMBAC Insured),
6.500% due 7/1/12 Aaa AAA
1,216,875
Broward County, Florida,
Resource Recovery:
605,000 Waste Energy, (North),
7.950% due 12/1/08 A A
694,994
2,785,000 Waste Energy, (South),
7.950% due 12/1/08 A A
3,199,269
825,000 Dade County, Florida,
Aviation Revenue, Series B,
(MBIA Insured),
6.600% due 10/1/22 Aaa AAA
924,000
2,500,000 Dade County, Florida,
Health Facilities
Authority, (North Shore
Medical Center), (AMBAC
Insured),
6.500% due 8/15/15 Aaa AAA
2,765,625
1,350,000 Dade County, Florida,
Public Facilities Revenue,
(Jackson Memorial
Hospital), (MBIA Insured),
5.625% due 6/1/18 Aaa AAA
1,377,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
FLORIDA -- (CONTINUED)
$ 500,000 Escambia, Florida,
Pollution Control Revenue,
(Champion Project),
6.950% due 1/1/07 Baa1 BBB $
549,375
500,000 Escambia, Florida,
Utilities Authority,
General Mortgage, Series B,
(FGIC Insured),
6.250% due 1/1/15 Aaa AAA
575,625
500,000 Florida State Housing
Finance Agency, General
Mortgage, (HUD Section 8),
Series A,
6.400% due 6/1/24 NR AAA
533,750
2,840,000 Florida State Turnpike
Authority Revenue,
Unrefunded, Series A, (FGIC
Insured),
6.350% due 7/1/22 Aaa AAA
3,092,050
420,000 Fort Lauderdale, Florida,
Central Beach,
Redevelopment Agency, AMT,
(AMBAC Insured),
6.100% due 9/1/07 Aaa AAA
458,850
1,455,000 Hialeah, Florida, Hospital
Revenue Refunding, (Hialeah
Hospital),
8.000% due 2/1/14 (in
default) NR D
851,175
800,000 Hillsborough County,
Florida, Authority Project,
Aviation Revenue,
(U.S. Airlines Project),
8.600% due 1/15/22 Ba2 BB
911,000
Hillsborough County,
Florida, Utility Reference
Revenue, (Capital
Appreciation), Series A:
2,800,000 7.000% due 8/1/14
(unrefunded) Baa1 BBB+
3,157,000
580,000 7.000% due 8/1/14
(refunded) Baa1 BBB+
689,475
3,250,000 Jacksonville, Florida,
Excise Tax Revenue, Series
A, (AMBAC Insured),
6.500% due 10/1/13 Aaa AAA
3,595,312
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
FLORIDA -- (CONTINUED)
Jacksonville, Florida,
Health
Facilities Revenue:
$2,000,000 (Children's Baptist
Hospital), (MBIA Insured),
7.000% due 6/1/11 Aaa AAA $
2,295,000
3,440,000 (University Medical
Center),
Series 92B, (Co Lee
Insured),
6.600% due 2/1/21 NR AAA
3,835,600
500,000 Melbourne, Florida, Water
and Sewer Revenue, Series
C, (FGIC Insured),
6.375% due 10/1/12 Aaa AAA
552,500
2,500,000 Miami, Florida, Health
Facilities Authority,
(Mercy Hospital Project),
(AMBAC Insured),
6.750% due 8/1/20 Aaa AAA
2,943,750
500,000 North Port Florida
Utilities Systems Revenue,
(FGIC Insured),
6.250% due 10/1/22 Aaa AAA
545,000
1,525,000 Orange County, Florida,
Solid Waste Facilities
Authority, (FGIC Insured),
6.375% due 10/1/17 Aaa AAA
1,675,594
1,000,000 Orange County, Florida,
Tourist Development
Authority, Series B, (AMBAC
Insured),
6.500% due 10/1/19 Aaa AAA
1,117,500
3,750,000 Orange County, Florida,
Waste and Water Revenue
Refunding, (AMBAC Insured),
6.250% due 10/1/17 Aaa AAA
4,110,938
300,000 Pace Property Finance
Authority,
Florida Utility,
6.250% due 9/1/13 NR BBB
317,625
Palm Beach County, Florida,
Health Facilities
Authority,
(J.F.K. Medical Center):
1,320,000 8.875% due 12/1/18
(prerefunded) NR NR
1,633,500
1,150,000 8.875% due 12/1/18
(unrefunded) NR BBB
1,328,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
FLORIDA -- (CONTINUED)
$ 400,000 Palm Beach County, Florida,
Solid Waste Authority
Revenue,
6.250% due 12/1/08 Aaa AAA $
444,500
3,000,000 Putnam County, Florida,
Development Authority,
Pollution Control Revenue,
(Georgia Pacific),
7.000% due 12/1/05 A3 BBB-
3,330,000
1,000,000 St. Lucie County, Florida,
School Board, Certificates
of Participation, (FSA
Insured),
5.375% due 7/1/13 Aaa AAA
1,011,250
1,850,000 Tampa, Florida, Water
System Revenue, (Aquarium
Project),
7.750% due 5/1/27 NR NR
2,076,625
1,900,000 Tampa, Florida, Utility Tax
and Special Revenue, (AMBAC
Insured),
6.900% due 10/1/09 Aaa AAA
2,163,625
3,400,000 Tampa, Florida, Water and
Sewer Revenue, Short Rites,
Series A, (FGIC Insured),
9.473% due 10/1/12 Aaa AAA
4,071,500
Volusia County, Florida,
Educational Facilities
Authority, (Embery Riddle
University), (Co Lee
Insured):
500,000 6.500% due 10/15/15 NR AAA
553,750
1,500,000 6.625% due 10/15/22 NR AAA
1,668,750
2,000,000 Volusia County, Florida,
School Board, (Master Lease
Program), Certificates of
Participation, (FSA
Insured),
6.625% due 8/1/06 Aaa AAA
2,245,000
GEORGIA -- 4.6%
2,425,000 Appling County, Georgia,
Development Authority,
Pollution Control Revenue,
(Georgia Power and Light),
(Hatch Project),
10.600% due 10/1/15 Baa1 BBB+
2,737,219
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
GEORGIA -- (CONTINUED)
$4,000,000 Atlanta, Georgia, Airport
Facilities Revenue,
7.250% due 1/1/17 A A $
4,560,000
Burke County, Georgia,
Development Authority,
Pollution Control Revenue,
(Georgia Power Company
Vogtle Project):
3,495,000 10.600% due 10/1/15 A3 BBB+
3,944,981
1,475,000 1st Series,
10.125% due 6/1/15 Baa2 BBB+
1,624,344
6,310,000 3rd Series,
10.500% due 11/1/15 A3 BBB+
7,146,075
3,250,000 Cobb-Marietta, Georgia,
Coliseum and Exhibit Hall
Authority Revenue, (MBIA
Insured),
6.750% due 10/1/26 Aaa AAA
3,810,625
3,000,000 Fulton County, Georgia,
Development Authority,
Special Facilities Revenue,
(Delta Airlines Inc.
Project),
6.950% due 11/1/12 Ba1 BB
3,187,500
4,750,000 George L. Smith, Georgia
World Congress Center
Authority Revenue, (Domed
Stadium Project),
7.875% due 7/1/20 Aa3 AA-
5,462,500
Georgia, Medical Center
Hospital Authority:
Certificates of
Participation, (MBIA
Insured):
5,000,000 6.400% due 8/1/06 Aaa AAA
5,650,000
1,500,000 6.375% due 10/1/12 Aaa AAA
1,453,125
5,000,000 Metropolitan Atlanta,
Georgia, Rapid Transit
Authority, Sales Tax
Revenue, Series O,
6.550% due 7/1/20 A AA-
5,556,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
GEORGIA -- (CONTINUED)
$7,000,000 Monroe County, Georgia,
Development Authority,
Polution Control Revenue,
(Georgia Power Company
Plant, Scherer Project),
10.500% due 9/1/15 Baa1 BBB+ $
7,866,250
3,000,000 Municipal Electric
Authority, Georgia, Fifth
Crossover Series, (Special
Project 1), (AMBAC
Insured),
6.400% due 1/1/13 Aaa AAA
3,468,750
GUAM -- 0.1%
1,500,000 Government of Guam, Limited
Obligation Revenue, Series
A,
7.000% due 11/15/04 A1 A+
1,689,375
HAWAII -- 0.2%
2,000,000 Hawaii, State, Department
of Budget and Finance,
Special Purpose, (Kapiolani
Health Systems),
6.400% due 7/1/13 A A
2,180,000
IDAHO -- 0.3%
3,650,000 Idaho Housing Agency,
Single Family, (FHA and VA
Mortgages), Series C,
7.875% due 1/1/21 NR AA
3,937,438
ILLINOIS -- 4.5%
1,945,000 Chicago, Illinois,
Metropolitan Housing
Development Corporation,
(HUD Section 8), Series A,
(FHA Insured),
6.700% due 7/1/12 NR AA
2,098,169
Chicago, Illinois, O'Hare
International Airport:
5,000,000 2nd Lien, Series C, (MBIA
Insured),
5.750% due 1/1/09 Aaa AAA
5,343,750
1,800,000 (Delta Airlines),
6.450% due 5/1/18 Ba3 BB
1,854,000
1,800,000 (Lufthansa Airlines),
7.125% due 5/1/18 Aaa AAA
2,013,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ILLINOIS -- (CONTINUED)
Chicago, Illinois, O'Hare
International Airport --
(continued):
$3,000,000 (United Airlines),
8.250% due 5/1/99 Baa2 BB $
3,352,500
3,388,000 (United Airlines), Series
B,
8.950% due 5/1/18 Baa2 BB
3,993,605
4,030,000 (United Airlines), Series
C,
8.200% due 5/1/18 Baa2 BB
4,538,787
2,835,000 Chicago, Illinois, School
Finance Authority,
Refunded, General
Obligation,
7.750% due 6/1/09 Baa1 AA-
3,047,625
4,000,000 Cook County, Illinois,
Series A, (MBIA Insured),
6.600% due 11/15/22 Aaa AAA
4,480,000
East Chicago, Illinois,
Industrial Pollution
Control, Revenue,
(Inland Steel Company):
250,000 Series B,
10.750% due 12/1/12 Ba3 BB-
275,000
3,000,000 (Project 10),
6.800% due 6/1/13 Ba3 BB-
3,135,000
1,500,000 Illinois Education
Facilities Authority,
(Chicago Osteopathic
College),
9.625% due 7/1/05 NR BBB+
1,593,750
Illinois Health Facilities
Authority, Revenue:
1,955,000 (Grant Children's
Hospital), Series A,
10.300% due 6/1/13 NR BB+
2,143,169
1,300,000 (Northern Illinois Medical
Center),
6.000% due 9/1/19 NR A-
1,324,375
2,500,000 (OSF Healthcare System),
6.000% due 11/15/23 A1 A+
2,565,625
2,750,000 (St. Elizabeth's Hospital,
Chicago),
10.125% due 7/1/16 NR NR
2,863,437
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
ILLINOIS -- (CONTINUED)
$1,500,000 Illinois, Housing and
Development Authority,
REDS, Multi-Family Housing,
Series A,
6.125% due 7/1/25+++ A1 A+ $
1,498,125
2,750,000 Illinois State Toll Highway
Authority, Series A, (FGIC
Insured),
6.200% due 1/1/16 Aaa AAA
2,935,625
3,600,000 Metropolitan Pier
Exposition, (McCormick
Place Expansion Project),
Series A,
6.500% due 6/15/27 A A+
3,924,000
1,000,000 Sauget, Illinois, Special
Service Area No. 1,
10.250% due 1/1/00 NR NR
1,082,500
INDIANA -- 1.9%
Hamilton County, Indiana,
Building Revenue, (Hospital
Association):
275,000 7.500% due 2/1/08 Aa NR
298,031
285,000 7.500% due 8/1/08 Aa NR
308,869
110,000 7.600% due 8/1/09 Aa NR
119,350
320,000 7.600% due 2/1/10 Aa NR
347,200
2,000,000 Indiana, Bond Banks,
(Special Project), Series
A,
7.750% due 8/1/09 A NR
2,167,500
1,500,000 Indiana Health Financing
Authority, (Bartholomew
County Hospital Project),
(Cap G Insured), (FGIC
Insured),
7.750% due 8/15/20
(prerefunded) Aaa AAA
1,824,375
4,000,000 Indianapolis, Indiana,
Airport Facilities Revenue,
6.850% due 4/1/17 Baa3 BBB
4,145,000
250,000 Indianapolis, Indiana,
Local Public Improvement,
6.000% due 1/10/18 Aaa AAA
268,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
INDIANA -- (CONTINUED)
Indianapolis, Indiana,
Resource Recovery Project,
(Ogden Martin Systems,
Incorporated):
$ 500,000 Series A,
7.900% due 12/1/08 A A $
559,375
1,240,000 Series B,
7.900% due 12/1/08 A A
1,387,250
1,500,000 Kokomo, Indiana, Hospital
Authority Revenue, (St.
