<PAGE>
[GRAPHIC]
Small box above fund name showing
a black and white picture of a
metal suitcase, keys, a pen and
a PC screen exhibiting graph statistics.
SEMI- Smith Barney Shearson
ANNUAL High
REPORT Income
Fund
.......................................
JANUARY 31, 1994
[LOGO]
<PAGE>
High Income Fund
DEAR SHAREHOLDER:
We are pleased to provide the semi-annual report for Smith
Barney Shearson High Income Fund for the six months ended
January 31, 1994. Over the past six months, the Fund paid
dividends totaling $0.56 per share to owners of Class A shares and
$0.53 per share to owners of Class B shares. The Fund generated a
total return exceeding 7% for both A and B shares. This surpassed
returns of 3.59% for the Lehman Brothers 10-Year Bond Treasury
Index.
Our primary objective is to deliver a consistently high level of
current income with total return our secondary objective. To achieve
these goals, we use the consistent and disciplined strategy of
investing
primarily in better quality, high yielding corporate bonds that are likely to
receive an upgrade in credit rating over the next one to three years. We have
also selectively added attractively valued convertible bonds, preferred stock
and common stock to the portfolio to further enhance total return. By
emphasizing the improving credits in the high yield market we can generate not
only attractive current dividend yields for the shareholder, but capital
appreciation as well. While the Fund has a level dividend policy, we are not
attempting to maximize yield regardless of credit risk, but rather to provide
a
competitive dividend yield with superior total return (income with price
appreciation) over time.
MARKET AND ECONOMIC OVERVIEW
The high yield market generated relatively strong performance over the past
six
months despite the general rise in interest rates in the fourth quarter of
1993
and so far in early 1994. The strengthening economic recovery continued to
benefit the corporate sector of the economy, especially the more leveraged
high
yield companies. We believe that after a very strong fourth quarter, the
economy
will settle into a moderate growth pattern with only a modest inclination
towards higher inflation. Nevertheless, we believe the pervasive decline in
interest rates ended as the Federal Reserve Board moved to a more restrictive
monetary policy in early February when they raised the short-term Federal
funds
rate to 3.25% from 3.00% and signaled that further increases were likely given
the strength of the economy.
This shift towards higher interest rates will make fixed-income investing
more challenging.
1
<PAGE>
The Fund generated reasonably strong results in the past six months with a
total
return of 7.33% for Class A shares and 7.07% for Class B shares. We
accomplished
this without chasing the riskier, lower tier (CCC-rated) issues which
outperformed in this overheated period. As we have mentioned in previous
commentaries, we tend to avoid the lower tier issues given their higher
default
risk and greater price fluctuations. Instead, we focus on better quality
issues
which carry ratings of B or higher. We try to emphasize improving credits in
the
portfolio that are showing increased potential for credit rating upgrades.
We are positioning the Fund's portfolio in the more economically-sensitive
companies that are benefiting from the improving economy. This would include
such industries as automobile manufacturing and related suppliers, general
manufacturing, residential home builders, paper and forest products,
containers,
transportation, metals -- especially steel producers -- and mining. These
industries continue to experience improving sales and profitability in
reaction
to the strengthening economic recovery.
SUMMARY THOUGHTS
We would continue to caution investors that we expect returns in the financial
markets will be lower than in previous years as interest rates gravitate
higher.
Our goal is to maintain the Fund's net asset value, minimizing downside price
action and generate the most attractive current yield attainable without
incurring undue credit risk. In the current environment, we believe this more
defensive strategy will generate superior results. We appreciate your past
support and look forward to satisfying your financial needs in what should
prove
to be a more challenging environment.
Sincerely,
Heath B. McLendon John C. Bianchi, CFA
CHAIRMAN OF THE BOARD VICE PRESIDENT AND
INVESTMENT OFFICER
MARCH 15, 1994
2
<PAGE>
Smith Barney Shearson
High Income Fund
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31,
1994
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Income Funds -- High 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>
Containers 6.5%
Metals and Mining 4.5%
Electronics 3.9%
Oil and Gas 5.5%
Broadcasting 4.2%
Health Care and Pharmaceuticals 6.6%
Building and Construction 7.0%
Retail 8.6%
Repurchase Agreement and Net Other Assets
and Liabilities 4.4%
Other Industries 35.1%
Publishing 7.6%
Hotel and Gaming 6.1%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- ------------------------------------------------------------------
UNISYS CORPORATION 3.3%
REVLON CONSUMER PRODUCTS CORPORATION 2.7
AMERICAN STANDARD, INC. 2.7
TRUMP TAJ MAHAL FUNDING 2.6
ANACOMP, INC. 2.5
CHRYSLER FINANCE CORPORATION 2.4
PATHMARK STORES, INC. 2.4
AMERICAN MEDICAL INTERNATIONAL, INC. 2.0
INTERNATIONAL SEMI-TECH 2.0
CONTAINER CORPORATION OF AMERICA 2.0
</TABLE>
3
<PAGE>
Smith Barney Shearson
High Income Fund
- ---------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
<C> <S> <C>
----------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 85.8%
RETAIL -- 8.6%
$ 7,400,000 Barnes & Noble, Inc., Sr. Sub.