Joseph's Hospital), Series
A,
8.750% due 2/15/13 Baa BBB
1,831,875
1,500,000 La Porte County, Indiana,
Hospital Association
Revenue,
(La Porte Hospital, Inc.),
8.750% due 3/1/12
(prerefunded) Aaa BBB-
1,747,500
2,500,000 Lawrenceburg, Indiana,
Industrial Development
Authority, Pollution
Control Revenue Project,
Series E
5.900% due 11/1/19 Baa2 BBB
2,537,500
500,000 Marion County, Indiana,
Daughters of Charity,
Hospital Association
Revenue, (St. Vincent's
Hospital),
10.125% due 11/1/15 Aa NR
561,875
Northeast Sullivan School
Building, Indiana:
420,000 9.500% due 1/1/05
(prerefunded) NR A
476,175
440,000 9.500% due 7/1/05 NR A
498,300
745,000 North Warrick County,
Indiana School Building
Authority, 1st Mortgage,
10.000% due 1/1/04
(prerefunded) NR AAA
851,162
2,500,000 Sullivan, Indiana,
Pollution Control Revenue
Refunding, (Michigan Power
Company Project), Series C,
5.950% due 5/1/09 Baa2 BBB
2,562,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
IOWA -- 0.2%
$1,000,000 Dubuque County, Iowa,
Health Services, (Sisters
of Mercy Hospital), (FSA
Insured),
7.000% due 8/15/21 Aaa AAA $
1,163,750
Iowa City, Iowa, Parking
Facilities Revenue:
150,000 10.000% due 7/1/02 A NR
159,563
415,000 10.000% due 7/1/03 A NR
441,456
KANSAS -- 0.2%
2,500,000 Shawnee County, Kansas,
Revenue, (Sisters of
Charity, Leavenworth),
5.000% due 12/1/23 Aa NR
2,415,625
KENTUCKY -- 1.8%
2,000,000 Ashland, Kentucky, Solid
Waste Revenue, (Ashland Oil
Inc. Project),
7.200% due 10/1/20 A3 BBB
2,277,500
2,500,000 Jefferson County, Kentucky,
Hospital Revenue, Inverse
Floaters, (MBIA Insured),
10.256% due 10/23/14 Aaa AAA
3,043,750
1,500,000 Kenton County, Kentucky,
Airport Board Revenue,
(Greater Cincinnati
International Airport),
Series A,
8.250% due 3/1/15 A A
1,741,875
2,500,000 Kentucky Development
Finance Authority, (Good
Samaritan Hospital,
Lexington),
10.250% due 12/1/11
(prerefunded) NR BB+
2,856,250
3,500,000 Kentucky EOA, Baptist
Healthcare System, (MBIA
Insured),
5.000% due 8/15/24 Aaa AAA
3,291,680
590,000 Kentucky Multi-County
Residential Mortgage
10.500% due 10/1/00 NR NR
626,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
KENTUCKY -- (CONTINUED)
$4,000,000 Pendleton County, Kentucky,
Multi-Lease Series A,
6.500% 3/1/19 NR A $
4,265,000
Trimble County, Kentucky,
Pollution Control Revenue:
2,605,000 (Louisville Gas and
Electric), Series B,
6.550% due 11/1/20
(unrefunded) Aa2 AA
2,872,013
395,000 Series B,
6.550% due 11/1/20
(refunded) Aaa NR
462,150
LOUISIANA -- 2.5%
4,000,000 Calcasoeu Parish,
Louisiana, Industrial
Development Authority
(Citgo Petroleum
Corporation),
6.000% due 7/1/23 Baa2 BBB-
4,035,000
5,000,000 Hodge, Louisiana, Utility
Revenue,
9.000% due 3/1/10 NR NR
5,187,500
5,000,000 Jefferson Parish,
Louisiana, Sales Tax
Drainage, (AMBAC Insured),
6.500% due 11/1/06 Aaa AAA
5,575,000
2,800,000 Lake Charles, Louisiana,
(Harbor and Terminal
Project), (Trunkline Liqiud
Natural Gas Company
Project),
7.750% due 8/15/22 Baa2 NR
3,174,500
2,500,000 Louisiana Public Hospital,
Association of Independent
Colleges and Universities,
7.000% due 12/1/17 Baa NR
2,675,000
2,000,000 Port of New Orleans,
Louisiana, Industrial
Development, (Continental
Grain Company Project),
7.500% due 7/1/13 NR BB-
2,140,000
St. Charles Parish,
Louisiana, Solid Waste
Distribution, (Louisiana
Power and Light Company
Project):
3,250,000 7.050% due 4/1/22 Baa2 BBB
3,554,688
1,750,000 Series A,
7.000% due 12/1/22 Baa2 BBB
1,925,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
21
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
LOUISIANA -- (CONTINUED)
$2,000,000 West Feliciana Parish,
Pollution Control Revenue,
(Gulf State Utilities),
7.000% due 11/1/15 Baa3 BBB- $
2,187,500
MAINE -- 0.3%
3,000,000 Bucksport, Maine, Solid
Waste Disposal, (Champ
International Corporation
Project),
6.250% due 5/1/10 Baa1 BBB
3,168,750
MARYLAND -- 2.5%
3,000,000 Baltimore, Maryland,
Mortgage Refunding, Federal
Housing Authority,
(Dunfield Townhouses),
Series A,
6.900% due 8/1/28 NR AAA
3,288,750
2,000,000 Baltimore County, Maryland,
Mortgage Revenue, (West
Crossing Project),
6.000% due 8/20/20 NR AAA
2,047,500
2,125,000 Cumberland, Maryland,
Refunding, Series A, (FGIC
Insured),
5.250% due 5/1/21 Aaa AAA
2,130,312
2,500,000 Howard County, Maryland,
Mortgage Revenue, Housing
Finance Authority, (Howard
Hills Townhouses), Series
A, (FHA Insured), (MBIA
Insured),
6.400% due 7/1/24 Aaa AAA
2,678,125
Maryland State, Community
Development:
2,610,000 Series D,
6.050% due 5/15/24 Aa NR
2,740,500
2,000,000 (Single Family Project),
Third Series,
5.300 due 4/4/12 Aa NR
1,975,000
4,000,000 Maryland State, Health &
Higher Education
Administration, (Fredrick
Memorial Hospital), (FGIC
Insured),
5.000% due 7/1/23 Aaa AAA
3,850,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
22
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MARYLAND -- (CONTINUED)
Northeast Maryland Waste
Disposal Authority,
Recovery Revenue, REDS,
(MBIA Insured):
(Southwest Rescource
Recovery):
$3,000,000 7.200% due 1/1/06+++ Aaa AAA $
3,626,250
3,000,000 7.200% due 1/1/07+++ Aaa AAA
3,630,000
1,000,000 (Harford County Resource
Recovery),
8.600% due 1/1/08+++ NR A-
1,067,500
1,600,000 Prince Georges County,
Maryland, Health and
Hospital, (Greater
Southeast Healthcare
System),
6.375% due 1/1/23 NR A
1,668,000
1,000,000 Prince Georges County,
Maryland, Housing
Authority, (Stevenson
Apartments Project), Series
A,
6.350% due 7/20/20 NR AAA
1,063,750
MASSACHUSETTS -- 5.7%
Boston, Massachusetts,
Hospital Revenue, (Boston
City Hospital), Series B,
(FHA Insured):
2,000,000 5.750% due 2/15/13 Aa AA(0)
2,040,000
5,850,000 5.750% due 2/15/23 Aa AA-
5,945,062
530,000 Haverhill, Massachusetts,
Revenue Bonds, Series A,
(AMBAC Insured),
6.700% due 9/1/10 Aaa AAA
601,550
2,575,000 Lowell, Massachusetts,
Series B, (FSA Insured),
5.600% due 11/1/12 Aaa AAA
2,649,031
Massachusetts Bay
Transportation Authority,
General Transportation
System:
750,000 Series A,
7.000% due 3/1/22
(refunded) Aaa A+
885,937
2,000,000 Series B,
5.500% due 3/1/21 A A+
2,025,000
1,250,000 6.200% due 3/1/16 A A+
1,435,938
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
23
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
Massachusetts Health and
Educational Facilities:
$2,000,000 Series G, (MBIA Insured),
5.375% due 7/1/24 Aaa AAA $
2,000,000
1,500,000 (St. Mary Medical Center),
6.000% due 10/1/23 Baa NR
1,419,375
Massachusetts Health and
Educational Finance
Authority, (Suffolk
University), Series B, (Co
Lee Insured):
2,700,000 6.250% due 7/1/12 Baa AAA
2,892,375
775,000 6.350% due 7/1/22 Baa AAA
826,344
2,650,000 (University of
Massachusetts Medical
Project), (Co Lee Insured),
6.000% due 7/1/23 NR AAA
2,805,687
Massachusetts Municipal
Wholesale Company, Power
Supply System:
4,000,000 Inverse Floater, (AMBAC
Insured),
5.450% due 7/1/18 Aaa AAA
4,035,000
1,300,000 Series D,
6.125% due 7/1/19 A BBB+
1,361,750
Massachusetts State
Construction Loan:
3,000,000 Series A,
5.500% due 11/1/12 A A+
3,086,250
700,000 Series C,
7.000% due 8/1/12 A A+
819,000
2,000,000 Series D, General
Obligation Bonds,
7.000% due 7/1/07 A A+
2,312,500
Massachusetts State Health
and Educational Facilities
Authority:
3,500,000 (Northeast Medical Center),
Series F, (FGIC Insured),
6.625% due 7/1/25 Aaa AAA
3,880,625
735,000 (Community College), Series
A, (Co Lee Insured),
6.600% due 10/1/22 NR AAA
807,581
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
24
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MASSACHUSETTS -- (CONTINUED)
Massachusetts State Housing
Finance Agency, Residential
Development Authority:
$1,000,000 Series A,
6.375% due 4/1/21 A1 A+ $
1,060,000
2,000,000 Series C, (FNMA Insured),
6.875% due 11/15/11 Aaa AAA
2,197,500
3,000,000 Series D, (FNMA Insured),
6.800% due 11/15/12 Aaa AAA
3,281,250
Massachusetts State
Industrial
Financial Agency, Resource
Recovery,
(S.E. Mass Project):
2,700,000 Series A,
9.000% due 7/1/15 NR NR
3,162,375
4,335,000 Series B,
9.250% due 7/1/15 NR NR
5,099,044
5,000,000 Massachusetts State Water
Resource, Series A,
6.500% due 12/1/19
(refunded) NR A-
5,868,750
1,000,000 Quincy, Massachusetts,
(Quincy Hospital),
5.500% due 1/15/13 Aaa AAA
1,008,750
MICHIGAN -- 4.3%
Detroit, Michigan, Economic
Development, Resource
Recovery:
Series A, (FSA Insured):
3,680,000 6.450% due 5/1/01 Aaa AAA
4,126,200
7,500,000 6.875% due 5/1/09 Aaa AAA
8,446,875
Detroit, Michigan, Water
Supply System, (FGIC
Insured):
3,500,000 6.500% due 7/1/15 Aaa AAA
4,103,750
Inverse Floater,
5,000,000 9.480% due 7/1/22 Aaa AAA
5,975,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
25
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MICHIGAN -- (CONTINUED)
Greater Detroit, Michigan,
(Resource Recovery
Project):
$6,350,000 Series B,
9.250% due 12/13/08 NR BBB- $
6,953,250
1,000,000 Series G,
9.250% due 12/13/08 NR BBB-
1,095,000
1,815,000 Series H
9.250% due 12/13/08 NR BBB-
1,987,425
Michigan State Hospital
Finance Authority Revenue,
(Daughters of Charity
Health System):
5,000,000 (FSA Insured),
6.300% due 2/15/22 Aaa AAA
5,362,500
495,000 (St. Mary's Hospital),
10.000% due 11/1/15 Aa NR
558,112
1,500,000 (Sparrow Obligated Group),
(MBIA Insured),
6.500% due 11/15/11 Aaa AAA
1,650,000
Monroe County, Michigan,
Pollution Control Revenue,
(Detroit Edison Company):
4,500,000 (MBIA Insured),
6.875% due 9/1/22 Aaa AAA
5,051,250
2,360,000 Series A,
10.500% due 12/1/16 Baa1 BBB
2,696,300
3,750,000 Western Townships,
Michigan, Utilities
Authority, Sewer Disposal
Systems, (Cap G Insured),
(FGIC Insured),
6.750% due 1/1/15 Aaa AAA
4,200,000
MINNESOTA -- 0.5%
1,200,000 Minneapolis, Minnesota,
Commercial Development
Revenue, (Holiday Inn
Metrodome Project),
10.500% due 6/1/03 NR NR
1,228,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
26
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
MINNESOTA -- (CONTINUED)
$1,000,000 Minneapolis, Minnesota,
Health Revenue, (Fairview
Hospital and Healthcare),
Series A, (MBIA Insured),
5.250% due 11/15/19 Aaa AAA $
998,750
4,000,000 St. Paul, Minnesota,
Housing and Redevelopment
Authority, (Health East
Project), Series A,
6.625% due 11/1/17 Baa BBB
4,140,000
MISSISSIPPI -- 0.5%
1,000,000 Hinds County, Mississippi,
(Methodist Hospital),
(AMBAC Insured),
5.600% due 5/1/12 Aaa AAA
1,053,750
Mississippi, Hospital
Equipment and Facilities:
2,000,000 (Methodist Health Systems),
(MBIA Insured),
5.500% due 8/15/13 Aaa AAA
2,035,000
3,000,000 (Singing River Hospital),
(FSA Insured),
4.750% due 3/1/00 Aaa AAA
3,108,750
MISSOURI -- 0.3%
3,500,000 Missouri State, Health &
Educational Facilities,
(St. Lukes Health System),
(MBIA Insured),
5.125% due 11/15/19 Aaa AAA
3,443,125
St. Louis County, Missouri,
Industrial Development
Authority, Housing
Development Revenue,
Multifamily:
395,000 Series 1989 B, (Pine Tree
Apartment Project),
10.000% due 6/15/09 NR NR
376,731
(Westbrook Village
Apartments):
135,000 Series E,
10.000% due 12/15/03 NR NR
128,587
50,000 Series H,
10.000% due 12/15/15 NR NR
47,688
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
27
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
NEBRASKA -- 0.6%
$2,600,000 Nebraska Municipal Energy
Agency, Series A, (AMBAC
Insured),
6.000% due 4/1/17 Aaa AAA $
2,752,750
4,000,000 Nebraska Public Power,
Power Supply System,
6.125% due 1/1/15 A1 A+
4,320,000
NEVADA -- 0.7%
6,000,000 Clark County, Nevada,
Industrial Development
Project, (Nevada Power
Company), Series C,
7.200% due 10/1/22 Baa2 BBB
6,697,500
2,000,000 Humboldt County, Nevada,
Pollution Control Revenue,
(Sierra Pacific Project),
(AMBAC Insured),
6.500% due 10/1/13 Aaa AAA
2,242,500
NEW HAMPSHIRE -- 0.7%
New Hampshire Higher
Education and Health
Facilities Authority
Revenue:
1,500,000 (Concord Hospital), (FGIC
Insured),
7.000% due 10/1/12 Aaa AAA
1,721,250
1,000,000 (University of New
Hampshire), (MBIA Insured),
6.000% due 7/1/12 Aaa AAA
1,060,000
2,500,000 State of New Hampshire,
Business Financing
Authority, Pollution
Control Revenue, (United
Illuminating Company),
Series A, (MBIA Insured),
5.875% due 10/1/33 Baa3 BBB-
2,512,500
1,000,000 State of New Hampshire,
Industrial Development
Authority, Recovery Revenue
Series, (Concord Project),
8.500% due 1/1/09 NR AA-
1,130,000
2,000,000 State of New Hampshire,
Turnpike System Revenue,
6.000% due 4/1/13 A A
2,140,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
28
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
NEW JERSEY -- 4.8%
$ 775,000 Atlantic County, New
Jersey, Utilities Authority
Revenue,
7.125% due 3/1/16 Baa NR $
851,531
2,575,000 Essex County, New Jersey,
General Obligation Bonds,
(FSA Insured),
6.500% due 12/1/11 Aaa AAA
2,855,031
2,500,000 Essex County, New Jersey,
Improvement Authority
Lease, (FGIC Insured),
5.125% due 12/1/14 Aaa AAA
2,509,375
2,500,000 Hoboken, Union City, New
Jersey, Sewer Authority
Revenue, (MBIA Insured)
6.200% due 8/1/19 Aaa AAA
2,740,625
2,500,000 Hudson County, New Jersey,
Improvement Authority,
Solid Waste Revenue,
7.100% due 1/1/20 NR BBB-
2,715,625
1,710,000 Keansburg, New Jersey,
Board of Education,
Certificates of
Participation,
8.000% due 11/1/14 NR BBB-
2,034,900
6,300,000 Mercer County, New Jersey,
Improvement Authority,
(Solid Waste Site Project),
Series A, (FGIC Insured),
6.700% due 4/1/13 Aaa AAA
7,142,625
1,000,000 New Jersey Building
Authority, State Building
Revenue,
5.000% due 6/15/17 Aa AA-
978,750
New Jersey Economic
Development Authority:
495,000 (Dayton Manor Residential
Health Care),
13.000% due 9/1/15 (in
default) NR NR
440,550
845,000 Series A,
6.250% due 12/1/01 Aaa NR
905,206
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
29
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
NEW JERSEY -- (CONTINUED)
New Jersey Health Care
Facilities Finance
Authority:
$ 835,000 (Somerset Medical Center),
Series A, (FGIC Insured),
5.200% due 7/1/24 Aaa AAA $
835,000
1,465,000 Series B, (Passaic General
Hospital),
10.375% due 7/1/14 Baa1 BBB
1,607,838
2,400,000 Series C, (Zurbrugg
Memorial Hospital),
8.500% due 7/1/12 Baa1 BBB+
2,574,000
2,950,000 Series D, (Kennedy Memorial
University Medical Center),
7.875% due 7/1/09 A A-
3,292,937
2,500,000 New Jersey Sports &
Exposition Authority,
Series A,
5.200% due 1/1/24 Aa NR
2,506,250
2,000,000 New Jersey State
Educational Facilities
Authority, (Farleigh
Dickinson), Series C,
7.750% due 7/1/01 NR NR
2,282,500
New Jersey State Housing
and Mortgage Finance
Authority:
2,500,000 (Homebuyer Project), Series
G, (MBIA Insured),
5.350% due 10/1/15 Aaa AAA
2,531,250
3,700,000 Multifamily Housing
Authority, (Presidential
Plaza Apartments), (FHA
Insured),
7.000% due 5/1/30 NR AA
4,033,000
2,150,000 New Jersey State,
Transportation Corporation,
Certificates of
Participation, (FSA
Insured),
6.500% due 10/1/16 Aaa AAA
2,464,438
2,500,000 Perth Amboy, New Jersey,
Board of Education,
Certificates of
Participation, (FSA
Insured),
6.125% due 12/15/17 Aaa AAA
2,712,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
30
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
NEW JERSEY -- (CONTINUED)
$2,000,000 Salem County, New Jersey,
Pollution Control
Authority, Waste Disposal
Revenue, Series 91A, (E.I.
DuPont),
6.500% due 11/15/21 Aa 2 AA $
2,227,500
Union County, New Jersey,
Utility Authority, Solid
Waste Revenue:
4,600,000 Series A,
7.200% due 6/15/14 NR A-
5,134,750
2,000,000 Series D,
6.850% due 6/15/14 Aaa AA+
2,207,500
NEW MEXICO -- 0.5%
5,000,000 Lordsburg, New Mexico,
Pollution Control Revenue
Refunding,
6.500% due 4/1/13 A3 A
5,506,250
250,000 Santa Fe, New Mexico,
Single Family Mortgage
Revenue,
8.450% due 12/1/11 Aa NR
274,688
500,000 Santa Fe, New Mexico, (St.