Deb., Series 14,
11.875% due 1/15/03 $ 8,547,000
5,525,000 Big V Supermarket Inc., Sr. Sub.
Note,
11.000% due 2/15/04 144A+ 5,614,781
7,445,000 Bradlees Inc., Sr. Sub. Note,
11.000% due 8/01/02 8,049,906
Grand Union Company, Sr. Note:
5,515,000 11.250% due 7/15/00 5,839,006
6,915,000 12.250% due 7/15/02 144A+ 7,338,544
Pathmark Stores Inc.:
Sr. Sub. Note,
6,550,000 9.625% due 5/01/03 6,762,875
Sub. Notes:
5,250,000 11.625% due 6/15/02 5,834,063
5,550,000 12.625% due 6/15/02 6,327,000
8,150,000 Penn Traffic Company, New Sr. Sub.
Note,
9.625% due 4/15/05 8,476,000
3,200,000 PMI Acquisition Corporation, Sr.
Sub. Note,
10.250% due 9/01/03 3,432,000
2,775,000 Wickes Lumber Company, Sr. Sub.
Note,
11.625% due 12/15/03 2,944,969
----------------------------------------------------------------------
69,166,144
----------------------------------------------------------------------
BUILDING AND CONSTRUCTION -- 7.0%
American Standard, Inc.:
Sr. Sub. Deb.
14,500,000 11.375% due 5/15/04 16,457,500
Sr. Sub. Disc. Deb.
7,000,000 11.375% due 6/01/05 4,891,250
Hovnainan K Enterprises Inc.:
5,500,000 11.250% due 4/15/02 6,063,750
4,935,000 9.750% due 6/01/05 5,169,412
4,400,000 Kaufman & Broad Home Corporation,
Sr. Note,
9.375% due 5/01/03 4,620,000
7,700,000 UDC Homes Inc., Sr. Note,
11.750% due 4/30/03 8,402,625
10,400,000 US Homes Corporation, New Note,
9.750% due 6/15/03++ 10,816,000
----------------------------------------------------------------------
56,420,537
----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney Shearson
High 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)
HEALTH CARE AND PHARMACEUTICALS -- 6.6%
$ 4,030,000 Abbey Healthcare Group Inc., Sr.
Note,
9.500% due 11/01/02 $ 4,160,975
2,000,344 Alco Health Distributor
Corporation, pay-in-kind,
11.250% due 7/15/05++ 2,092,860
American Medical International,
Inc.,
Sr. Sub. Note,
10,570,000 13.500% due 8/15/01 12,446,175
3,750,000 9.500% due 4/15/06 3,937,500
2,000,000 Epic Healthcare Group, Sr. Sub.
Note,
10.875% due 6/01/03 2,360,000
8,400,000 Healthtrust Inc., The Hospital
Company,
10.750% due 5/01/02 9,408,000
4,050,000 Hillhaven Corporation, Sr. Sub.
Note,
10.125% due 9/01/01 4,358,812
3,525,000 Hospital Corporation of America,
Deb.,
9.000% due 3/15/16 3,723,281
9,185,000 Ornda HealthCorp, Sr. Sub. Notes,
12.250% due 5/15/02 10,470,900
----------------------------------------------------------------------
52,958,503
----------------------------------------------------------------------
CONTAINERS -- 6.5%
4,700,000 Anchor Glass Container Corporation,
Sr. Note,
9.875% due 12/15/08 4,982,000
14,150,000 Container Corporation of America,
Sr. Sub. Note,
13.500% due 12/01/99 15,830,312
5,750,000 Gaylord Container Corporation,
11.500% due 5/15/01 6,210,000
8,170,000 Silgan Holdings, Inc., Sr. Disc.
Deb.,
Zero coupon due 12/15/02 (1) 6,617,700
6,375,000 Stone Consolidated, Sr. Secured
Note,
10.250% due 12/15/00 6,661,875
Sweetheart Cup Inc., Sr. Sub. Note:
1,250,000 9.625% due 9/01/00 1,334,375
3,250,000 10.500% due 9/01/03 3,493,750
6,100,000 United States Can Company, Sr. Sub.
Note,
13.500% due 1/15/02 7,076,000
----------------------------------------------------------------------
52,206,012
----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
High 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)
PUBLISHING -- 6.2%
$17,090,000 Anacomp, Inc., Sr. Sub. Note,
15.000% due 11/01/00 $ 19,909,850
13,575,000 Bell & Howell Holdings Company, Sr.
Disc. Deb., Series B,
11.500% due 3/01/05 7,822,594
22,425,000 Marvel Holdings Inc., Sr. Disc.
Note,
Zero Coupon due 4/15/98 15,277,031
9,550,000 News America Holdings Inc., Deb.,
8.625% due 2/07/14 6,798,167
----------------------------------------------------------------------
49,807,642
----------------------------------------------------------------------
HOTEL AND GAMING -- 6.1%
11,975,000 Bally's Casino Holdings Inc.,
Zero coupon due 6/15/98 144A+ ++ 8,053,188
5,950,000 Bally's Park Place Funding, Inc.,
First Mortgage,
11.875% due 8/15/99 6,463,187
7,900,000 GNF Corporation,
10.625% due 4/01/03 7,613,625
4,550,000 Santa Fe Hotels Inc., Unit
Guaranteed,
11.000% due 12/15/00 4,720,625
6,200,000 Showboat Inc., Guaranteed First
Mortgage,
9.250% due 5/01/08 6,409,250
6,425,000 Station Casinos Inc., Sr. Sub.
Note,
9.625% due 6/01/03 6,577,594
9,175,000 Trump Plaza Funding Inc., Note,
10.875% due 6/15/01 9,197,937
----------------------------------------------------------------------
49,035,406
----------------------------------------------------------------------
OIL AND GAS -- 5.3%
8,765,000 Clark (R & M) Holdings Inc., Sr.
Secured Note,
Zero coupon due 2/15/00 4,952,225
1,825,000 Dual Drilling Company, Sr. Sub.
Note,
9.875% due 1/15/04 1,877,469
3,750,000 Giant Industries Inc., Guaranteed
Sr. Sub. Note,
9.750% due 11/15/03 3,885,937
9,325,000 Gulf Canadian Resources Ltd., Sr.
Sub. Deb.,
9.250% due 1/15/04 9,558,125
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
High 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)
OIL AND GAS -- (CONTINUED)
$14,248,000 Mesa Capital Corporation, Secd.
Disc. Note,
12.750% due 6/30/98 $ 12,965,680
4,550,000 Transco Energy Company, Note,
11.250% due 7/01/99 5,198,375
4,175,000 Trident Natural Gas Liquid Inc.,
Sub. Note,
10.250% due 4/15/03 4,373,312
----------------------------------------------------------------------
42,811,123
----------------------------------------------------------------------
BROADCASTING -- 4.2%
Continental Cablevision Inc., Sr.
Sub. Deb.:
3,075,000 11.000% due 6/01/07 3,613,125
6,175,000 9.500% due 8/01/13 6,831,094
5,100,000 Gillette Holdings, Inc., Sr. Sub.
Note,
12.250% due 6/30/02 5,597,250
Rogers Cablesystems Ltd.,
Guaranteed Note:
1,400,000 9.625% due 8/01/02 1,554,000
4,590,000 10.125% due 9/01/12 5,261,287
7,350,000 9.650% due 1/15/14++ 5,662,367
4,625,000 Rogers Communications, Inc., Sr.
Sub. Deb.,
10.875% due 4/15/04 5,185,781
----------------------------------------------------------------------
33,704,904
----------------------------------------------------------------------
METALS AND MINING -- 4.1%
5,150,000 Essex Group Inc., Sr. Note,
10.000% due 5/01/03 5,304,500
2,750,000 Jorgensen (Earle M) Company, Sr.
Note,
10.750% due 3/01/00++ 2,983,750
1,600,000 Geneva Steel Company, Sr. Note,
9.500% due 1/15/04 1,650,000
7,500,000 Republic Engineered Steels,
9.875% due 12/15/01 7,884,375
2,800,000 WCI Steel Inc., Sr. Notes,
10.500% due 3/01/02 144A+ 2,996,000
11,575,000 Wheeling Pittsburg Corporation, Sr.
Note,
9.375% due 11/15/03 12,283,969
----------------------------------------------------------------------
33,102,594
----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
High 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)
TEXTILES AND APPAREL -- 3.7%
$ 8,000,000 Dan River Inc., Sr. Sub. Note,
11.250% due 9/15/17 $ 8,340,000
JPS Textile Group:
1,675,000 11.750% due 6/01/96 1,714,782
2,100,000 Sr. Sub. Disc. Note,
10.850% due 6/01/99 2,115,750
3,450,000 Sr. Sub. Note,
10.250% due 6/01/99 3,441,375
3,325,000 Stevens (J.P.) & Company Inc.,
Deb.,
9.000% due 3/01/17 3,383,187
10,260,000 Westpoint Stevens Inc., Sr. Sub.
Deb.,
9.375% due 12/15/15++ 10,696,050
----------------------------------------------------------------------
29,691,144
----------------------------------------------------------------------
FINANCE -- 3.4%
4,025,000 Coldwell Banker Corporation, Note,
10.250% due 6/30/03 144A+ 4,321,844
4,525,000 GPA Delaware Inc., Guaranteed Note,
8.750% due 12/15/98 3,987,656
5,750,000 Lomas Mortgage USA, Inc., Sr. Note,
10.250% due 10/01/02 6,274,687
Reliance Group Holdings Inc., Sr.
Notes:
7,500,000 9.000% due 11/15/00 7,781,250
5,075,000 9.750% due 11/15/03 5,360,469
----------------------------------------------------------------------
27,725,906
----------------------------------------------------------------------
PERSONAL CARE -- 3.4%
5,305,000 MacAndrews & Forbes Group, Sub.
Note,
12.250% due 7/01/96 5,517,200
Revlon Consumer Products
Corporation:
6,925,000 10.500% due 2/15/03 6,847,094
28,900,000 Sr. Disc. Note,
Zero coupon due 3/15/98 15,028,000
----------------------------------------------------------------------
27,392,294
----------------------------------------------------------------------
CHEMICAL -- 2.6%
3,075,000 Buckeye Celluose Corporation, Sr.