Vincent's Hospital
Project),
10.625% due 7/1/02 NR A
518,750
NEW YORK -- 4.8%
960,000 Babylon, New York,
Industrial Development
Authority, Babylon
Recycling Center Revenue,
Series A,
8.875% due 3/1/11 NR NR
972,000
City of New York, General
Obligation Bonds:
4,175,000 Series B,
7.000% due 10/1/12 Baa1 A-
4,733,406
3,190,000 Series C,
7.750% due 9/1/05 Baa1 A-
3,536,912
1,000,000 Series C, (AMBAC Insured),
7.750% due 9/1/05 Aaa AAA
1,095,000
55,000 Series C, Subseries 1,
(MBIA Insured),
6.000% due 8/1/01
(unrefunded) Aaa AAA
60,844
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
31
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
NEW YORK -- (CONTINUED)
City of New York, General
Obligation Bonds -- (continued):
$2,000,000 Series C, Subseries 1,
(AMBAC Insured),
6.625% due 8/1/15
(refunded) Aaa AAA $
2,255,000
Series D:
945,000 8.500% due 8/1/13
(prerefunded) Baa1 A-
1,078,481
55,000 8.500% due 8/1/13
(unrefunded) Baa1 A-
61,256
1,000,000 Series D, (FSA Insured),
8.500% due 8/1/13 Aaa AAA
1,118,750
5,000,000 City of New York,
Short/Rite,
9.111% due 8/1/09 Baa1 A-
5,756,250
1,000,000 Metropolitan Transportation
Authority, New York Transit
Facilities Revenue, Series
J, (FGIC Insured),
6.500% due 7/1/18 Aaa AAA
1,113,750
3,085,000 New York State,
Certificates of
Participation, (Hanson
Redevelopment Project),
8.375% due 5/1/08 NR BBB
3,752,131
New York State, Dormitory
Authority Revenue:
5,000,000 Court Facilities Lease,
Series A,
5.375% due 5/15/16 Baa1 BBB+
4,925,000
7,000,000 City University System,
6.00% due 7/1/14 Baa1 BBB
7,455,000
500,000 (Upstate Community
Colleges), Series A, (Co
Lee Insured),
5.750% due 7/1/22 NR AAA
521,875
New York State, Energy,
Research and Development
Authority, (Long Island
Lighting Company):
3,000,000 7.150% due 6/1/20 Baa3 BB+
3,277,500
1,150,000 7.150% due 12/1/20 Baa3 BB+
1,256,375
New York State, Medical
Care Facilities, Mental
Health Facilties, (Cap G
Insured), (FGIC Insured),
3,100,000 6.400% due 11/1/14 Aaa AAA
3,417,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
32
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
NEW YORK -- (CONTINUED)
New York State, Medical
Care Facilities Financing
Authority:
$1,530,000 7.750% due 2/15/00 Baa1 AAA $
1,853,213
1,580,000 7.750% due 2/15/20 Baa1 BBB+
1,763,675
3,300,000 Series C, (FSA Insured),
5.250% due 2/15/21 Aaa AAA
3,287,625
1,850,000 New York State Refunding
Bonds,
7.000% due 11/15/02 A A-
2,183,000
State of New York,
Municipal Bond Banking
Agency, Special Program,
Series A, (Buffalo
Revenue):
575,000 6.500% due 3/15/00 NR BBB+
633,219
1,610,000 6.600% due 3/15/01 NR BBB+
1,795,150
NORTH CAROLINA -- 1.8%
500,000 Charlotte, North Carolina,
Certificates of
Participation, (Convention
Facilities Project), (AMBAC
Insured),
6.750% due 12/1/21 Aaa AAA
589,375
3,000,000 Charlotte, North Carolina,
Special Facilities Revenue,
(Piedmont Aviation Inc.
Project),
9.000% due 7/1/17 Ba3 BB-
3,262,500
North Carolina Eastern
Municipal Power Agency,
Power System Revenue:
3,000,000 Inverse Floater, (MBIA
Insured),
8.320% due 1/1/20 Aaa AAA
3,138,750
Series A,
280,000 8.000% due 1/1/21 Aaa A-
327,600
North Carolina Municipal
Power Agency Systems:
8,700,000 Series B,
7.000% due 1/1/08 A A-
10,233,375
2,300,000 6.250% due 1/1/17 A A
2,458,125
1,000,000 Pitt County, North
Carolina, Certificates of
Participation, (FGIC
Insured),
6.900% due 4/1/08 Aaa AAA
1,120,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
33
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
NORTH DAKOTA -- 0.7%
Mercer County, North
Dakota, Pollution Control
Revenue, (Fixed Basin
Electric Power Co-0p):
$4,900,000 Series E,
7.000% due 1/1/19 A2 A $
5,445,125
2,820,000 Series 1984D,
8.125% due 1/1/19 A2 A
3,059,700
OHIO -- 2.4%
4,000,000 Cleveland, Ohio, Airport
Special Revenue,
(Continental Airlines
Incorporated),
9.000% due 12/1/19 NR NR
4,305,000
915,000 Cleveland, Ohio, City
School District,
9.000% due 12/1/08 Aaa BBB
1,140,319
1,250,000 Cuyahoga County, Ohio,
Hospital Revenue,
(Brentwood Hospital
Project),
9.625% due 11/1/14 Baa1 NR
1,367,188
1,000,000 Lorain, Ohio, Sewer System,
Mortgage Revenue Refunding,
8.750% due 4/1/11 NR BBB-
1,148,750
Ohio State Air Quality
Development Authority,
Pollution Control Revenue:
5,000,000 (Cleveland),
6.850% due 7/1/23 Ba2 BB
5,237,500
4,000,000 (Columbus South), Series A,
(FGIC Insured),
6.375% due 12/1/20 Aaa AAA
4,405,000
5,000,000 (Ohio Edison), Series B,
(AMBAC Insured),
5.625% due 11/15/29 Aaa AAA
5,131,250
5,000,000 (Toledo Edison),
6.875% due 7/1/23 Ba2 BB
5,225,000
Ohio State Housing Finance
Agency, Single Family
Mortgage:
200,000 6.000% due 2/1/16 NR AAA
209,000
160,000 Series 1985 B,
11.375% due 8/1/10 Aa A
166,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
34
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
OHIO -- (CONTINUED)
Ohio State Water
Development Authority,
Pollution Control Revenue:
$ 870,000 (Ohio Edison Project),
10.625% due 7/1/15 Baa2 BBB $
975,488
210,000 Series B, (Pennsylvania
Power Project),
8.100% due 9/1/18 Baa3 BB+
232,837
OKLAHOMA -- 1.6%
Cleveland County, Oklahoma,
Home Loan Authority, Single
Family Mortgage Revenue:
205,000 6.250% due 2/1/98 A NR
214,481
245,000 6.250% due 8/1/98 A NR
257,250
4,820,000 Oklahoma Housing Finance
Agency, Single Family
Mortgage Revenue, Series B,
(GNMA Collateral),
7.997% due 8/1/18 NR AAA
5,308,025
3,150,000 Oklahoma State Turnpike
Authority Revenue, Series
C, (MBIA Insured),
6.250% due 1/1/22 Aaa AAA
3,449,250
2,895,000 9.375% due 6/1/04 Baa2 BB+
3,173,644
2,400,000 7.350% due 12/1/11 Baa2 BB+
2,670,000
3,480,000 9.500% due 6/1/20 Baa2 BB+
3,823,650
PENNSYLVANIA -- 9.5%
4,000,000 Allegheny County,
Pennsylvania, Airport
Revenue, (Greater Pittsburg
International Airport),
(FSA Insured),
6.625% due 1/1/22 Aaa AAA
4,410,000
3,200,000 Allegheny County,
Pennsylvania, Capital
Appreciation, Series C-40,
(AMBAC Insured),
6.000% due 05/01/10 Aaa AAA
3,448,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
35
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
PENNSYLVANIA -- (CONTINUED)
$4,500,000 Allentown, Pennsylvania,
Hospital Authority Revenue,
(Sacred Heart Hospital of
Allentown), Series B,
6.750% due 11/15/15 NR BBB $
4,741,875
1,250,000 Beaver County,
Pennsylvania, Hospital
Authority, (Beaver Medical
Center), Series A, (AMBAC
Insured),
6.250% due 7/1/22 Aaa AAA
1,345,312
Beaver County,
Pennsylvania, Industrial
Development Authority,
Pollution Control Revenue:
1,500,000 (Cleveland Electric),
10.500% due 9/1/15 NR BB
1,674,375
4,500,000 Series A, (Ohio Edison
Company),
10.500% due 10/1/15 NR BBB-
5,085,000
Series B, (Toledo Edison
Company):
250,000 10.750% due 9/15/95 Ba3 NR
275,313
340,000 (Beaver Valley),
12.250% due 9/15/15 Ba3 NR
386,750
2,955,000 Series C, (Toledo Edison
Company), (Beaver Valley),
10.750% due 11/15/15 NR NR
3,320,681
3,000,000 Berks County, Pennsylvania,
Solid Waste Authority,
(FGIC Insured),
6.000% due 4/1/11 Aaa AAA
3,187,500
2,000,000 Delaware County,
Pennsylvania, Hospital
Authority, (Crozer-Chester
Medical Center), (MBIA
Insured),
5.300% due 12/15/20 NR AAA
1,987,500
2,000,000 Delaware County,
Pennsylvania, Industrial
Development Authority,
Resource Recovery, Series
A,
8.100% due 12/1/13 Aa3 A+
2,202,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
36
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
PENNSYLVANIA -- (CONTINUED)
$ 185,000 Falls Township,
Pennsylvania, Hospital
Authority Revenue,
(Delaware Valley Medical
Center), (FHA),
6.000% due 8/1/01 NR AAA $
190,550
3,675,000 Fayette County,
Pennsylvania, Hospital
Authority Revenue,
(Uniontown Hospital
Project),
9.750% due 7/1/15 Baa BBB
4,001,156
3,000,000 Franklin, Pennsylvania,
Industrial Development
Authority, (Chamberburgs
Hospital Project), (FGIC
Insured),
6.250% due 7/1/12 Aaa AAA
3,262,500
1,500,000 Grove City, Pennsylvania,
Area Hospital Authority
Revenue, (United Community
Hospital),
8.125% due 7/1/12 NR BBB-
1,588,125
5,000,000 Harrisburg, Pennsylvania,
Authority Lease Revenue,
(Cap G), (FGIC Insured),
6.625% due 6/1/13 Aaa AAA
5,656,250
Lehigh County,
Pennsylvania, Industrial
Development Authority,
Pollution Control Revenue:
400,000 (Pennsylvania Power and
Light Company Project),
Series B,
10.625% due 9/1/14 A2 A
424,000
5,500,000 Series A, (MBIA Insured),
6.400% due 11/1/21 Aaa AAA
6,056,875
Luzerne County,
Pennsylvania, Industrial
Development Authority:
2,250,000 Exempt Facilities,
(Pennsylvania Gas and
Water), Series A,
6.050% due 1/1/19 Baa3 BBB-
2,289,375
2,500,000 (Pennsylvania Gas), Series
A,
7.200% due 10/1/17 Baa3 BBB-
2,775,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
37
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
PENNSYLVANIA -- (CONTINUED)
Montgomery County,
Pennsylvania, Industrial
Development Authority,
Pollution Control Revenue,
Series A, (Philadelphia
Electric Company):
$3,670,000 10.500% due 5/15/15 Baa1 BBB+ $
4,082,875
1,350,000 8.875% due 6/1/16 Baa1 BBB+
1,512,000
2,380,000 Series B, (MBIA Insured),
6.700% due 12/1/21 Aaa AAA
2,626,925
2,500,000 Montgomery County,
Pennsylvania, Redevelopment
Authority Series A,
6.500% due 7/1/25 NR NR
2,550,000
Northampton County,
Pennsylvania, Industrial
Development Authority,
Pollution Control Revenue:
500,000 Commercial Development,
(Strawbridge Project),
7.200% due 12/15/01 NR BBB
560,625
500,000 Series A, (Metro Edison
Company),
10.500% due 9/1/95 A3 A-
555,625
350,000 North Huntington Township,
Pennsylvania, Municipal
Guaranteed Sewer Revenue,
(MBIA Insured),
6.875% due 4/1/14 Aaa AAA
392,875
11,490,000 Pennsylvania,
Intergovernmental
Cooperative Authority,
(City of Philadelphia
Funding Program), (MBIA
Insured),
5.600% due 6/15/15 Aaa AAA
11,719,800
6,000,000 Pennsylvania State Finance
Agency Revenue, (Municipal
Capital Improvement
Project),
6.600% due 11/1/09 NR A
6,607,500
5,000,000 Pennsylvania State, Higher
Education, Series D, (AMBAC
Insured),
6.050% due 1/1/19 Aaa AAA
5,293,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
38
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
PENNSYLVANIA -- (CONTINUED)
$2,500,000 Pennsylvania State Turnpike
Commission Revenue, Series
P, (AMBAC Insured),
6.000% due 12/1/17 Aaa AAA $
2,662,500
Philadelphia, Pennsylvania,
Municipal Authority, Gas
Works Lease Revenue:
2,500,000 7.625% due 5/1/14 Baa BBB-
2,800,000
2,750,000 14th Series,
6.375% due 7/1/26 Baa BBB-
2,928,750
1,500,000 Philadelphia, Pennsylvania,
Municipal Authority
Revenue, Series B, (Justice
Lease), (FGIC Insured),
7.125% due 11/15/18 Aaa AAA
1,792,500
1,000,000 Series B,
6.400% due 11/15/16 Baa NR
1,045,000
3,480,000 Philadelphia, Pennsylvania,
Water and Sewer Revenue,
(MBIA Insured),
5.250% due 6/15/23 Aaa AAA
3,449,550
2,500,000 Scranton-Lackawanna,
Pennsylvania, Series B,
(Moses Taylor Hospital),
8.500% due 7/1/20 NR BBB
2,909,375
2,000,000 Schuylkill County,
Pennsylvania, Industrial
Development Revenue,
(Schuylkill Energy
Resources, Inc.),
6.500% due 1/1/10 NR NR
2,012,500
PUERTO RICO -- 1.1%
170,000 Commonwealth of Puerto
Rico, Electric Power
Authority, Series L,
8.375% due 7/1/07 Baa1 AAA-
195,925
330,000 Commonwealth of Puerto
Rico, General Obligation
Bonds,
7.750% due 7/1/13 Baa1 AA
390,225
1,100,000 Commonwealth of Puerto
Rico, Municipal Finance
Agency, Series A,
8.250% due 7/1/08 Baa A-
1,284,250
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
39
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
PUERTO RICO -- (CONTINUED)
$2,995,000 Commonwealth of Puerto
Rico, Public Improvement,
Series A,
7.750% due 7/1/17 Baa1 AAA $
3,597,744
455,000 Commonwealth of Puerto
Rico, Refunding Bonds,
8.000% due 7/1/08 Baa1 A
535,194
5,760,000 Commonwealth of Puerto
Rico, Urban Renewal and
Housing Corporation,
7.875% due 10/1/04
(refunded) Baa BBB
6,775,200
RHODE ISLAND -- 0.9%
2,500,000 Rhode Island Depositors
Economic Protection
Corporation, (MBIA
Insured):
Series 91A,
7.100% due 8/1/18 Aaa AAA
2,990,625
2,650,000 Series B,
6.000% due 8/1/17 Aaa AAA
2,779,188
4,750,000 Rhode Island Housing and
Mortgage Finance Authority,
Inverse Floaters,
8.750% due 4/1/24 Aa AA
5,527,812
SOUTH CAROLINA -- 1.5%
2,400,000 Fairfield County, South
Carolina, Industrial
Development Revenue, (Rite
Aid Corporation),
7.900% due 12/1/16 A3 NR
2,616,000
1,500,000 Greenville County, South
Carolina, Industrial
Development Revenue,
(Lockheed Aeromod Center
Project),
7.200% due 11/1/21 NR A-
1,700,625
500,000 Lexington County, South
Carolina, Health Services
District, Hospital Revenue,
(FSA Insured),
6.750% due 10/1/18 Aaa AAA
560,625
1,715,000 Myrtle Beach, South
Carolina, Water and Sewer
Revenue, (MBIA Insured),
5.500% due 3/1/13 Aaa AAA
1,757,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
40
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
SOUTH CAROLINA -- (CONTINUED)
$4,000,000 Richland County, South
Carolina, Pollution Control
Revenue, (Union Camp
Corporation Project),
6.625% due 5/1/22 A1 A- $
4,445,000
2,000,000 Rock Hill, South Carolina,
Utilities System Revenue,
(AMBAC Insured),
7.000% due 1/1/20 Aaa AAA
2,332,500
4,500,000 South Carolina State,
Public Service Authority
Revenue, Series A, (AMBAC
Insured),
6.375% due 7/1/21 Aaa AAA
4,938,750
125,000 Sumter County, South
Carolina, Hospital
Facilities Revenue,
10.000% due 10/1/04
(prerefunded) NR AAA
138,750
SOUTH DAKOTA -- 0.4%
Oglala Sioux , South
Dakota, Tribal Revenue
Bond:
345,000 7.000% due 7/1/99 Aaa NR
354,487
1,865,000 7.500% due 7/1/13 Aaa NR
1,930,275
1,855,000 10.000% due 7/1/13 Aaa NR
2,082,238
TENNESSEE -- 2.2%
Knox County, Tennessee,
Health Education and
Housing, (Fort Sanders
Alliance), (MBIA Insured):
5,000,000 5.250% due 1/1/15 Aaa AAA
5,006,250
1,250,000 Series C,
7.000% due 1/1/15 Aaa AAA
1,450,000
1,400,000 Knoxville, Tennessee,
Community Development
Corporation, (GNMA
Morningside Gardens),
6.100% due 7/20/20 NR AAA
1,452,500
Memphis-Shelby County,
Tennessee, Airport
Authority Revenue, (Federal
Express):
3,400,000 6.750% due 9/1/12 Baa3 BBB
3,706,000
3,000,000 6.200% due 7/1/14 Baa3 BBB
3,112,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
41
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
TENNESSEE -- (CONTINUED)
$1,000,000 Metropolitan Nashville &
Davidson County, Tennessee,
Industrial Development
Board Revenue, (Volunteer
Health Care), Series A,
10.750% due 6/1/18 NR NR $
400,000
Metropolitan Nashville
Airport Authority,
Tennessee Airport Revenue,
Special Facilities:
2,500,000 (American Airlines
Project),
9.875% due 10/1/05 Baa2 BB+
2,743,750
5,000,000 Series C, (FGIC Insured),
6.600% due 7/1/15 Aaa AAA
5,631,250
3,260,000 Tennessee, Housing
Development Agency, Series
A,
5.850% due 7/1/13 A1 A+
3,345,575
TEXAS -- 10.9%
2,325,000 Austin, Texas, Utility
System Revenue, (AMBAC
Insured),
7.000% due 5/15/16 Aaa AAA
2,667,938
1,000,000 Bell County, Texas, Health
Care Facilities, Series A,
(Living Tech Inc. Project),
10.500% due 6/15/18 NR NR
920,000
1,000,000 Bexar County, Texas,
Healthcare Facilities,
Hospital Revenue,
(Southwest Texas Methodist
Hospital), (AMBAC Insured),
6.750% due 11/1/21 Aaa AAA
1,125,000
Brazos River Authority,
Texas, Pollution Control
Revenue, (Houston Lighting
and Power Company):
Series A:
750,000 7.875% due 11/1/18 A2 A
831,563
Series A, (AMBAC Insured):
2,000,000 6.700% due 3/1/17 Aaa AAA
2,222,500
3,500,000 5.500% due 5/1/22 Aaa AAA
3,521,875
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
42
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
TEXAS -- (CONTINUED)
Brazos River Authority,
Texas, Pollution Control
Revenue, (Houston Lighting
and Power Company) --
(continued):
$1,900,000 Series B, (FGIC Insured),
7.200% due 12/1/18 Aaa AAA $
2,163,625
(Texas Utilities Electric
Company Project):
3,000,000 8.250% due 12/1/16 Baa2 BBB
3,322,500
3,000,000 7.875% due 3/1/17 Baa2 BBB
3,303,750
4,000,000 Brazosport, Texas, Water
Authority Revenue, (AMBAC
Insured),
5.500% due 9/1/18 Aaa AAA
4,025,000
2,000,000 Brownsville, Texas,
Utilities System Revenue,
Series A,
8.000% due 9/1/14 Baa1 NR
2,262,500
2,000,000 Colorado River, Texas,
Municipal Water Revenue,
Series 1991, (AMBAC
Insured),
6.750% due 1/1/11 Aaa AAA
2,295,000
Dallas-Fort Worth, Texas,
International Revenue
Bonds:
4,250,000 7.125% due 11/1/26 Ba1 BB
4,510,312
(UPS Services, Inc.),
4,000,000 6.600% due 5/1/32 Aaa AAA
4,455,000
2,000,000 Denton County, Texas,
Utility Revenue,
Reclamation Road Utility
District,
8.500% due 6/1/16 NR NR
2,000,000
Gulf Coast Waste Disposal
Authority, Texas, Waste
Disposal and Sewer System
Control, Revenue Refunding,
(Bay Port Area System),
(FSA Insured):
1,395,000 6.700% due 10/1/10 Aaa AAA
1,550,194
990,000 6.700% due 10/1/11 Aaa AAA
1,100,137
6,150,000 Harris County, Texas,
Refunding Toll Road
Authority, Sr. Lien, Series
A, (AMBAC Insured),
6.500% due 8/15/17 Aaa AAA
6,772,688
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
43
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
TEXAS -- (CONTINUED)
$ 235,000 Heart Of Texas, Housing
Finance Authority, Single
Family Mortgage Revenue,
11.000% due 1/1/11 NR BBB- $
246,162
3,000,000 Houston, Texas, Water and
Sewer Systems, Series A,
Jr. Lien, (MBIA Insured),
6.375% due 12/1/22 Aaa AAA
3,285,000
Matagorda County, Texas,
Pollution Control Revenue,
Navajo District No. 1:
(Central Power and Light
Company Project):
1,500,000 10.125% due 10/15/14 A3 A-
1,700,625
1,475,000 9.750% due 7/1/15 A2 A
1,635,406
3,250,000 7.875% due 12/1/16 A3 A-
3,607,500
8,000,000 6.000% due 7/1/28 A3 A-
8,260,000
(Houston Light and Power
Company Project):
1,300,000 7.875% due 11/1/26 A2 A
1,438,125
5,000,000 (AMBAC Insured),
6.700% due 3/1/27 Aaa AAA
5,593,750
1,695,000 Series A,
10.000% due 10/15/15 A3 A-
1,902,638
Series B,
500,000 7.700% due 2/1/19 A2 A
562,500
Series E, (FGIC Insured),
2,100,000 7.200% due 12/1/18 Aaa AAA
2,391,375
3,000,000 North Texas, Higher
Education Authority Inc.,
6.300% due 4/1/09 A NR
3,165,000
Port Corpus Christi, Texas,
Industrial Development
Revenue:
4,000,000 (Hoechst Celanese
Corporation Project),
6.875% due 4/1/17 A2 AA-
4,480,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
44
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
TEXAS -- (CONTINUED)
Port Corpus Christi, Texas,
Industrial Development
Revenue -- (continued):
$2,000,000 (Valero Refining and
Manufacturing), Series A,
10.250% due 6/1/17 Baa3 BBB- $
2,392,500
4,000,000 Red River Authority, Texas,
Pollution Control Revenue,
(Hoechst Celanese
Corporation Project),
6.875% due 4/1/17 A2 AA-
4,485,000
Sabine River Authority,
Texas, Pollution Control
Revenue:
3,500,000 (Texas Electric Project),
(FSA Insured),
5.550% due 5/1/22 Aaa AAA
3,535,000
4,750,000 (Southwestern Electric
Power Company Project),
8.200% due 7/1/14 Aa3 NR
5,302,187
Sam Rayburn, Texas,
Municipal Power Agency,
Power Supply System
Revenue:
2,200,000 6.750% due 10/1/14 Baa BB
2,277,000
2,500,000 Series B,
6.125% due 10/1/13 Baa BB
2,450,000
San Antonio, Texas, Airport
REDS, 93, (AMBAC Insured):
3,000,000 7.125% due 7/1/06+++ Aaa AAA
3,547,500
1,000,000 7.125% due 7/1/08+++ Aaa AAA
1,182,500
2,000,000 7.375% due 7/1/13+++ Aaa AAA
2,395,000
2,000,000 Terrel Hills, Texas, Higher
Education, (Incarnate World
College Project), (Co Lee
Insured),
5.750% due 3/15/13 Aaa AAA
2,082,500
3,010,000 Texas Municipal Power
Agency, Revenue Bonds,
Series A, (AMBAC Insured),
6.750% due 9/1/12 Aaa AAA
3,442,688
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
45
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
TEXAS -- (CONTINUED)
$2,475,000 Texas State Department,
Housing and Community
Affairs, Home Mortgage
Revenue, Series A, (GNMA
Insured),
6.950% due 7/1/23 NR AAA $
2,710,125
2,000,000 Texas State Public Property
Finance Corporation
Revenue, (Mental Health and
Retardation), (FGIC
Insured),
5.500% due 9/1/13 Aaa AAA
2,005,000
3,000,000 Texas State Veterans
Housing Assistance, Single
Family Mortgage Revenue,
6.800% due 12/1/23 Aa AA
3,206,250
500,000 Travis County, Texas,
Hospital Revenue,
(Daughters of Charity
Health System), (Seton
Medical Center),
10.125% due 11/1/15 Aa NR
563,125
975,000 Tyler, Texas, Health
Facilities Revenue, (Park
Place Limited Project),
12.500% due 12/1/18 NR NR
1,048,125
1,250,000 Westside Calhoun County,
Tax District, (Union
Carbide Chemicals
Corporation),
6.400% due 5/1/23 Baa2 BBB
1,304,688
UTAH -- 0.2%
1,320,000 Utah State Housing Finance
Agency, Single Family
Mortgage:
Series D,
8.625% due 1/1/19 NR AA
1,387,650
530,000 Series D1,
6.200% due 7/1/16 Aa NR
537,950
VIRGIN ISLANDS -- 0.1%
1,215,000 Virgin Islands Port
Authority, Marine Division
Revenue, Series A,
10.125% due 11/1/05 NR BBB-
1,268,156
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
46
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
VIRGIN ISLANDS -- (CONTINUED)
Virgin Islands Public
Finance Fund, Matching Fund
Note, Series A:
$ 15,000 7.300% due 10/1/18
(escrowed to maturity) Aaa AAA $
18,769
110,000 7.300% due 10/1/18 Aaa AAA
131,862
VIRGINIA -- 2.1%
1,000,000 Chesapeake Bay, Bridge and
Tunnel Community Revenue,
(MBIA Insured),
6.375% due 7/1/22 Aaa AAA
1,088,750
2,435,000 Fairfax County, Virginia,
Redevelopment and Housing
Authority Revenue,
Multifamily Housing, Series
A, (Kingsley), (FHA
Insured),
7.000% due 5/1/26 NR AAA
2,678,500
1,880,000 Henrico County, Virginia,
Industrial Development
Authority, (Maryview
Hospital), Series B,
7.500% due 9/1/11 A1 A+
2,260,700
1,500,000 Hopewell, Virginia,
Industrial Development
Authority, Resource
Recovery, (Stone Container
Corporation Project),
8.250% due 6/1/16 NR NR
1,533,750
2,585,000 Norfolk, Virginia,
Industrial Development
Revenue, (Sentera Hospital,
Norfolk Project),
7.100% due 11/1/10 Aa AA
2,937,206
3,600,000 Richmond, Virginia, General
Obligation Bonds, Series A,
6.500% due 7/15/21 Aaa AA
4,207,500
4,750,000 Richmond, Virginia,
Metropolitan Expressway
Authority, Series B, (FGIC
Insured),
6.250% due 7/15/22 Aaa AAA
5,159,688
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
47
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
VIRGINIA -- (CONTINUED)
$1,400,000 Southern Public Service
Authority, Solid Waste,
6.000% due 7/1/17 A A- $
1,457,750
4,000,000 Virginia State Housing
Authority, Series H,
5.250% due 7/1/23 Aa AAA
3,925,000
WASHINGTON -- 2.1%
1,500,000 King County, Washington,
Public Hospital, (Valley
Medical Center), (AMBAC
Insured),
7.250% due 9/15/15 Aaa AAA
1,743,750
500,000 Pierce County, Washington,
Economic Development
Corporation, Industrial
Revenue Authority, (Pioneer
Business Forms Inc.
Project),
10.125% due 10/1/00 NR AA-
506,250
2,000,000 Port of Moses Lake,
Washington, Pollution
Control Revenue, (Union
Carbide),
7.875% due 8/1/06 Baa2 BBB
2,182,500
2,000,000 Port of Seattle,
Washington, Sub. Lien
Revenue, Series C, (MBIA
Insured),
6.625% due 8/1/17 Aaa AAA
2,242,500
3,000,000 Snohomish County,
Washington, Electric
Generation System Revenue,
(Public Utility District
No. 1), Series 1986 A,
(FGIC Insured),
6.000% due 1/1/18 Aaa AAA
3,198,750
Tacoma, Washington,
Electric Systems Revenue,
Residual Interest Bonds,
(AMBAC Insured):
4,000,000 10.259% due 1/1/15 Aaa AAA
4,685,000
3,500,000 Series B,
6.150% due 1/1/08 Aaa AAA
3,823,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
48
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
WASHINGTON -- (CONTINUED)
$2,750,000 Washington State Health
Care Facilities Authority
Revenue, (Franciscan
Health, St. Joseph), (MBIA
Insured),
6.700% due 7/1/21 Aaa AAA $
3,049,063
Washington State Public
Power Supply System,
(Nuclear Project No. 1),
Series A:
3,000,000 7.500% due 7/1/07 Aa AA
3,457,500
500,000 (MBIA Insured),
6.250% due 7/1/17 Aaa AAA
541,250
WEST VIRGINIA -- 1.7%
2,000,000 Beckley, West Virginia,
Industrial Development
Authority, (Water
Commission Project),
7.000% due 10/1/17 NR A
2,237,500
3,500,000 Harrison County, West
Virginia, Waste Disposal,
(West Virginia Power
Company), Series B,
6.300% due 5/1/23 A1 A
3,745,000
Marion County, West
virginia, County
Commission, (American
Power, Paper Recycling):
2,500,000 7.750% due 12/1/11 NR NR
2,518,750
5,000,000 9.000% due 12/1/11 NR NR
5,037,500
4,000,000 Mason County, West
Virginia, Pollution
Control, (Ohio Power
Project), Series B, (AMBAC
Insured),
5.450% due 12/1/16 Aaa AAA
4,050,000
2,300,000 West Virginia School
Building Authority Revenue,
Series A, (MBIA Insured)
7.000% due 7/1/11 Aaa AAA
2,668,000
500,000 West Virginia State Water
Development Authority,
Series A, (Cap G Insured),
7.000% due 11/1/25 Aaa AAA
578,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
49
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
RATINGS MARKET VALUE
FACE VALUE MOODY'S S&P (NOTE 1)
-----------------------------------------------------------------------------
- --
<C> <S> <C> <C> <C>
MUNICIPAL BONDS AND NOTES -- (CONTINUED)
WISCONSIN -- 0.8%
$2,000,000 Racine County, Wisconsin,
Health Center Revenue,
8.125% due 8/1/21 Baa1 BBB $
2,167,500
4,500,000 Wisconsin State, General
Obligation Bonds, Series G,
6.750% due 5/1/10 Aaa AAA
5,101,875
1,665,000 Wisconsin State Health Care
Facilities Authority
Revenue, (Medical Savings
Inc. Project),
9.250% due 10/1/16 NR NR
1,766,981
-----------------------------------------------------------------------------
- --
TOTAL MUNICIPAL BONDS AND NOTES
(Cost $1,095,711,151)
$1,195,583,448
-----------------------------------------------------------------------------
- --
SHORT-TERM TAX-EXEMPT INVESTMENTS -- 0.5%
ALASKA -- 0.0%
200,000 Valdez, Alaska, Marine
Terminal Revenue:
2.150% due 10/1/25+ P1 A1+
200,000
PUERTO RICO -- 0.5%
5,500,000 Commonwealth of Puerto
Rico, Government
Development Bank,
1.750% due 12/1/15++ VMIG1 A1+
5,500,000
-----------------------------------------------------------------------------
- --
TOTAL SHORT-TERM TAX-EXEMPT
INVESTMENTS
(Cost $5,700,000)
5,700,000
-----------------------------------------------------------------------------
- --
TOTAL INVESTMENTS (Cost $1,101,411,151*) 100.2%
1,201,283,448
OTHER ASSETS AND LIABILITIES (NET) (0.2)
(2,391,382)
-----------------------------------------------------------------------------
- --
NET ASSETS 100.0%
$1,198,892,066
-----------------------------------------------------------------------------
- --
<FN>
*Aggregate cost for Federal tax purposes.
+Variable rate demand notes are payable upon not more than one business day's
notice.
++Variable rate demand notes are payable upon not more than seven calendar
days' notice.
+++REDS (Refunding Escrow Deposit) and when-issued security (See Note 1).