Note,
10.250% due 5/15/01 3,255,656
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
High 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)
CHEMICAL -- (CONTINUED)
$ 5,840,000 Harris Chemical North America Inc.,
10.750% due 1/15/03 $ 6,299,900
UCC Investment Holding Inc., Sr.
Sub. Notes:
2,500,000 10.500% due 5/01/02 2,737,500
5,750,000 11.000% due 5/01/03 6,339,375
Sub. Notes,
3,100,000 Zero coupon due 5/01/05 (2) 2,077,000
----------------------------------------------------------------------
20,709,431
----------------------------------------------------------------------
AUTOMOBILES AND TRUCKING -- 2.4%
Chrysler Finance Corporation, Sr.
Notes:
4,750,000 13.250% due 10/15/99 6,448,125
9,600,000 12.750% due 11/01/99 12,780,000
----------------------------------------------------------------------
19,228,125
----------------------------------------------------------------------
INSURANCE -- 2.2%
6,570,000 Bankers Life Holding Corporation,
Series B,
13.000% due 11/01/02 8,113,950
8,250,000 Life Partners Group Inc., Sr. Sub.
Note,
12.750% due 7/15/02 9,817,500
----------------------------------------------------------------------
17,931,450
----------------------------------------------------------------------
PAPER AND FOREST PRODUCTS -- 2.2%
Domtar Inc.: Deb.,
875,000 11.250% due 9/15/17 937,344
3,950,000 Sr. Note,
12.000% due 4/15/01 4,428,938
Riverwood International
Corporation, Sr. Sub. Notes:
4,120,000 11.250% due 6/15/02++ 4,542,300
7,180,000 11.250% due 6/15/02 7,915,950
----------------------------------------------------------------------
17,824,532
----------------------------------------------------------------------
TELEPHONE AND COMMUNICATIONS -- 1.8%
5,300,000 Cencall Communication Corporation,
Zero coupon due 1/15/04 (3) 3,458,250
7,500,000 Dial Call Communications, Sr. Disc.
Note,
Zero coupon due 12/15/05 144A+
(4) 4,575,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
High 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)
TELEPHONE AND COMMUNICATIONS -- (CONTINUED)
$ 5,075,000 Mobilemedia Communications,
Zero coupon due 12/01/03 (5) $ 3,178,219
5,250,000 Pagemart Inc., Disc. Note,
Zero coupon due 11/01/03 144A+ 3,228,750
----------------------------------------------------------------------
14,440,219
----------------------------------------------------------------------
SHIPPING -- 1.4%
6,200,000 Southern Pacific Transportation
Company, Sr. Secured Note,
10.500% due 7/01/99 6,882,000
3,975,000 Viking Star Shipping Inc., First
Preferred Ship Mortgage,
9.625% due 7/15/03 4,193,625
----------------------------------------------------------------------
11,075,625
----------------------------------------------------------------------
CONSUMER DURABLES -- 1.2%
12,625,000 Coleman Holdings Inc., Sr. Secured
Note,
Zero coupon due 5/27/98 8,648,125
1,290,000 Congoleum Corporation,
9.000% due 2/01/01 1,310,963
----------------------------------------------------------------------
9,959,088
----------------------------------------------------------------------
MANUFACTURING -- 0.9%
3,150,000 Fairfield Manufacturing Inc., Sr.
Sub. Note,
11.375% due 7/01/01 3,346,875
3,050,000 Remington Arms Inc., New Sr. Note,
9.500% due 12/01/03 144A+ 3,114,813
710 Thermadyne Industries Inc.,
pay-in-kind, Sr. Note,
15.000% due 5/01/99** 773
----------------------------------------------------------------------
6,462,461
----------------------------------------------------------------------
ELECTRIC UTILITIES -- 0.8%
6,355,109 Midland Funding Corporation, Sr.
Secured Note,
10.330% due 7/23/02 144A+ 6,752,303
----------------------------------------------------------------------
DIVERSIFIED INDUSTRIES -- 0.6%
4,575,000 Federal Industries Ltd., Sr. Note,
10.250% due 6/15/00 4,763,719
----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
High 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)
ELECTRONICS -- 0.6%
$ 4,350,000 ADT Operations Inc., Guaranteed Sr.
Sub. Note,
9.250% due 8/01/03 $ 4,513,125
----------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 0.4%
3,025,000 Tracor Inc., Sr. Sub. Note,
10.875% due 8/15/01 3,210,282
----------------------------------------------------------------------
AIRLINES -- 0.1%
1,000,000 US Air Inc., Guaranteed Sr. Note,
9.625% due 9/01/03 1,032,500
----------------------------------------------------------------------
OTHER -- 3.5%
5,875,000 Stelco Inc., Deb.