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
50
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
SUMMARY OF MUNICIPAL BONDS AND SHORT-TERM TAX-EXEMPT
INVESTMENTS BY COMBINED RATINGS
<TABLE>
<CAPTION>
Standard & Percent
Moody's Poor's of Value
<S> <C> <C> <C>
-------------------------------------------
Aaa AAA 43%
-------------------------------------------
Aa AA 8
-------------------------------------------
A A 17
-------------------------------------------
Baa BBB 21
-------------------------------------------
Ba BB 3
-------------------------------------------
B B 1
-------------------------------------------
VMIG1 A1+ 1
-------------------------------------------
NR NR 6
-------------------------------------------
100%
---------------
</TABLE>
51
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$1,101,411,151) (Note 1)
See accompanying schedule $1,201,283,448
Cash 23,163
Interest receivable 17,189,186
Receivable for investment securities
sold 4,791,966
Receivable for Fund shares sold 2,736,725
- ------------------------------------------------------------------------------
TOTAL ASSETS 1,226,024,488
- ------------------------------------------------------------------------------
LIABILITIES:
Payable for investment securities
purchased $24,652,782
Dividends payable 580,471
Distribution fee payable (Note 3) 495,899
Payable for Fund shares redeemed 460,341
Investment advisory fee payable (Note
2) 403,722
Administration fee payable (Note 2) 201,861
Service fee payable (Note 3) 151,396
Custodian fees payable (Note 2) 45,000
Transfer agent fees payable (Note 2) 35,650
Accrued expenses and other payables 105,300
- ------------------------------------------------------------------------------
TOTAL LIABILITIES 27,132,422
- ------------------------------------------------------------------------------
NET ASSETS $1,198,892,066
- ------------------------------------------------------------------------------
NET ASSETS consist of:
Distributions in excess of net
investment income earned to date $
(3,778,054)
Accumulated net realized gain on
investments sold 6,845,642
Net unrealized appreciation of
investments 99,872,297
Par value 64,580
Paid-in capital in excess of par value 1,095,887,601
- ------------------------------------------------------------------------------
TOTAL NET ASSETS $1,198,892,066
- ------------------------------------------------------------------------------
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($21,420,087 DIVIDED BY 1,153,790 shares of beneficial
interest outstanding) $18.56
- ------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE ($18.56 DIVIDED BY
0.955)
(based on sales charge of 4.5% of the offering price on
January 31, 1994) $19.43
- ------------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($1,177,471,979 DIVIDED BY 63,425,956 shares of
beneficial interest outstanding) $18.56
- ------------------------------------------------------------------------------
<FN>
+Redemption price per share for Class B shares is equal to net asset value
less
any applicable contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
52
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED JANUARY 31,
1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest
$38,435,050
- ------------------------------------------------------------------------------
- -----
EXPENSES:
Distribution fee (Note 3) $2,901,602
Investment advisory fee (Note 2) 2,356,439
Administration fee (Note 2) 1,178,220
Service fee (Note 3) 883,665
Transfer agent fees (Notes 2 and 4) 208,538
Custodian fees (Note 2) 87,303
Legal and audit fees 78,533
Trustees' fees and expenses (Note 2) 6,997
Other 163,241
- ------------------------------------------------------------------------------
- -----
TOTAL EXPENSES
7,864,538
- ------------------------------------------------------------------------------
- -----
NET INVESTMENT INCOME
30,570,512
- ------------------------------------------------------------------------------
- -----
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain on investments sold during the
period
4,523,270
Net unrealized appreciation of investments
during the period
23,366,762
- ------------------------------------------------------------------------------
- -----
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
27,890,032
- ------------------------------------------------------------------------------
- -----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$58,460,544
- ------------------------------------------------------------------------------
- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
53
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR
1/31/94
ENDED
(UNAUDITED)
7/31/93
<S> <C>
<C>
Net investment income $ 30,570,512
$ 54,744,965
Net realized gain on investments sold during the period 4,523,270
10,471,895
Net unrealized appreciation of investments during the
period 23,366,762
17,261,814
- ------------------------------------------------------------------------------
- -------
Net increase in net assets resulting from operations 58,460,544
82,478,674
Distributions to shareholders from net investment
income:
Class A (518,585)
(222,387)
Class B (31,641,104)
(53,903,795)
Distributions in excess of net investment income:
Class A --
(8,993)
Class B --
(2,179,884)
Distributions to shareholders from net realized gain on
investments:
Class A (112,692)
(15,935)
Class B (5,946,935)
(9,037,717)
Net increase in net assets from share transactions
(Note 6):
Class A 7,629,137
13,372,323
Class B 49,420,570
219,779,670
- ------------------------------------------------------------------------------
- -------
Net increase in net assets 77,290,935
250,261,956
NET ASSETS:
Beginning of period 1,121,601,131
871,339,175
- ------------------------------------------------------------------------------
- -------
End of period (including distributions in excess of net
investment income of $3,778,054 and $2,188,877,
respectively) $1,198,892,066
$1,121,601,131
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
54
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
PERIOD
1/31/94
ENDED
(UNAUDITED)
7/31/93*++
<S> <C> <C>
Net Asset Value, beginning of period $ 18.24 $
17.45
- ------------------------------------------------------------------------------
- ------
Income from investment operations:
Net investment income 0.54
0.78
Net realized and unrealized gain on investments 0.43
1.00
- ------------------------------------------------------------------------------
- ------
Total from investment operations 0.97
1.78
Distributions to shareholders:
Distributions from net investment income (0.56)
(0.80)
Distributions in excess of net investment income --
(0.03)
Distributions from net realized gains (0.09)
(0.16)
- ------------------------------------------------------------------------------
- ------
Total distributions (0.65)
(0.99)
- ------------------------------------------------------------------------------
- ------
Net Asset Value, end of period $ 18.56 $
18.24
- ------------------------------------------------------------------------------
- ------
Total return+ 5.45%
10.24%
- ------------------------------------------------------------------------------
- ------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $21,420
$13,508
Ratio of operating expenses to average net assets 0.85%**
0.86%**
Ratio of net investment income to average net assets 5.67%**
6.03%**
Portfolio turnover rate 11%
34%
- ------------------------------------------------------------------------------
- ------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
++Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the period
since the use of the undistributed method does not accord with results of
operations.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
55
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED YEAR
YEAR
1/31/94 ENDED
ENDED
(UNAUDITED) 7/31/93++
7/31/92
<S> <C> <C>
<C>
Net Asset Value, beginning of period $ 18.24 $ 18.00
$ 16.97
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.49 0.98
1.04
Net realized and unrealized gain/
(loss) on investments 0.43 0.45
1.17
- ------------------------------------------------------------------------------
- -------
Total from investment operations 0.92 1.43
2.21
Distributions to shareholders:
Distributions from net investment income (0.51) (0.98)
(1.04)
Distributions in excess of net
investment income -- (0.04)
- --
Distributions from net realized gains (0.09) (0.17)
(0.13)
Distributions from capital -- --
(0.01)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.60) (1.19)
(1.18)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 18.56 $ 18.24
$ 18.00
- ------------------------------------------------------------------------------
- -------
Total return+ 5.17% 8.28%
13.50%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $1,177,472 $1,108,093
$871,339
Ratio of operating expenses to
average net assets 1.34%** 1.38%
1.45%#
Ratio of net investment income to average
net assets 5.18%** 5.52%
5.96%
Portfolio turnover rate 11% 34%
61%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced operations on September 16, 1985. Those shares in
existence
prior to November 6, 1992 were designated Class B shares.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
++Per share amounts have been calculated using the monthly average share
method, which more appropriately presents the per share data for the
period,
since the use of the undistributed method does not accord with results of
operations.
+++Annualized expense ratio before waiver of fees by investment adviser,
sub-investment adviser and administrator and distributor for the period
ended
July 31, 1986 was 1.58%.
#Annualized operating expense ratio excludes interest expense. The annualized
ratio including interest expense for the year ended July 31, 1992 was 1.46%.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
56
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED
7/31/91 7/31/90 7/31/89 7/31/88 7/31/87
7/31/86*
<S> <C> <C> <C> <C> <C>
$ 16.98 $ 17.31 $ 16.44 $ 16.48 $ 16.30 $ 15.00
---------------------------------------------------------------------------
- ----
1.10 1.12 1.13 1.13 1.10 1.04
0.10 (0.30) 0.88 0.02 0.18 1.30
---------------------------------------------------------------------------
- ----
1.20 0.82 2.01 1.15 1.28 2.34
(1.10) (1.12) (1.13) (1.13) (1.10) (1.04)
-- -- -- -- -- --
(0.11) (0.03) (0.01) (0.06) -- --
-- -- -- -- -- --
---------------------------------------------------------------------------
- ----
(1.21) (1.15) (1.14) (1.19) (1.10) (1.04)
---------------------------------------------------------------------------
- ----
$ 16.97 $ 16.98 $ 17.31 $ 16.44 $ 16.48 $ 16.30
---------------------------------------------------------------------------
- ----
7.40% 4.95% 12.68% 7.32% 7.90% 15.89%
---------------------------------------------------------------------------
- ----
$639,340 $573,930 $557,518 $451,262 $453,158 $349,527
1.45% 1.47% 1.44% 1.43% 1.57%
1.53%**+++
6.48% 6.57% 6.70% 6.99% 6.43%
6.88%**
44% 29% 21% 12% 16% 6%
---------------------------------------------------------------------------
- ----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
57
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Income Funds (the "Trust") was organized as a
"Massachusetts business trust" under the laws of the Commonwealth of
Massachusetts on March 12, 1985. The Trust is registered with the Securities
and
Exchange Commission under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. As of the date of
this report, the Trust offered eight managed investment funds: Smith Barney
Shearson Premium Total Return, Smith Barney Shearson Convertible Fund, Smith
Barney Shearson Global Bond Fund, Smith Barney Shearson High Income Fund,
Smith
Barney Shearson Tax-Exempt Income Fund (the "Fund"), Smith Barney Shearson
Money
Market Fund, Smith Barney Shearson Diversified Strategic Income Fund and Smith
Barney Shearson Utilities Fund. The Fund offers two classes of shares to the
general public: Class A shares and Class B shares. Class A shares are sold
with
a front-end sales charge. Class B shares may be subject to a contingent
deferred
sales charge ("CDSC"). Class B shares will convert automatically to Class A
shares eight years after the date of original purchase. Both classes of shares
have identical rights and privileges except with respect to the effect of the
respective sales charges, the distribution and/ or service fees borne by each
class, expenses allocable exclusively to each class, voting rights on matters
affecting a single class, the exchange privilege of each class and the
conversion feature of Class B shares. The following is a summary of
significant
accounting policies consistently followed by the Fund in the preparation of
its
financial statements.
PORTFOLIO VALUATION: Securities are valued by The Boston Company Advisors,
Inc.
("Boston Advisors") after consultation with an independent pricing service
(the
"Pricing Service") approved by the Board of Trustees. When, in the judgment of
the Pricing Service, quoted bid prices for investments are readily available
and
are representative of the bid side of the market, these investments are valued
at the mean between the quoted bid prices and asked prices. Investments for
which, in the judgment of the Pricing Service, there are no readily obtainable
market quotations are carried at fair value as determined by the Pricing
Service, based on methods which include consideration of yields or prices of
municipal securities of comparable quality, coupon, maturity and type;
indications as to value from dealers; and general market conditions. The
procedures of the Pricing Service are
58
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
reviewed periodically by the officers of the Trust under the general
supervision
and responsibility of the Trustees. Short-term investments that mature in 60
days or less are valued at amortized cost.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Interest income is recorded on the
accrual basis. Investment income and realized and unrealized gains and losses
are allocated based upon the relative net assets of each class of shares.
Securities purchased or sold on a when-issued or delayed-delivery basis may be
settled a month or more after the trade date; interest income is not accrued
until settlement date. The Fund instructs the custodian to segregate assets in
a
separate account with a current value at least equal to the amount of its
when-issued purchase commitments.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income are determined on a class level, are declared on each day that the Fund
is open for business and are paid on the last day of the Smith Barney Shearson
Inc. ("Smith Barney Shearson") statement month. Distributions, if any, of any
net short-and long-term capital gains earned will be paid annually after the
close of the fiscal year in which they are earned. Additional distributions of
net investment income and capital gains from the Fund may be made at the
discretion of the Board of Trustees in order to avoid the application of a 4%
nondeductible excise tax on certain undistributed amounts of ordinary income
and
capital gains. Income distributions and capital gain distributions on a Fund
level are determined in accordance with income tax regulations which may
differ
from generally accepted accounting principles. These differences are primarily
due to timing differences and differing characterization of distributions made
by the Fund as a whole.
FEDERAL INCOME TAXES: The Trust intends that the Fund qualify as a regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code
of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
59
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION
AGREEMENT AND OTHER PARTY TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual Management
Corp., which is controlled by Smith Barney Shearson Holdings Inc.
("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. Under the Advisory
Agreement, the Fund pays a monthly fee at the annual rate of 0.40% of the
value
of its average daily net assets.
Boston Advisors, an indirect wholly owned subsidiary of Mellon Bank
Corporation
("Mellon"), serves as the Fund's administrator pursuant to an administration
agreement (the "Administration Agreement"). Under the Administration
Agreement,
the Fund pays a monthly fee at the annual rate of .20% of the value of the
Fund's average daily net assets.
For the six months ended January 31, 1994, Smith Barney Shearson received from
investors $112,518 representing commissions (sales charges) on sales of Class
A
shares.
A CDSC is generally payable by a shareholder in connection with the redemption
of Class B shares within five years (eight years in the case of purchases by
certain 401(k) plans) after the date of purchase. In circumstances in which
the
CDSC is imposed, the amount ranges between 4.5% and 1% of net asset value
depending on the number of years since the date of purchase (except in the
case
of purchases by certain 401(k) plans in which case a 3% CDSC is imposed for
the
eight year period after the date of purchase). For the six months ended
January
31, 1994, Smith Barney Shearson received from shareholders $594,315 in CDSCs
on
the redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, Boston Advisors or
of
any parent or subsidiary of those corporations receives any compensation from
the Trust for serving as a Trustee or officer of the Trust. The Trust pays
each
Trustee who is not an officer, director or employee of Smith Barney Shearson,
Boston Advisors or any of their affiliates $6,000 per annum plus $1,500 per
meeting attended and reimburses each such Trustee for travel and out-of-pocket
expenses.
60
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Trust's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Trust's shares pursuant to a
distribution agreement with the Trust and sells shares of the Fund through
Smith
Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a Services and
Distribution Plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney Shearson for servicing shareholder accounts for Class A and Class B
shareholders, and covers expenses incurred in distributing Class B shares.
Smith
Barney Shearson is paid an annual service fee with respect to Class A and
Class
B shares of the Fund at the annual rate of 0.15% of the average daily net
assets
of each respective class of shares. Smith Barney Shearson is also paid an
annual
distribution fee with respect to Class B shares at the annual rate of 0.50% of
the value of the average daily net assets of Class B shares. For the six
months
ended January 31, 1994, the service fee for Class A and Class B shares was
$13,184 and $870,481, respectively. For the six months ended January 31, 1994,
the distribution fee for Class B shares was $2,901,602.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class
of
shares are prorated among the classes based upon the relative net assets of
each
class. Operating expenses directly attributable to a class of shares are
charged
to that class' operations. In addition to the above service and distribution
fees, class specific operating expenses include transfer agent fees. For the
six
months ended January 31, 1994, transfer agent fees for Class A and Class B
shares were $3,829 and $204,709, respectively.
61
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
investments and U.S. government securities, aggregated $188,910,859 and
$132,752,890, respectively, for the six months ended January 31, 1994.
At January 31, 1994, aggregate gross unrealized appreciation for all
securities
in which there was an excess of value over tax cost was $102,136,616 and
aggregate gross unrealized depreciation for all securities in which there was
an
excess of tax cost over value was $2,264,319.
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest of
each
class in each separate series with a $.001 par value. Changes in shares of
beneficial interest of the Fund which are divided into two classes (Class A
and
Class B) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93*
CLASS A SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 1,061,278 $ 19,603,142
783,584 $14,149,777
Issued as reinvestment of dividends 25,037 463,101
10,849 196,417
Redeemed (673,083) (12,437,106)
(53,875) (973,871)
- ------------------------------------------------------------------------------
- -------
Net increase 413,232 $ 7,629,137
740,558 $13,372,323
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated Class B shares.