10.400% due 11/30/09 4,559,239
7,525,000 CMI Industries, Sr. Sub. Note,
9.500% due 10/01/03 7,637,875
30,175,000 International Semi-Tech, Sr. Note,
Zero coupon due 8/15/03 (6) 16,181,344
----------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost $657,320,938) $690,303,527
----------------------------------------------------------------------
<CAPTION>
SHARES
<C> <S> <C>
----------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS -- 6.5%
ELECTRONICS -- 3.3%
536,150 Unisys Corporation, Series A,
Conv. Pfd. Exch. $3.75++ 26,807,500
----------------------------------------------------------------------
PUBLISHING -- 1.4%
42,000 Anacomp Inc. Conv. Pfd. Exch.
Adjustable Dividend 8.25% 1,596,000
K-III Communications Corporation:
64,626 Series B, pay-in-kind, Sr. Conv.
Pfd. Exch. 11.625% 6,527,234
123,300 Sr. Conv. Pfd. Exch. 11.500% 3,390,750
----------------------------------------------------------------------
11,513,984
----------------------------------------------------------------------
AUTOMOBILES AND TRUCKING -- 0.9%
135,200 Navistar International Corporation,
Series G,
Conv. Pfd. Exch. $6.00 7,098,000
----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
----------------------------------------------------------------------
<C> <S> <C>
CONVERTIBLE PREFERRED STOCKS -- (CONTINUED)
METALS AND MINING -- 0.4%
23,225 Geneva Steel Company, Series B,
pay-in-kind, Conv. Pfd. Exch.
14.000% $ 3,065,700
----------------------------------------------------------------------
BANKING -- 0.3%
2,250 Dime Savings Bank of New York,
Conv. Pfd. Exch. 10.500% 2,379,375
----------------------------------------------------------------------
OIL AND GAS -- 0.2%
590,700 Gulf Canadian Resources Ltd.,
Series 1, Conv. Pfd. Exch. 0.000%
Adjustable Dividend** 1,780,252
----------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost $46,160,153) 52,644,811
----------------------------------------------------------------------
UNITS -- 2.6% (Cost $18,689,111)
19,612,000 Trump Taj Mahal Funding, 1st
Mortgage,
11.350% due 11/15/99 20,568,085
----------------------------------------------------------------------
COMMON STOCKS -- 0.6%
44,300 Kendall International** 2,215,000
111,651 Mesa Inc.** 781,557
104,000 Station Casinos Inc.** 1,924,000
----------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost $4,636,225) 4,920,557
----------------------------------------------------------------------
WARRANTS -- 0.1%
CDK Holding Corporation:
4,057 Series A, Expires 07/07/99**
144A+ 121,710
4,339 Series B, Expires 07/07/99**
144A+ 108,475
2,450 Reallocation Certificate, Expires
7/07/99** 144A+ 66,150
11,572 Dial Call, Expires 12/15/98** 144A+ 133,078
90,500 Gaylord Container Corporation,
Expires 7/31/96** 475,125
320 Trump Plaza Holdings Association,
Expires 6/15/96** 252,800
----------------------------------------------------------------------
TOTAL WARRANTS
(Cost $1,130,012) 1,157,338
----------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31,
1994
<TABLE>
<CAPTION>
MARKET VALUE
FACE VALUE (NOTE 1)
----------------------------------------------------------------------
<C> <S> <C>
REPURCHASE AGREEMENT -- 3.6% (Cost $28,740,000)
$28,740,000 Agreement with Fuji Bank of Japan,
3.150% dated 1/31/94, to be
repurchased at $28,742,515 on
2/01/94, collateralized by
$28,585,000 U.S. Treasury Bonds,
7.000% due 5/15/94 $ 28,740,000
----------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $756,676,439*) 99.2% 798,334,318
OTHER ASSETS AND LIABILITIES (NET) 0.8 6,773,726
----------------------------------------------------------------------
NET ASSETS 100.0% $805,108,044
----------------------------------------------------------------------
<FN>
*Aggregate cost for Federal tax purposes.
**Non-income producing security.
+Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration,
generally to qualified institutional buyers.
++Portions of securities loaned at 1/31/94 have a market value of $13,023,633
(See Note 7).
(1)Non-interest bearing until 6/15/96, 13.250% due 12/15/02.
(2)Non-interest bearing until 5/01/98, 12.000% due 5/01/05.
(3)Non-interest bearing until 1/15/99, 10.125% due 1/15/04.
(4)Non-interest bearing until 12/15/98, 10.250% due 12/15/05.
(5)Non-interest bearing until 12/01/98, 10.500% due 12/01/03.
(6)Non-interest bearing until 8/15/00, 11.500% due 8/15/03.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
High Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31,
1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$756,676,439) (Note 1)
See accompanying schedule $798,334,318
Cash 45,545
Receivable for investment securities
sold 21,168,173
Dividends and interest receivable 12,427,552
Receivable for Fund shares sold 4,801,508
- ----------------------------------------------------------------------------
TOTAL ASSETS 836,777,096
- ----------------------------------------------------------------------------
LIABILITIES:
Collateral on securities loaned (Note
7) $13,057,440
Payable for investment securities
purchased 12,977,048
Payable for Fund shares redeemed 4,600,836
Investment advisory fee payable (Note
2) 334,378
Distribution fee payable (Note 3) 219,210
Service fee payable (Note 3) 161,786
Administration fee payable (Note 2) 133,751
Transfer agent fees payable (Note 2) 61,010
Custodian fees payable (Note 2) 25,500
Accrued Trustees' fees and expenses
(Note 2) 500
Accrued expenses and other payables 97,593
- ----------------------------------------------------------------------------
TOTAL LIABILITIES 31,669,052
- ----------------------------------------------------------------------------
NET ASSETS $805,108,044
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
NET ASSETS consist of:
Distributions in excess of net
investment income earned to date $
(2,633,223)
Accumulated net realized loss on
securities and foreign currencies
(256,692,617)
Net unrealized appreciation of
securities, foreign currencies and
net other assets 41,657,732
Par value 65,404
Paid-in capital in excess of par value 1,022,710,748
- ------------------------------------------------------------------------------
TOTAL NET ASSETS $ 805,108,044
- ------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
High Income Fund
- ------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (CONTINUED)
- ------------------------------------------------------------- JANUARY 31,
1994
<TABLE>
<S> <C> <C>
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($248,230,900 DIVIDED BY 20,166,011 shares of
beneficial interest outstanding) $12.31
- ------------------------------------------------------------------------------
MAXIMUM OFFERING PRICE PER SHARE ($12.31 DIVIDED BY
0.955)
(based on a sales charge of 4.5% of the offering price
on January 31, 1994) $12.89
- ------------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($531,608,468 DIVIDED BY 43,186,132 shares of
beneficial interest outstanding) $12.31
- ------------------------------------------------------------------------------
CLASS C SHARES:
NET ASSET VALUE, offering price and redemption price per
share
($25,268,664 DIVIDED BY 2,052,166 shares of beneficial
interest outstanding) $12.31
- ------------------------------------------------------------------------------
CLASS D SHARES:
NET ASSET VALUE, offering price and redemption price per
share
($12.31 DIVIDED BY 1 share of beneficial interest
outstanding) $12.31
- ------------------------------------------------------------------------------
<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.
15
<PAGE>
Smith Barney Shearson
High 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
$40,195)
$34,606,961
Dividends
2,588,289
- ------------------------------------------------------------------------------
- -----
TOTAL INVESTMENT INCOME
37,195,250
- ------------------------------------------------------------------------------
- -----
EXPENSES:
Investment advisory fee (Note 2) $1,885,188
Distribution fee (Note 3) 1,206,487
Service fee (Note 3) 908,552
Administration fee (Note 2) 754,075
Transfer agent fees (Notes 2 and 4) 343,513
Custodian fees (Note 2) 53,215
Legal and audit fees 34,716
Trustees' fees and expenses (Note 2) 6,629
Other 148,487
- ------------------------------------------------------------------------------
- -----
TOTAL EXPENSES
5,340,862
- ------------------------------------------------------------------------------
- -----
NET INVESTMENT INCOME
31,854,388
- ------------------------------------------------------------------------------
- -----
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain/(loss) on:
Securities transactions
26,289,833
Foreign currencies
(3,012)
- ------------------------------------------------------------------------------
- -----
Net realized gain on investments during the
period
26,286,821
Net change in unrealized
appreciation/(depreciation) of:
Securities
(5,481,100)
Foreign currencies and net other assets
(147)
- ------------------------------------------------------------------------------
- -----
Net unrealized depreciation of investments
during the period
(5,481,247)
- ------------------------------------------------------------------------------
- -----
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
20,805,574
- ------------------------------------------------------------------------------
- -----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$52,659,962
- ------------------------------------------------------------------------------
- -----
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
High 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 $ 31,854,388
$ 48,902,060
Net realized gain on securities transactions and
foreign currencies during the period 26,286,821
2,737,512
Net unrealized appreciation/(depreciation) on
securities, foreign currencies and net other assets
during the period (5,481,247)
47,616,071
- ------------------------------------------------------------------------------
- -------
Net increase in net assets resulting from operations 52,659,962
99,255,643
Distributions to shareholders (Note 1):
Distributions from net investment income:
Class A (11,167,040)
(14,622,229)
Class B (21,030,593)
(32,768,686)
Class C (1,274,030)
(1,511,145)
Distributions in excess of net investment income:
Class A --
(663,536)
Class B --
(1,486,997)
Class C --
(68,574)
Net increase/(decrease) in net assets from share
transactions (Note 6):
Class A (186,952)
222,981,643
Class B 70,500,665
117,496,429
Class C (1,515,554)
24,474,145
Class D --
12
- ------------------------------------------------------------------------------
- -------
Net increase in net assets 87,986,458
413,086,705
NET ASSETS:
Beginning of period 717,121,586
304,034,881
- ------------------------------------------------------------------------------
- -------
End of period (including distributions in excess of net
investment income of $2,633,223 and $1,015,948,
respectively) $805,108,044
$717,121,586
- ------------------------------------------------------------------------------
- -------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney Shearson
High 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 $ 12.01
$ 11.03
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.53
0.75
Net realized and unrealized gain on investments 0.33
1.09
- ------------------------------------------------------------------------------
- -------
Total from investment operations 0.86
1.84
Less distributions:
Dividends from net investment income (0.56)
(0.82)
Distributions in excess of net investment income --
(0.04)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.56)
(0.86)
- ------------------------------------------------------------------------------
- -------
Net asset value, end of period $ 12.31
$ 12.01
- ------------------------------------------------------------------------------
- -------
Total return++ 7.33%
17.29%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $248,231
$242,371
Ratio of operating expenses to average net assets
1.18%+ 1.16%+
Ratio of net investment income to average net assets
8.75%+ 9.52%+
Portfolio turnover rate 54%
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 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.