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR
ENDED
1/31/94
7/31/93*
CLASS B SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 5,077,986 $ 93,909,750 17,824,927
$ 318,132,111
Issued as reinvestment of dividends 1,210,420 22,389,613 2,175,647
38,812,324
Redeemed (3,613,956) (66,878,793) (7,669,161)
(137,164,765)
- ------------------------------------------------------------------------------
- -------
Net increase 2,674,450 $ 49,420,570 12,331,413
$ 219,779,670
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated Class B shares.
</TABLE>
62
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Continental Bank N.A. under an Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992 primarily for
temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. The Fund may
borrow up to the lesser of $25 million or 10% of its net assets. Interest is
payable either at the bank's Money Market Rate or the London Interbank Offered
Rate (LIBOR) plus .375% on an annualized basis. The Fund and the other
affiliated entities are charged an aggregate commitment fee of $125,000 which
is
allocated equally among each of the participants. The Agreement requires,
among
other provisions, each participating fund to maintain a ratio of net assets
(not
including funds borrowed pursuant to the Agreement) to aggregate amount of
indebtedness pursuant to the agreement of no less than 5 to 1. During the six
months ended January 31, 1994, the Fund had an average outstanding daily
balance
of $80,435 with interest rates ranging from 3.3800% to 3.6875%. Interest
expense
totalled $1,549 for the six months ended January 31, 1994 and has been
included
in other expenses on the Statement of Operations for the six months ended
January 31, 1994. At January 31, 1994, the Fund had no outsanding borrowings
under this Agreement.
63
<PAGE>
Smith Barney Shearson
Tax-Exempt Income Fund
- ---------------------------------------------------------------------------
GLOSSARY OF COMMONLY USED MUTUAL FUND TERMS
CAPITAL GAIN (OR LOSS) This is the increase (or decrease) in the market value
(price) of a security in your portfolio. If a stock or bond appreciates in
price, there is a capital gain; if it depreciates, there is a capital loss. A
capital gain or loss is "realized" upon the sale of a security; if net capital
gains exceed net capital losses, there may be a capital gain distribution to
shareholders.
CDSC (CONTINGENT DEFERRED SALES CHARGE) One kind of back-end load, a CDSC is
imposed if shares are redeemed during the first few years of ownership. The
CDSC
may be expressed as a percentage of either the original purchase price or the
redemption proceeds. Most CDSCs decline over time, and some will not be
charged
if shares are redeemed after a certain period of time.
DISTRIBUTION RATE This is the rate at which a mutual fund pays out (or
distributes) interest, dividends and realized capital gains to shareholders. A
fund's distribution rate is usually expressed as an annualized percent of the
fund's offering price.
DIVIDEND This is income generated by securities in a portfolio and distributed
after expenses to shareholders.
NET ASSET VALUE (NAV) Net asset value is the total market value of all
securities held by a fund, minus any liabilities, divided by the number of
shares outstanding. It is the value of a single share of a mutual fund on a
given day. The total value of your investment would be the NAV multiplied by
the
number of shares you own.
SEC YIELD This standardized calculation of a mutual fund's yield is based on a
formula developed by the Securities and Exchange Commission (SEC) to allow
funds
to be compared on an equal basis. It is an annualized yield based on the
portfolio's potential earnings from dividends, interest and yield to maturity
of
its holdings, and it reflects the payments of all portfolio expenses for the
most recent 30-day period. Mutual funds are required to use this figure when
stating yield.
TOTAL RETURN Total return measures a fund's performance, taking into account
the
combination of dividends paid and the gain or loss in the value of the
securities held in the portfolio. It may be expressed on an AVERAGE ANNUAL
basis
or CUMULATIVE basis (total change over a given period). In addition, total
return may be expressed with or without the effects of sales charges or the
reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the
average
annual total return according to the standardized calculation developed by the
SEC. This standardized calculation was introduced to insure that investors can
compare different funds on an equal basis. The SEC AVERAGE ANNUAL TOTAL RETURN
calculation includes the effects of all fees and sales charges and assumes the
reinvestment of all dividends and capital gains.
64
<PAGE>
TAX-EXEMPT
INCOME FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
AND INVESTMENT OFFICER
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND. IT IS NOT AUTHORIZED FOR
DISTRIBUTION TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN
EFFECTIVE PROSPECTUS FOR THE FUND, WHICH CONTAINS INFORMATION CONCERNING THE
FUND'S INVESTMENT POLICIES, FEES AND EXPENSES AS WELL AS OTHER PERTINENT
INFORMATION.
[LOGO]
Smith Barney Shearson
Mutual Funds
Two World Trade Center
New York, New York 10048
Fund 128, 176, 211
FD2173 C4
<PAGE>
[GRAPHIC]
Small box above fund name showing
a black and white picture of a
touch-tone phone, a light bulb
and a candle.
SEMI- Smith Barney Shearson
ANNUAL Utilities
REPORT Fund
.......................................
JANUARY 31, 1994
[LOGO]
<PAGE>
Utilities Fund
DEAR SHAREHOLDER:
The market fluctuations of the past months have been an
unsettling experience for some investors, including some
investors in the Utilities Fund. After becoming accustomed to
rising valuations in both the utility stock and bond markets, the
recent correction and consequent decline in net assets value per
share
was to many investors either deja vu or the first glance into a new
and more challenging investment environment. While these market
corrections are never opportune and test one's ability to maintain a
long-term investment focus, they are in fact a vital part of
investment life that allows the markets to pause, regroup and begin the next
leg
up.
The utility market has been doing just that for the past five months. Since
reaching all-time highs in mid-September 1993, the Dow Jones Utility Average
and
Standard & Poor's Utility Index have experienced significant declines. Several
factors contributed to the price correction in the utility sector. Investors
focused on the rapidly expanding U.S. economy and purchased more aggressive
cyclical companies, abandoning the defensive market sectors such as utilities.
In addition, fears of renewed inflation (which we don't share) resulted in an
increase in long-term interest rates. The combined effect of these market
forces
resulted in a decline in the Fund's net asset value per share. On a more
positive note, the yield spread between utility stocks and long-term
Treasuries
in now more favorable than it has been for the past several years and could
indicate the period of underperformance of the utility sector is close to an
end. Several industry analysts also have increased their relative weighting of
the utility sector.
Since our last report, we have continued our long-term investment strategy of
combining utility stocks and bonds to produce a combination of current income
and long-term growth. The Utilities Fund is currently 53% invested in common
stocks, (42% electric & gas utilities, and 10% telecommunications) and 44%
invested in long-term investment-grade utility bonds. The remaining 3% is in
preferred stock and cash. We have used the recent decline in the utility
sector
as an opportunity to increase our weighting in those companies more favorably
positioned for the decade ahead. These include, PECO Energy, Southern Company,
Pacificorp, Cincinnati Gas & Electric, and Public Service of Colorado in the
electric utility group, and AT & T, U.S. West, Westcoast Energy, Williams
Company and Panhandle Eastern in the telecommunications and natural gas
groups.
Our management style is to focus on a long-term market cycle to provide the
most
favorable returns.
1
<PAGE>
We continue to recommend electric utility stocks for conservative investors
seeking high current income and long-term growth. During normal market cycles
the utility sector is one of few groups that provide income with less market
volatility. The Fund's beta coefficient of 0.30 for the past three years bears
out the utility sector's greater market stability. The beta coefficient is a
measure of volatility relative to the rest of the stock market, which has a
beta
of 1.0. The Fund's beta indicates that it is less volatile (and therefore less
risky) than the general market by 70%. The recent volatility in utilities
should
subside in the months ahead and just as we see this as an excellent
opportunity
to invest in these stocks on a dollar-cost average basis, we think this is
also
an excellent opportunity for investors to consider dollar-cost averaging their
investment in the Fund.
The total return for the Fund's A shares was (0.38%) and (0.65%) for B shares.
The dividend income and capital gains of $0.89 for A shares and $0.85 for B
shares paid by the Fund during the past six months largely offset the decline
in
its net asset value per share to $15.02 from $15.97 that resulted from the
selloff in the utilities market.
On a final note, the 1994 edition of THE BEST 100 MUTUAL FUNDS YOU CAN BUY by
Gordon K. Williamson has some very positive things to say about the Smith
Barney
Shearson Utilities Fund. You may find it very rewarding reading during your
next
visit to the library. We believe we've earned our place among the "Top 100" by
focusing on the long-term and not attempting to be market timers. We suggest
you
do the same. As always, we appreciate your continued support and reaffirm our
commitment to providing professional investment management.
Sincerely,
Heath B. McLendon Jack S. Levande
CHAIRMAN OF THE BOARD VICE PRESIDENT AND
AND INVESTMENT OFFICER INVESTMENT OFFICER
MARCH 21, 1994
2
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31,
1994
PORTFOLIO BREAKDOWN
Pie chart depicting the allocation of the Income Funds -- Utilities Fund's
investment securities held at January 31, 1994 by security type. The pie is
broken in pieces representing security types in the following percentages:
<TABLE>
<CAPTION>
SECURITY TYPE PERCENTAGE
<S> <C>
Corporate Bond and Notes 44.3%
Preferred Stock and Net Other
Assets and Liabilities 3.2%
Common Stocks 52.5%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
------------------------------------------------------------------
TOP FIVE EQUITY HOLDINGS
TEXAS UTILITIES COMPANY 2.6%
SOUTHERN COMPANY 2.6
ENTERGY CORPORATION 2.2
DOMINION RESOURCES, INC. 2.2
PUBLIC SERVICE ENTERPRISE GROUP 2.0
....................................................................
TOP FIVE BOND HOLDINGS
PACIFIC GAS & ELECTRIC COMPANY 2.1%
OLD DOMINION ELECTRIC COMPANY 1.5
COMMONWEALTH EDISON COMPANY 1.4
CAROLINA POWER & LIGHT COMPANY 1.4
SOUTH CAROLINA ELECTRIC & GAS COMPANY 1.3
</TABLE>
3
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE
1)
<C> <S> <C>
-----------------------------------------------------------------------------
- ------
COMMON STOCKS -- 52.5%
ELECTRIC & GAS -- 42.1%
1,500,000 Allegheny Power Systems, Inc. $
37,500,000
1,000,000 American Electric Power Company, Inc.
36,125,000
500,000 Boston Edison Company
14,000,000
1,000,000 Central & SouthWest Corporation
29,750,000
1,226,500 Cincinnati Gas & Electric Company
32,502,250
1,600,000 Commonwealth Edison Company
45,400,000
1,000,000 Consolidated Edison Company of New York,
Inc.
31,125,000
1,400,000 Detroit Edison Company
41,475,000
1,250,000 Dominion Resources, Inc.
54,062,500
1,200,000 DPL, Inc.
25,500,000
1,500,000 Entergy Corporation
55,875,000
300,000 Florida Progress Corporation
9,412,500
700,000 FPL, Group Inc.
25,812,500
1,000,000 General Public Utilities Corporation
30,500,000
864,300 Houston Industries, Inc.
39,433,688
300,000 LG&E Energy Corporation
11,775,000
1,300,000 Long Island Lighting Company
30,550,000
250,000 Montana Power Company
6,250,000
600,000 New England Electric Systems
23,025,000
850,000 New York State Electric & Gas Corporation
24,650,000
900,000 NIPSCO Industry Inc.
28,800,000
750,000 Northeast Utilities Company
18,937,500
1,450,000 Pacific Gas & Electric Company
49,118,750
1,400,000 PacifiCorp
26,250,000
200,000 Panhandle Eastern Corporation
5,025,000
700,000 Pennsylvania Power & Light Company
17,675,000
500,000 Pinnacle West Capital Corporation+
11,187,500
800,000 Public Service Company of Colorado
25,100,000
1,600,000 Public Service Enterprise Group
50,600,000
500,000 San Diego Gas & Electric Company
12,062,500
500,000 SCANA Corporation
24,187,500
950,000 SCE Corporation
18,525,000
1,500,000 Southern Company
65,250,000
1,700,000 Texas Utilities Company
65,662,500
755,000 Western Resources Inc.
25,198,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE
1)
-----------------------------------------------------------------------------
- ------
<C> <S> <C>
COMMON STOCKS -- (CONTINUED)
ELECTRIC & GAS -- (CONTINUED)
250,000 Williams Companies Inc. $
6,531,250
-----------------------------------------------------------------------------
- ------
1,054,834,063
-----------------------------------------------------------------------------
- ------
COMMUNICATIONS -- 10.0%
600,000 American Telephone & Telegraph Company
34,050,000
500,000 Ameritech Corporation, New
21,000,000
750,000 Bell Atlantic Corporation
42,562,500
500,000 BellSouth Corporation
30,750,000
600,000 GTE Corporation
20,625,000
1,100,000 NYNEX Corporation
45,100,000
500,000 Pacific Telesis Group
28,812,500
615,000 U.S. West, Inc.
26,906,250
-----------------------------------------------------------------------------
- ------
249,806,250
-----------------------------------------------------------------------------
- ------
ENERGY -- 0.4%
300,000 MCN Corporation
11,062,500
-----------------------------------------------------------------------------
- ------
TOTAL COMMON STOCKS
(Cost $1,216,328,515)
1,315,702,813
-----------------------------------------------------------------------------
- ------
PREFERRED STOCK -- 1.6% (Cost $38,739,310)
1,400,000 Peco Energy Company, Pfd.