18
<PAGE>
Smith Barney Shearson
High Income Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR YEAR YEAR
1/31/94
ENDED ENDED ENDED
(UNAUDITED)
7/31/93+++ 7/31/92 7/31/91
<S> <C> <C>
<C> <C>
Net asset value, beginning of period $ 12.01 $
11.15 $ 10.05 $ 10.59
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.51
1.08 1.11 1.27
Net realized and unrealized gain/(loss) on
investments 0.32
0.88 1.16 (0.52)
- ------------------------------------------------------------------------------
- -------
Total from investment operations 0.83
1.96 2.27 0.75
Less distributions:
Dividends from net investment income (0.53)
(1.05) (1.11) (1.27)
Distributions in excess of net investment income --
(0.05) -- --
Distributions from net realized capital gains -- -
- - -- --
Distributions from capital -- -
- - (0.06) (0.02)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.53)
(1.10) (1.17) (1.29)
- ------------------------------------------------------------------------------
- -------
Net asset value, end of period $ 12.31 $
12.01 $ 11.15 $ 10.05
- ------------------------------------------------------------------------------
- -------
Total return++ 7.07%
18.55% 23.86% 8.82%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $531,608
$448,639 $304,035 $238,588
Ratio of operating expenses to average net assets 1.67%+
1.66% 1.65%# 1.75%
Ratio of net investment income to average net assets 8.26%+
9.02% 10.52% 13.30%
Portfolio turnover rate 54%
95% 137% 112%
- ------------------------------------------------------------------------------
- -------
<FN>
+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.
#The annualized operating expenses ratio excludes interest expense. The
annualized ratio including interest expense was 1.66% for the year ended
July
31, 1992.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
Smith Barney Shearson
High Income Fund
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR
YEAR YEAR YEAR
ENDED
ENDED ENDED ENDED
1/31/90
7/31/89 7/31/88 7/31/87*
<S> <C> <C>
<C> <C>
Net asset value, beginning of period $ 13.36 $
14.01 $ 14.26 $ 14.00
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 1.53
1.61 1.53 1.03
Net realized and unrealized gain/(loss) on
investments (2.68)
(0.73) (0.20) 0.29
- ------------------------------------------------------------------------------
- -------
Total from investment operations (1.15)
0.88 1.33 1.32
Less distributions:
Dividends from net investment income (0.61)
(1.53) (1.54) (1.03)
Distributions in excess of net investment income -- -
- - -- --
Distributions from net realized capital gains -- -
- - (0.04) (0.03)
Distributions from capital (0.01) -
- - -- --
- ------------------------------------------------------------------------------
- -------
Total distributions (1.62)
(1.53) (1.58) (1.06)
- ------------------------------------------------------------------------------
- -------
Net asset value, end of period $ 10.59 $
13.36 $ 14.01 $ 14.26
- ------------------------------------------------------------------------------
- -------
Total return++ (8.66)%
6.60% 10.06% 9.55%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $323,139
$609,862 $434,272 $221,683
Ratio of operating expenses to average net assets 1.68%
1.63% 1.64% 1.74%+**
Ratio of net investment income to average net assets 12.93%
11.93% 11.12% 9.49%+
Portfolio turnover rate 43%
74% 5% 19%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced operations on September 2, 1986. Those shares in
existence
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 1.77%.
+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.
20
<PAGE>
Smith Barney Shearson
High 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 $ 12.01
$ 11.03
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income 0.55
0.79
Net realized and unrealized gain on investments 0.32
1.06
- ------------------------------------------------------------------------------
- -------
Total from investment operations 0.87
1.85
Less distributions:
Dividends from net investment income (0.57)
(0.84)
Distributions in excess of net investment income --
(0.04)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.57)
(0.88)
- ------------------------------------------------------------------------------
- -------
Net asset value, end of period $ 12.31
$ 12.01
- ------------------------------------------------------------------------------
- -------
Total return++ 7.44%
17.47%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $25,269
$26,112
Ratio of operating expenses to average net assets 0.83%+
0.81%+
Ratio of net investment income to average net assets 9.10%+
9.88%+
Portfolio turnover rate 54%
95%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class C shares on November 6, 1992.
+Annualized.
++Total return represents aggregate total return for the period indicated.
+++Per share amounts have been calculated using the monthly average share
method, which more appropriately represents 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.
21
<PAGE>
Smith Barney Shearson
High 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
(the "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 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 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 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
22
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
price. Over-the-counter securities are valued on the basis of the bid price at
the close of business each day. 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 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. 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 available. 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 obligations 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 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.
23
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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.
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 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, are declared monthly and are
paid on the last day of the Smith Barney Shearson statement month.
Distributions, if any, of net short- and long-term capital gains earned by the
24
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
Fund will be made 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 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.