40,425,000
-----------------------------------------------------------------------------
- ------
<CAPTION>
FACE VALUE
<C> <S> <C>
-----------------------------------------------------------------------------
- ------
CORPORATE BONDS AND NOTES -- 44.3%
ELECTRIC & GAS -- 43.8%
$ 5,940,000 Alabama Power Company, First Mortgage,
8.750% due 12/1/21
6,378,075
Arizona Public Service Company, First
Mortgage:
3,000,000 7.250% due 8/1/23
2,985,000
5,000,000 8.000% due 2/1/25
5,393,750
5,000,000 Arkansas Power & Light Company, First
Mortgage,
8.700% due 11/1/22
5,812,500
Atlantic City Electric Company, First
Mortgage:
16,000,000 7.000% due 9/1/23
15,600,000
15,000,000 7.000% due 8/1/28
14,437,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE
1)
-----------------------------------------------------------------------------
- ------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
ELECTRIC & GAS -- (CONTINUED)
$ 5,000,000 Boston Edison Company, Debenture,
9.875% due 6/1/20 $
6,000,000
Carolina Power & Light Company, First
Mortgage:
13,800,000 8.875% due 2/15/21
15,525,000
7,200,000 8.625% due 9/15/21
8,568,000
10,000,000 8.200% due 7/1/22
11,200,000
2,000,000 Central Illinois Light Company, First
Mortgage,
8.200% due 1/15/22
2,212,500
10,700,000 Central Illinois Public Service Company,
8.500% due 5/15/22
12,398,625
4,000,000 Central Power & Light Company, Debenture,
7.500% due 4/1/23
4,145,000
Cincinnati Gas & Electric Company, First
Mortgage:
1,000,000 9.700% due 6/15/19
1,077,500
10,000,000 8.950% due 12/15/21
10,950,000
2,800,000 8.500% due 9/1/22
3,132,500
3,000,000 Cleveland Electric Illuminating Company,
First Mortgage,
9.000% due 7/1/23
3,172,500
Commonwealth Edison Company, First
Mortgage:
7,000,000 9.875% due 6/15/20
8,522,500
14,250,000 8.375% due 9/15/22
15,354,375
11,000,000 8.000% due 4/15/23
11,495,000
Consolidated Edison Company of New York
Inc.,
Debenture,
24,000,000 7.500% due 6/15/23
25,020,000
Dayton Power & Light Company, First
Mortgage:
5,000,000 8.400% due 12/1/22
5,756,250
5,000,000 7.875% due 2/15/24
5,381,250
14,750,000 8.150% due 1/15/26
16,298,750
Duquesne Light Company:
12,000,000 7.550% due 6/15/25
12,300,000
First Mortgage:
2,500,000 8.750% due 5/15/22
2,887,500
3,000,000 7.625% due 4/15/23
3,078,750
5,500,000 8.375% due 5/15/24
6,228,750
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE
1)
-----------------------------------------------------------------------------
- ------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
ELECTRIC & GAS -- (CONTINUED)
Florida Power Corporation, First
Mortgage:
$ 10,000,000 8.625% due 11/1/21 $
11,900,000
5,000,000 8.000% due 12/1/22
5,418,750
15,100,000 Houston Lighting & Power Company, First
Mortgage,
9.150% due 3/15/21
18,686,250
20,000,000 Hydro-Quebec, Debenture,
8.250% due 1/15/27
22,625,000
11,800,000 Idaho Power Company, First Mortgage,
8.750% due 3/15/27
13,924,000
Illinois Power Company:
8,000,000 7.500% due 7/15/25
8,100,000
First Mortgage:
10,200,000 8.750% due 7/1/21
11,755,500
5,000,000 8.000% due 2/15/23
5,318,750
10,500,000 Interstate Power Company, First Mortgage,
8.625% due 9/15/21
11,340,000
12,400,000 Iowa Electric Light & Power Company,
Collateral Trust Bonds,
7.000% due 10/1/23
12,074,500
Iowa Illinois Gas & Electric Company,
First Mortgage:
3,500,000 7.450% due 3/15/23
3,626,875
8,500,000 6.950% due 10/15/25
8,340,625
20,000,000 Jersey Central Power & Light Company,
First Mortgage,
6.750% due 11/1/23
18,750,000
15,500,000 Kentucky Utilities Company, First
Mortgage,
8.550% due 5/15/27
17,127,500
Long Island Lighting Company:
16,000,000 Debenture:
8.900% due 7/15/19
17,000,000
11,000,000 9.000% due 11/1/22
11,715,000
8,000,000 General & Refundable Mortgage,
9.625% due 7/1/24
9,110,000
Madison Gas & Electric Company, First
Mortgage:
9,300,000 8.500% due 4/15/22
10,625,250
10,000,000 7.700% due 2/15/28
10,700,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE
1)
-----------------------------------------------------------------------------
- ------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
ELECTRIC & GAS -- (CONTINUED)
Midwest Power System Inc., First
Mortgage:
$ 2,000,000 8.000% due 2/15/22 $
2,142,500
8,750,000 8.125% due 2/1/23
9,329,687
13,000,000 Mississippi Power & Light Company,
First Refundable Mortgage,
8.650% due 1/15/23
14,430,000
Monongahela Power Company, First
Mortgage:
5,000,000 8.875% due 8/1/19
5,337,500
5,500,000 8.625% due 11/1/21
6,359,375
7,000,000 8.500% due 6/1/22
7,525,000
3,000,000 Montana Power Company, First Mortgage,
8.950% due 2/1/22
3,506,250
2,000,000 Narragansett Electric Company, First
Mortgage,
9.125% due 5/1/21
2,402,500
3,000,000 Nevada Power & Light Company, First
Mortgage,
8.500% due 1/1/23
3,277,500
2,500,000 New England Power Company,
General & Refundable Mortgage,
8.000% due 8/1/22
2,659,375
18,450,000 New Orleans Public Service Inc., First
Mortgage,
8.000% due 3/1/23
19,303,313
New York State Electric & Gas
Corporation, First Mortgage:
11,750,000 8.300% due 12/15/22
12,998,437
2,250,000 7.450% due 7/15/23
2,278,125
14,000,000 Niagara Mohawk Power Corporation, First
Mortgage,
9.500% due 3/1/21
15,487,500
10,000,000 Northern States Power Company, Minnesota,
First Mortgage,
9.375% due 6/1/20
11,225,000
1,955,000 Northern States Power Company, Wisconsin,
First Mortgage,
9.125% due 4/1/21
2,211,594
14,000,000 Oklahoma Gas & Electric Company, First
Mortgage,
8.875% due 12/1/20
15,662,500
Old Dominion Electric Company, First
Mortgage:
22,500,000 8.760% due 12/1/22
26,128,125
10,000,000 7.780% due 12/1/23
10,637,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE
1)
-----------------------------------------------------------------------------
- ------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
ELECTRIC & GAS -- (CONTINUED)
Pacific Gas & Electric Company,
First and Refundable Mortgage:
$ 14,250,000 6.750% due 10/1/23 $
13,715,625
13,500,000 7.050% due 3/1/24
13,533,750
4,000,000 8.800% due 5/1/24
4,900,000
19,000,000 7.250% due 3/1/26
19,237,500
Pennsylvania Power & Light Company, First
Mortgage:
14,000,000 9.375% due 7/1/21
16,940,000
7,500,000 8.500% due 5/1/22
8,521,875
5,000,000 7.875% due 2/1/23
5,406,250
Philadelphia Electric Company,
First & Refundable Mortgage:
12,500,000 8.250% due 9/1/22
13,531,250
10,000,000 7.750% due 5/1/23
10,400,000
8,000,000 7.250% due 11/1/24
7,840,000
6,000,000 Portland General Electric Company, First
Mortgage,
7.750% due 4/15/23
6,247,500
Potomac Edison Company, First Mortgage:
5,000,000 7.750% due 2/1/23
5,362,500
5,000,000 8.500% due 5/15/27
5,781,250
10,800,000 Public Service Company of Colorado, First
Mortgage,
8.750% due 3/1/22
12,514,500
6,700,000 Public Service Company of Oklahoma, First
Mortgage,
7.375% due 4/1/23
6,842,375
Public Service Electric & Gas Company:
First & Refundable Mortgage,
17,000,000 8.750% due 2/1/22
19,698,750
7,000,000 Series C,
9.250% due 6/1/21
8,706,250
9,000,000 Rochester Gas & Electric Company,
First Mortgage, Series P,
9.375% due 4/1/21
10,012,500
12,500,000 San Diego Gas & Electric Company, First
Mortgage,
8.500% due 4/1/22
14,281,250
South Carolina Electric & Gas Company,
First Mortgage:
10,250,000 8.875% due 8/15/21
11,902,812
9,000,000 7.625% due 6/1/23
9,405,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE
1)
-----------------------------------------------------------------------------
- ------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
ELECTRIC & GAS -- (CONTINUED)
South Carolina Electric & Gas Company,
First Mortgage -- (continued):
$ 11,000,000 7.500% due 6/15/23 $
11,385,000
10,500,000 Southern California Edison Company,
First and Refundable Mortgage, Series
1990,
9.250% due 12/1/22
11,589,375
15,000,000 Southwestern Electric Power Company,
First Mortgage,
6.875% due 10/1/25
14,475,000
22,500,000 Tampa Electric Company, First Mortgage,
7.750% due 11/1/22
24,271,875
Texas Utilities Electric Company, First
Mortgage:
12,000,000 9.750% due 5/1/21
14,460,000
12,000,000 7.875% due 3/1/23
12,600,000
5,000,000 7.875% due 4/1/24
5,250,000
Union Electric Company, First Mortgage:
10,000,000 8.750% due 12/1/21
11,750,000
11,250,000 8.250% due 10/15/22
12,881,250
Utilcorp United Inc., Sr. Notes:
23,000,000 9.000% due 11/15/21
26,392,500
13,000,000 8.000% due 3/1/23
13,601,250
5,000,000 Virginia Electric & Power Company,
First & Refundable Mortgage, Series A,
8.750% due 4/1/21
5,850,000
5,798,000 Western Massachusetts Electric Company,
First Mortgage, Series T,
10.125% due 12/1/18
6,232,850
Western Pennsylvania Power Company, First
Mortgage,
1,000,000 Series EE:
9.000% due 6/1/19
1,065,000
14,000,000 7.875% due 9/1/22
15,050,000
4,500,000 Western Resources, First Mortgage,
8.500% due 7/1/22
5,203,125
Wisconsin Electric Power, First Mortgage:
2,000,000 7.050% due 8/1/24
2,007,500
13,500,000 8.375% due 12/1/26
15,727,500
5,000,000 7.700% due 12/15/27
5,400,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE
1)
-----------------------------------------------------------------------------
- ------
<C> <S> <C>
CORPORATE BONDS AND NOTES -- (CONTINUED)
ELECTRIC & GAS -- (CONTINUED)
Wisconsin Power & Light Company, First
Mortgage:
$ 3,700,000 9.300% due 12/1/25 $
3,959,000
3,700,000 8.600% due 3/15/27
4,421,500
6,900,000 Wisconsin Public Service Corporation,
First Mortgage,
8.800% due 9/1/21
8,340,375
-----------------------------------------------------------------------------
- ------
1,099,045,393
-----------------------------------------------------------------------------
- ------
COMMUNICATIONS -- 0.5%
GTE Corporation, Debenture:
5,000,000 10.750% due 9/15/17
6,100,000
5,000,000 8.750% due 11/1/21
5,925,000
-----------------------------------------------------------------------------
- ------
12,025,000
-----------------------------------------------------------------------------
- ------
TOTAL CORPORATE BONDS AND NOTES
(Cost $1,017,576,656)
1,111,070,393
-----------------------------------------------------------------------------
- ------
TOTAL INVESTMENTS (Cost $2,272,644,481*) 98.4%
2,467,198,206
OTHER ASSETS AND LIABILITIES (NET) 1.6
39,425,694
-----------------------------------------------------------------------------
- ------
NET ASSETS 100.0%
$2,506,623,900
-----------------------------------------------------------------------------
- ------
<FN>
*Aggregate cost for Federal tax purposes.
+Non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$2,272,644,481) (Note 1)
See accompanying schedule
$2,467,198,206
Cash
5,859
Receivable for investment securities
sold
36,720,663
Dividends and interest receivable
28,138,703
Receivable for Fund shares sold
3,848,613
- ------------------------------------------------------------------------------
- -
TOTAL ASSETS
2,535,912,044
- ------------------------------------------------------------------------------
- -
LIABILITIES:
Payable for investment securities
purchased $ 15,182,530
Notes payable (Note 8) 5,100,000
Payable for Fund shares redeemed 4,290,539
Dividends payable 1,210,854
Distribution fee payable (Note 3) 1,045,774
Investment advisory fee payable (Note
2) 968,014
Service fee payable (Note 3) 533,959
Administration fee payable (Note 2) 430,228
Transfer agent fees payable (Note 2) 294,581
Custodian fees payable (Note 2) 102,496
Accrued expenses and other payables 129,169
- ------------------------------------------------------------------------------
- -
TOTAL LIABILITIES
29,288,144
- ------------------------------------------------------------------------------
- -
NET ASSETS
$2,506,623,900
- ------------------------------------------------------------------------------
- -
NET ASSETS consist of:
Distributions in excess of net
investment income earned to date $
(10,456,633)
Accumulated net realized gain on
investments sold
19,407,961
Unrealized appreciation of investments
194,553,725
Par value
166,834
Paid-in capital in excess of par value
2,302,952,013
- ------------------------------------------------------------------------------
- -
TOTAL NET ASSETS
$2,506,623,900
- ------------------------------------------------------------------------------
- -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
Utilities Fund
- ------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------- JANUARY 31,
1994
<TABLE>
<S> <C>
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price
per share
($51,529,179 DIVIDED BY 3,429,769
shares of beneficial interest
outstanding) $15.02
- -------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE
($15.02 DIVIDED BY 0.95)
(based on sales charge of 5% of the
offering price on January 31, 1994) $15.81
- -------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per
share+
($2,432,492,612 DIVIDED BY
161,899,201 shares of beneficial
interest outstanding) $15.02
- -------------------------------------------------------------
CLASS C SHARES:
NET ASSET VALUE, offering and
redemption price per share
($21,397,169 DIVIDED BY 1,424,563
shares of beneficial interest
outstanding) $15.02
- -------------------------------------------------------------
CLASS D SHARES:
NET ASSET VALUE, offering and
redemption price per share
($1,204,940 DIVIDED BY 80,220 shares
of beneficial interest outstanding) $15.02
- -------------------------------------------------------------
<FN>
+Redemption price per share for Class B shares is equal to net asset value
less
any applicable contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
- -------------------------------------------------------------
FOR THE SIX MONTHS ENDED JANUARY 31,
1994
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $
47,352,343
Dividends (Net of foreign withholding taxes of
$7,746)
38,279,918
- ------------------------------------------------------------------------------
- ------
TOTAL INVESTMENT INCOME
85,632,261
- ------------------------------------------------------------------------------
- ------
EXPENSES:
Distribution fee (Note 3) $6,805,088
Investment advisory fee (Note 2) 6,304,218
Service fee (Note 3) 3,472,971
Administration fee (Note 2) 2,801,875
Transfer agent fees (Notes 2 and 4) 1,472,471
Custodian fees (Note 2) 144,057
Legal and audit fees 12,659
Trustees' fees and expenses (Note 2) 6,997
Other 245,400
- ------------------------------------------------------------------------------
- ------
TOTAL EXPENSES
21,265,736
- ------------------------------------------------------------------------------
- ------
NET INVESTMENT INCOME
64,366,525
- ------------------------------------------------------------------------------
- ------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain on investments sold during
the period
49,944,866
Net unrealized depreciation of investments
during the period
(134,301,304)
- ------------------------------------------------------------------------------
- ------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(84,356,438)
- ------------------------------------------------------------------------------
- ------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(19,989,913)
- ------------------------------------------------------------------------------
- ------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR
1/31/94
ENDED
(UNAUDITED)
7/31/93
<S> <C>
<C>
Net investment income $ 64,366,525
$ 118,842,565
Net realized gain on investments sold during the period 49,944,866
56,596,892
Net unrealized appreciation/(depreciation) of
investments during the period (134,301,304)
159,835,601
- ------------------------------------------------------------------------------
- -------
Net increase/(decrease) in net assets resulting from
operations (19,989,913)
335,275,058
Distributions to shareholders from net investment
income:
Class A (1,613,726)
(1,035,033)
Class B (70,283,205)
(117,099,685)
Class C (697,213)
(705,614)
Class D (18,069)
(2,233)
Distributions in excess of net investment income:
Class A --
(19,256)
Class B --
(2,178,520)
Class C --
(13,127)
Class D --
(42)
Distribution to shareholders from net realized gain on
investments:
Class A (1,525,536)
(98,332)
Class B (72,050,774)
(21,215,031)
Class C (657,041)
(122,643)
Class D (23,988)
(125)
Net increase/(decrease) in net assets from share
transactions (Note 6):
Class A 1,159,409
51,983,923
Class B (171,635,972)
855,488,274
Class C 755,557
20,405,316
Class D 987,029
242,034
- ------------------------------------------------------------------------------
- -------
Net increase/(decrease) in net assets (335,593,442)
1,120,904,964
NET ASSETS:
Beginning of period 2,842,217,342
1,721,312,378
- ------------------------------------------------------------------------------
- -------
End of period (including distributions in excess of net
investment income of $10,456,633 and $2,210,945,
respectively) $2,506,623,900
$2,842,217,342
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
PERIOD
1/31/94
ENDED
(UNAUDITED) 7/31/93*
<S> <C>
<C>
Net Asset Value, beginning of period $ 15.97
$ 14.36
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.39
0.66
Net realized and unrealized gain/(loss) on investments (0.45)
1.72
- ------------------------------------------------------------------------------
- -------
Total from investment operations (0.06)
2.38
Distributions to shareholders:
Distributions from net investment income (0.45)
(0.63)
Distributions in excess of net investment income --
(0.01)
Distributions from net realized gains (0.44)
(0.13)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.89)
(0.77)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 15.02
$ 15.97
- ------------------------------------------------------------------------------
- -------
Total return+ (0.38)%
17.01%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $51,529
$53,856
Ratio of operating expenses to average net assets
1.10%** 1.07%**
Ratio of net investment income to average net assets
5.05%** 5.67%**
Portfolio turnover rate 17%
37%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
Utilities Fund
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR PERIOD
1/31/94
ENDED ENDED
(UNAUDITED)
7/31/93 7/31/92#
<S> <C>
<C> <C>
Net Asset Value, beginning of period $ 15.97
$ 14.83 $ 13.95
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.35
0.79 0.35
Net realized and unrealized gain/(loss) on investments (0.45)
1.30 0.89
- ------------------------------------------------------------------------------
- -------
Total from investment operations (0.10)
2.09 1.24
Distributions to shareholders:
Distributions from net investment income (0.41)
(0.79) (0.35)
Distributions in excess of net investment income --
(0.01) --
Distributions from net realized gains (0.44)
(0.15) --
Distributions from capital --
- -- (0.01)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.85)
(0.95) (0.36)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 15.02
$ 15.97 $ 14.83
- ------------------------------------------------------------------------------
- -------
Total return+ (0.65)%
14.69% 8.98%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $2,432,493
$2,765,858 $1,721,312
Ratio of operating expenses to average net assets 1.57%**
1.56% 1.57%**
Ratio of net investment income to average net assets 4.58%**
5.17% 5.78%**
Portfolio turnover rate 17%
37% 10%
- ------------------------------------------------------------------------------
- -------
<FN>
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
#During the period from March 1, 1992 through July 31, 1992, the Fund changed
its fiscal year end to July 31. Prior to this, the Fund's fiscal year end
was
February 28.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney Shearson
Utilities Fund
- ------------------------------------------
FINANCIAL HIGHLIGHTS (UNAUDITED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD (CONTINUED).
<TABLE>
<CAPTION>
YEAR
YEAR YEAR PERIOD
ENDED
ENDED ENDED ENDED
2/28/92
2/28/91 2/28/90 2/28/89*
<S> <C>
<C> <C> <C>
Net Asset Value, beginning of period $ 13.21 $
12.93 $ 12.09 $ 12.00
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.82
0.88 0.87 0.64
Net realized and unrealized gain/(loss) on investments 0.94
0.40 1.08 0.17
- ------------------------------------------------------------------------------
- -------
Total from investment operations 1.76
1.28 1.95 0.81
Distributions to shareholders:
Distributions from net investment income (0.84)
(0.90) (0.90) (0.57)
Distributions in excess of net investment income --
- -- -- --
Distributions from net realized gains (0.15)
(0.10) (0.21) (0.15)
Distributions from capital (0.03)
- -- -- --
- ------------------------------------------------------------------------------
- -------
Total distributions (1.02)
(1.00) (1.11) (0.72)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 13.95 $
13.21 $ 12.93 $ 12.09
- ------------------------------------------------------------------------------
- -------
Total return+ 13.63%
10.46% 16.34% 6.80%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period
(in 000's) $1,274,853
$707,272 $603,739 $416,320
Ratio of operating expenses to average net assets 1.58%
1.65% 1.70% 1.77%**
Ratio of net investment income to average net assets 6.04%
6.89% 6.83% 6.99%**
Portfolio turnover rate 33%
31% 50% 46%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced operations on March 28, 1988. Those shares in existence
prior to November 6, 1992 were designated Class B shares.
**Annualized.
+Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
PERIOD
1/31/94
ENDED
(UNAUDITED) 7/31/93*
<S> <C>
<C>
Net Asset Value, beginning of period $ 15.97
$ 14.36
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.42
0.69
Net realized and unrealized gain/(loss) on investments (0.47)
1.72
- ------------------------------------------------------------------------------
- -------
Total from investment operations (0.05)
2.41
Distributions to shareholders:
Distributions from net investment income (0.46)
(0.65)
Distributions in excess of net investment income --
(0.01)
Distributions from net realized gains (0.44)
(0.14)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.90)
(0.80)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 15.02
$ 15.97
- ------------------------------------------------------------------------------
- -------
Total return+ (0.27)%
17.21%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $21,397
$22,251
Ratio of operating expenses to average net assets
0.73%** 0.68%**
Ratio of net investment income to average net assets
5.42%** 6.06%**
Portfolio turnover rate 17%
37%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class C shares on November 6, 1992.
**Annualized.
+Total return represents aggregate total return for the period indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
PERIOD
1/31/94
ENDED
(UNAUDITED) 7/31/93*
<S> <C>
<C>
Net Asset Value, beginning of period $ 15.97
$ 15.17
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.37
0.35
Net realized and unrealized gain/(loss) on investments (0.47)
0.86
- ------------------------------------------------------------------------------
- -------
Total from investment operations (0.10)
1.21
Distributions to shareholders:
Distributions from net investment income (0.41)
(0.38)
Distributions in excess of net investment income --
(0.01)
Distributions from net realized gains (0.44)
(0.02)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.85)
(0.41)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 15.02
$ 15.97
- ------------------------------------------------------------------------------
- -------
Total return+ (0.65)%
8.08%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 1,205
$ 252
Ratio of operating expenses to average net assets
1.52%** 1.49%**
Ratio of net investment income to average net assets
4.63%** 5.25%**
Portfolio turnover rate 17%
37%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class D shares on February 4, 1993.
**Annualized.
+Total return represents aggregate total return for the period indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Smith Barney Shearson
Utilities Fund
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Income Funds (the "Trust") was organized as a
"Massachusetts business trust" under the laws of the Commonwealth of
Massachusetts on March 12, 1985. The Fund is registered with the Securities
and
Exchange Commission under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company. As of the date of
this report, the Fund offered eight managed investment portfolios: Smith
Barney
Shearson Premium Total Return Fund, Smith Barney Shearson Convertible Fund,
Smith Barney Shearson Global Bond Fund, Smith Barney Shearson High Income
Fund,
Smith Barney Shearson Tax-Exempt Income Fund, Smith Barney Shearson Money
Market
Fund, Smith Barney Shearson Diversified Strategic Income Fund and Smith Barney
Shearson Utilities Fund (the "Fund"). In 1992 the Board of Trustees approved a
change in the Fund's fiscal year end from February 28 to July 31. This change
was effective for financial reporting and Federal income tax purposes. As of
November 6, 1992, the Fund offered three classes of shares: Class A shares,
Class B shares and Class C shares. As of January 29, 1993 the Fund offered a
fourth class of shares, Class D shares to investors eligible to participate in
Smith Barney Shearson 401(k) Program. Class A shares are sold with a front-end
sales charge. Class B shares may be subject to a contingent deferred sales
charge ("CDSC"). Class B shares will convert automatically to Class A shares
eight years after the date of original purchase. Class C shares are offered
exclusively to tax-exempt employee benefit and retirement plans of Smith
Barney
Shearson Inc. ("Smith Barney Shearson") and certain unit investment trusts
sponsored by Smith Barney Shearson and its affiliates. Class C and Class D
shares are offered without the imposition of a front-end sales charge or a
CDSC.
All classes of shares have identical rights and privileges except with respect
to the effect of the respective sales charges, the distribution and/or service
fees borne by each class, expenses allocable exclusively to each class, voting
rights on matters affecting a single class, the exchange privilege of each
class
and the conversion feature of Class B shares. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
PORTFOLIO VALUATION: Generally, the Fund's investments are valued at market
value or, in the absence of a market value with respect to any securities, at
fair value as determined by or under the direction of the Trust's Board of
21
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Trustees. A security that is primarily traded on an exchange is valued at the
last sale price on that exchange or, if there were no sales during the day, at
the current quoted bid price. Bonds and other fixed-income securities are
valued
by using market quotations and may be valued on the basis of prices provided
by
a pricing service, approved by the Board of Trustees, when the Board of
Trustees
believes that such prices reflect the market value of such securities.
Investments in government securities (other than short-term securities) are
valued at the average of the quoted bid and asked prices in the over-the-
counter
market. Short-term investments that mature in 60 days or less are valued at
amortized cost.
REPURCHASE AGREEMENTS: The Fund engages in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession
of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is
at
least equal at all times to the total amount of the repurchase obligations,
including interest. In the event of counterparty default, the Fund has the
right
to use the collateral to offset losses incurred. There is potential loss to
the
Fund in the event the Fund is delayed or prevented from exercising its rights
to
dispose of the collateral securities, including the risk of a possible decline
in the value of the underlying securities during the period while the Fund
seeks
to assert its rights. The Fund's investment adviser, acting under the
supervision of the Board of Trustees, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Fund enters
into
repurchase agreements to evaluate potential risks.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Securities purchased or sold on a when-issued
or
delayed-delivery basis may be settled a month or more after the trade date.
Realized gains and losses from securities sold are recorded on the identified
cost basis. Dividend income and distributions to shareholders are recorded on
the ex-dividend date. Interest income is recorded on the accrual basis.
Investment income and realized and unrealized gains and losses are allocated
based upon the relative net assets of each class of shares.
22
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income, if any, are determined on a class level, are declared on each day that
the Fund is open for business and are paid on the last day of the Smith Barney
Shearson statement month. Distributions, if any, of net long-term capital
gains
earned by the Fund will be made annually after the close of the fiscal year in
which they are earned. In addition, in order to avoid the application of a 4%
nondeductible excise tax, the Fund may make additional distributions of any
undistributed amounts of net investment income and capital gains. Income
distributions and capital gain distributions on a Fund level are determined in
accordance with income tax regulations which may differ from generally
accepted
accounting principles. These differences are primarily due to timing
differences
and differing characterization of distributions made by the Fund as a whole.
FEDERAL TAXES: The Trust intends that the Fund separately qualify as a
regulated
investment company, if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code
of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE,
ADMINISTRATION FEE AND OTHER PARTY TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual Management
Corp., which is controlled by Smith Barney Shearson Holdings Inc.
("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. Under the Advisory
Agreement, the Fund pays a monthly fee at the annual rate of 0.45% of the
value
of its average daily net assets.
The Boston Company Advisors, Inc. ("Boston Advisors"), an indirect wholly
owned
subsidiary of Mellon Bank Corporation ("Mellon"), serves as the Fund's
administrator pursuant to an administration agreement (the "Administration
Agreement"). Under the Administration Agreement, the Fund pays a monthly fee
at
the annual rate of 0.20% of the value of its average daily net assets.
23
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
For the six months ended January 31, 1994, the Fund incurred total brokerage
commissions of $993,081, of which $104,850, was paid to Smith Barney Shearson.
For the six months ended January 31, 1994, Smith Barney Shearson received from
shareholders $264,741 representing commissions (sales charges) on sales of
Class
A shares.
A CDSC is generally payable by a shareholder in connection with the redemption
of Class B shares within five years (eight years in the case of purchases by
certain 401(k) plans) after the date of purchase. In circumstances in which
the
CDSC is imposed, the amount ranges between 5% and 1% of net asset value
depending on the number of years since the date of purchase (except in the
case
of purchases by certain 401(k) plans in which case a 3% CDSC is imposed for
the
eight year period after the date of purchase). For the six months ended
January
31, 1994, Smith Barney Shearson received from shareholders $4,370,300 in CDSCs
on the redemption of Class B shares.
No officer, director or employee of Smith Barney Shearson, Boston Advisors or
of
any parent or subsidiary of those corporations receives any compensation from
the Trust for serving as a Trustee or officer of the Trust. The Trust pays
each
Trustee who is not an officer, director or employee of Smith Barney Shearson,
Boston Advisors or any of their affiliates $6,000 per annum plus $1,500 per
meeting attended and reimburses each such Trustee for travel and out-of-pocket
expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Trust's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Trust's shares pursuant to a
distribution agreement with the Trust and sells shares of the Fund through
Smith
Barney Shearson or its affiliates.
24
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a Services and
Distribution Plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney Shearson for servicing shareholder accounts for Class A, Class B and
Class D shareholders, and covers expenses incurred in distributing Class B and
Class D shares. Smith Barney Shearson is paid an annual service fee with
respect
to Class A, Class B and Class D shares of the Fund at the annual rate of 0.25%
of the value of the average daily net assets of each respective class of
shares.
Smith Barney Shearson is also paid an annual distribution fee with respect to
Class B and Class D shares at the annual rate of 0.50% of the value of the
average daily net assets of each respective class of shares. For the six
months
ended January 31, 1994, the service fee for Class A, Class B and Class D
shares
was $70,427, $3,401,685 and $859, respectively. For the six months ended
January
31, 1994, the distribution fee for Class B and Class D shares was $6,803,371
and
$1,717, respectively.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class
of
shares are prorated among the classes based upon the relative net assets of
each
class. Operating expenses directly attributable to a class of shares are
charged
to that class' operations. In addition to the above service and distribution
fees, class specific operating expenses include transfer agent fees. For the
six
months ended January 31, 1994, transfer agent fees for Class A, Class B, Class
C
and Class D shares were $37,547, $1,432,780, $1,965 and $179, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding long-term
U.S. government securities and short-term investments, aggregated $450,739,695
and $417,833,598, respectively, for the six months ended January 31, 1994.
Proceeds from sales of long-term U.S. government securities aggregated
$128,133,750 for the six months ended January 31, 1994. There were no
purchases
of long-term U.S. government securities for the six months ended January 31,
1994.
25
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At January 31, 1994, aggregate gross unrealized appreciation for all
securities
in which there was an excess of value over tax cost was $222,517,698 and
aggregate gross unrealized depreciation for all securities in which there was
an
excess of tax cost over value was $27,963,973.
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest of
each
class in each separate series, with a $.001 par value. Changes in shares of
beneficial interest of the Fund which are divided into four classes (Class A,
Class B, Class C, and Class D) were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
CLASS A SHARES: Shares 1/31/94Amount
Shares 7/31/93*Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 775,511 $ 12,370,643
4,232,755 $ 65,409,914
Issued as reinvestment of dividends 176,113 2,709,917
63,590 986,650
Redeemed (894,469) (13,921,151)
(923,731) (14,412,641)
- ------------------------------------------------------------------------------
- -------
Net increase 57,155 $ 1,159,409
3,372,614 $ 51,983,923
- ------------------------------------------------------------------------------
- -------
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED
1/31/94
7/31/93*
CLASS B SHARES: Shares Amount
Shares Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 13,782,140 $ 219,946,469
70,360,056 $1,057,190,126
Issued as reinvestment of dividends 7,565,021 116,372,872
7,473,509 112,957,808
Redeemed (32,663,101) (507,955,313)
(20,719,655) (314,659,660)
- ------------------------------------------------------------------------------
- -------
Net increase/(decrease) (11,315,940) $(171,635,972)
57,113,910 $ 855,488,274
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A shares on November 6, 1992. Any
shares
outstanding prior to November 6, 1992 were designated Class B shares.
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93*
CLASS C SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 258,585 $ 4,205,914 1,397,151
$20,470,632
Issued as reinvestment of dividends 87,195 1,342,334 54,726
837,510
Redeemed (314,443) (4,792,691) (58,651)
(902,826)
- ------------------------------------------------------------------------------
- -------
Net increase 31,337 $ 755,557 1,393,226
$20,405,316
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class C shares on November 6, 1992. Any shares
outstanding prior to November 6, 1992 were designated Class B shares.
</TABLE>
26
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
PERIOD ENDED
1/31/94
7/31/93**
CLASS D SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 63,296 $ 969,903 16,213
$ 248,799
Issued as reinvestment of dividends 2,730 41,676 149
2,355
Redeemed (1,590) (24,550) (578)
(9,120)
- ------------------------------------------------------------------------------
- -------
Net increase 64,436 $ 987,029 15,784
$ 242,034
- ------------------------------------------------------------------------------
- -------
<FN>
**The Fund commenced selling Class D shares to the public on February 4, 1993.
</TABLE>
7. LENDING OF PORTFOLIO SECURITIES
The Fund has the ability to lend its securities to brokers, dealers and other
financial organizations. Loans of securities by the Fund are collateralized by
cash, letters of credit or U.S. government securities that are maintained at
all
times in an amount at least equal to the current market value of the loaned
securities. At January 31, 1994, the Fund had no securities on loan.
8. NOTES PAYABLE
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Continental Bank N.A. under an Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992 primarily for
temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. Under this
Agreement, the Fund may borrow up to the lesser of $25 million or 20% of its
net
assets. Interest is payable either at the bank's Money Market Rate or the
London
Interbank Offered Rate (LIBOR) plus 0.375% on an annualized basis. The Fund
and
the other affiliated entities are charged an aggregate commitment fee of
$125,000 which is allocated equally among each of the participants. The
Agreement requires, among other provisions, each participating fund to
maintain
a ratio of net assets (not including funds borrowed pursuant to the Agreement)
to aggregate amount of indebtedness pursuant to the Agreement of no less than
5
to 1. During the six months ended January 31, 1994, the Fund had an average
outstanding daily balance of $27,717 with interest rates ranging from 3.438%
to
3.625%. Interest expense for the six months ended January 31, 1994 totalled
$743, which has been included in other expenses on the Statement of Operations
for the six months ended January 31, 1994. At January 31, 1994, the Fund had
outstanding borrowings under this Agreement of $5,100,000.
27
<PAGE>
Smith Barney Shearson
Utilities Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. CONCENTRATION OF CREDIT
Because the Fund concentrates its investments in one industry, its portfolio
may
be subject to greater risk and market fluctuations than a portfolio of
securities representing a broader range of investment alternatives. The risks
could adversely affect the ability and inclination of companies within the
utilities industry to declare or pay dividends or interest and the ability of
holders of such securities to realize any value from the assets of the issuer
upon liquidation or bankruptcy.
28
<PAGE>
UTILITIES
FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
AND INVESTMENT OFFICER
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT
Jack S. Levande
VICE PRESIDENT AND
INVESTMENT OFFICER
Vincent Nave
TREASURER
Francis J. McNamara, III
SECRETARY
THIS REPORT IS SUBMITTED FOR THE GENERAL INFORMATION OF THE SHAREHOLDERS OF
SMITH BARNEY SHEARSON UTILITIES FUND. IT IS NOT AUTHORIZED FOR DISTRIBUTION TO
PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE
PROSPECTUS
FOR THE FUND, WHICH CONTAINS INFORMATION CONCERNING THE FUND'S INVESTMENT
POLICIES, FEES AND EXPENSES AS WELL AS OTHER PERTINENT INFORMATION.
[LOGO]
Smith Barney Shearson
Mutual Funds
Two World Trade Center
New York, New York 10048
Fund 65, 173, 174, 210
FD2175 C4