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 0.50% 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 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 $21,164, none of which was paid to Smith Barney Shearson.
25
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
For the six months ended January 31, 1994, Smith Barney Shearson received from
investors $261,616 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% charge is
imposed for the eight year period after the date of purchase). For the six
months ended January 31, 1994, Smith Barney Shearson received $334,762 from
shareholders 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.
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, Class B and
Class D shareholders, and covers expenses incurred in
26
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 .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 .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 $305,308 and $603,244 for Class A and Class B shares, respectively. For
the six months ended January 31, 1994, the Fund incurred a distribution fee of
$1,206,487 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
$123,219, $220,223 and $71 for Class A, Class B and Class C 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 $443,940,646 and
$380,145,237, 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 $46,049,684 and
aggregate gross unrealized depreciation for all securities in which there was
an
excess of tax cost over value was $4,391,805.
27
<PAGE>
Smith Barney Shearson
High Income 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 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 1,691,685 $ 20,438,962
3,473,948 $ 39,223,140
Issued as reinvestment of dividends 545,158 6,578,694
777,730 9,041,275
Issued in exchange for shares of High Yield
Fund (Note 10) -- --
19,200,568 212,742,394
Redeemed (2,255,380) (27,204,608)
(3,267,698) (38,025,166)
- ------------------------------------------------------------------------------
- -------
Net increase/(decrease) (18,537) $ (186,952)
20,184,548 $ 222,981,643
- ------------------------------------------------------------------------------
- -------
<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 8,626,557 $ 104,338,000
15,959,348 $ 184,276,212
Issued as reinvestment of dividends 928,394 11,206,570
1,515,274 17,415,829
Redeemed (3,733,985) (45,043,905)
(7,372,292) (84,195,612)
- ------------------------------------------------------------------------------
- -------
Net increase 5,820,966 $ 70,500,665
10,102,330 $ 117,496,429
- ------------------------------------------------------------------------------
- -------
<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 256,212 $ 3,077,388
2,099,076 $ 23,596,183
Issued as reinvestment of dividends 105,594 1,274,029
136,321 1,579,719
Redeemed (484,143) (5,866,971)
(60,894) (701,757)
- ------------------------------------------------------------------------------
- -------
Net increase/(decrease) (122,337) $ (1,515,554)
2,174,503 $ 24,474,145
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class A and Class C shares on November 6, 1992.
Any
shares outstanding prior to November 6, 1992 were designated Class B shares.
</TABLE>
28
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
As of January 31, 1994, the Fund had issued one Class D share in the amount of
$12 to Smith Barney Shearson. During the period ended July 31, 1993 and the
six
months ended January 31, 1994, there was no income or expense 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 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 $13,023,633 which represents 1.62% of total net
assets, for which the Fund received $13,057,440 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 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 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 $109,783 with interest rates ranging from 3.438% to 3.500%. Interest
expense
totaled $1,963 for the six months ended January 31, 1994 and is included
within
other expenses on
29
<PAGE>
Smith Barney Shearson
High Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
the Fund's Statement of Operations for the six months ended January 31, 1994.
At
January 31, 1994, the Fund had no outstanding borrowings under this Agreement.
9. 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 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.
10. REORGANIZATION
On November 20, 1992, the Fund (Acquiring Fund) acquired the assets and
certain
liabilities of the High Yield Fund (Acquired Fund), in a tax free exchange for
Class A shares of the Acquiring Fund, pursuant to a plan of reorganization
approved by the Acquired Fund's shareholders on October 13, 1992. Total shares
issued by the Acquiring Fund and the total net assets of the Acquired Fund and
the Acquiring Fund are as follows:
<TABLE>
<CAPTION>
SHARES TOTAL NET TOTAL
NET
ISSUED BY ASSETS OF ASSETS
OF
ACQUIRING ACQUIRING ACQUIRED
ACQUIRING
FUND ACQUIRED FUND FUND FUND FUND
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------
- ---
The Fund High Yield Fund 19,200,568 $212,742,394
$336,322,775
- ------------------------------------------------------------------------------
- ---
</TABLE>
The total net assets of the Acquired Fund before acquisition included
unrealized
appreciation of $917,625. The total net assets of the Acquiring Fund
immediately
after the acquisition were $549,065,169.
30
<PAGE>
Smith Barney Shearson
High Income Fund
- ---------------------------------------------------------------------------
PARTICIPANTS
DISTRIBUTOR
Smith Barney Shearson
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
Greenwich Street Advisors
Two World Trade Center
New York, New York 10048
SUB-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 Shareholder Services Group, Inc.
Exchange Place
Boston, Massachusetts 02109
CUSTODIAN
Boston Safe Deposit and Trust
Company
One Boston Place
Boston, Massachusetts 02108
31
<PAGE>
Smith Barney Shearson
High 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) A back-end load, a CDSC may be 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 conditions.
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
fund's
potential earnings from dividends, interest and yield to maturity of its
holdings, and it reflects the accrual of all portfolio expenses for the most
recent 30-day period.
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. 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.
32
<PAGE>
HIGH 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 C. Bianchi
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 HIGH 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 28, 185, 186, 243
<PAGE>
FD2172 C4
