- ------------------------------------------------------------
- -------------------
A N N U A L R E P O R T -------
- ------------------------------------------------------------
- ------------
1995
1995
1995
1995
1995
Smith Barney Diversified
Strategic
Income Fund
July 31,1995
[LOGO OF SMITH BARNEY
MUTUAL FUNDS APPEARS
HERE]
- ----------------------------------------------
Smith Barney Diversified Strategic Income Fund -------------
- ---------------------------------
Dear Shareholder:
We are pleased to provide you with the annual report for the
Smith Barney
Diversified Strategic Income Fund for the year ended July
31, 1995. During this
period, the Fund produced income distributions totaling
$0.48 per share and
generated a total return of 10.35% for Class A shares.
The Fund's flexible allocation strategy allows it to take
advantage of diverse
investment opportunities in three distinct sectors: U.S.
government and mortgage
securities, high-yield corporate bonds, and foreign
government debt. With this
approach, we attempt to produce high current income while
striving to reduce the
potential risks of interest-rate and currency fluctuations.
The Fund's current
portfolio allocation is 36% in U.S. government and mortgage
securities, 31% in
high-yield corporate bonds, and 33% in foreign government
bonds.
U.S. Government and Mortgage Securities
Our investment strategy for the past six months has focused
on the income
provided by higher-coupon mortgage securities and the lesser
relative volatility
available from short- to intermediate-term Treasuries. Given
the sharpness of
the bond market's rally so far this year, the performance of
the intermediate-
maturity U.S. government and mortgage securities portion
of the Fund was
somewhat muted.
Looking forward, we believe that short-term interest rates
could decline
modestly while long-term rates could either remain the
same or rise modestly.
We anticipate that the economy will avoid the textbook
definition of a
recession, which is at least two consecutive quarters of
contraction in the
nation's gross domestic product.
High-Yield Corporate Bonds
There was a clear moderation in economic momentum in the
first half of 1995 with
a marked slowdown in consumer spending. The retail sector
of the economy
suffered the brunt of the slowdown with most retail chains
showing little
pricing power. Even the automobile industry, which enjoyed
a strong year in
1994, encountered continued softer sales trends in the
first half of 1995.
Individuals have financed a large portion of their
purchases with debt in the
past two years and as a result, their debt burden has
climbed to onerous levels.
This is now most likely acting as a drag on consumption as
consumer debt levels
are brought down to more manageable percentages. The
industrial side of the
economy, which has benefited from strong overseas demand,
also
1
appears to be moderating based upon the past six months of
economic statistics.
In summary, while we are still not anticipating a
recession, we believe the
economy will remain on a more modest growth track for the
second half of the
year and present more of a challenge to corporate
profitability, especially in
the consumer-related areas of the economy.
During the past six months, as general economic conditions
deteriorated, we
moved the portfolio to an even more conservative credit
posture, increasing our
exposure to the stronger, better-capitalized companies and
away from the weaker,
underperforming issues that have a higher risk of default
in a moderate-growth
environment. In addition, we have shifted our industry
orientation away from the
more vulnerable sectors, particularly in the consumer
related areas of the
economy, and have increased our exposure to companies
whose industries continue
to experience meaningful growth trends. These include
telecommunications, cable
TV, technology, and media. Given the increased uncertainty
about economic
trends, and subsequent increased volatility in overall
interest rates, we will
continue to maintain a relatively conservative credit
quality profile with an
average maturity on the Fund's high-yield position of five
to six years.
Foreign Government Securities
Looking back over the past two years, real yields (current
yields minus the rate
of inflation) provided by global bonds rose from below 3%
in 1993 to nearly 6%
in 1994. As yields rose, they attracted buyers to the
global bond market, and
the turbulent conditions, which had prevailed in the first
half of 1993,
stabilized somewhat as the year progressed. During the
first half of 1995,
approximately half of the increase in real interest rates
was reversed.
In addition, the Mexican peso crisis, and the subsequent
devaluation of the peso
in December 1994, led investors to sharply reduce their
exposure to emerging-
market securities. The Fund's holdings in emerging-market
debt comprised about
3% of its total assets and were mainly in U.S. dollar
denominated securities.
Consequently, the Fund's portfolio was barely affected by
emerging-market
volatility. This volatility did, however, have a positive
effect on the U.S.
bond market. Due to its safe-haven status, the U.S. market
gained renewed favor,
particularly in the second quarter of 1995. The much
improved environment for
bonds in the U.S., which saw yields fall significantly
during the first half of
1995, provided a favorable backdrop for the performance of
major bond markets
worldwide.
Although signs of a potential downturn in economic
activity were less apparent
in Europe than in North America, the core European bond
markets, led by Germany,
took their cue from developments across the Atlantic and
rallied strongly from
February onwards. This performance was later mirrored in
the behavior of the
more peripheral bond markets such as Spain, Sweden, and
2
Italy. These markets generated positive returns, primarily
from March onwards,
despite recurrent political problems.
Trends within the foreign exchange markets also played a
significant role in
generating positive returns during the first half of the
year. The U.S. dollar
weakened substantially against both the German mark and
the Japanese yen,
particularly in the first quarter of 1995. This had the
effect of raising the
value of the Fund's foreign government securities holdings
in dollar terms,
while further increasing the positive contribution of this
sector to the Fund as
a whole.
During the past fiscal year, the Fund's foreign positions
were restructured in
an attempt to increase the income generated by this sector
without increasing
risk. Holdings in bonds denominated in the Portuguese
escudo were sold and
replaced with a greater position in Spanish government
bonds. The holdings in
U.K. government bonds were increased, and surplus cash was
redirected into
German marks and floating-rate notes. The average life of
the assets in the
foreign component of the Fund was decreased slightly from
3 1/2 to 3 years.
We thank you for your continued confidence in our
investment management. Should
you have any questions about the Fund, please call your
Smith Barney Financial
Consultant.
Sincerely,
/s/ Heath B. McLendon /s/ James
E. Conroy
Heath B. McLendon James E.
Conroy
Chairman and First
Vice
President and
Investment Officer
Investment
Officer
/s/ John C. Bianchi /s/
Victor
S. Filatov
John C. Bianchi Victor S.
Filatov
Vice President and Vice
President and
Investment Officer
Investment
Officer
August 22, 1995
3
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
- -Historical Performance -- Class A Shares ----------------
- ----------------------------------------------------------
- ----------------------------------
Net Asset Value -----------
---------Beginning End
Income Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
== =================================================
<S> <C> <C> <C>
<C> <C> <C>
7/31/95 $7.76 $7.85
$0.48 $0.00 $0.19 10.35%
- ----------------------------------------------------------
- --------------------------------------------------
7/31/94 8.41 7.76
0.62 0.10 0.04 1.16
- ----------------------------------------------------------
- -------------------------------------------------
Inception*
- 7/31/93 8.24 8.41
0.45 0.12 0.00 9.30
==========================================================
== =================================================
Total
$1.55 $0.22 $0.23
==========================================================
== =================================================
</TABLE>
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
- -Historical Performance -- Class B Shares ----------------
- ----------------------------------------------------------
- ----------------------------------
Net Asset Value -----------
---------Beginning End
Income Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
== =================================================
<S> <C> <C> <C>
<C> <C> <C>
7/31/95 $7.76 $7.86
$0.44 $0.00 $0.18 10.00%
- ----------------------------------------------------------
- --------------------------------------------------
7/31/94 8.41 7.76
0.60 0.10 0.03 0.66
- ----------------------------------------------------------
- --------------------------------------------------
7/31/93 8.55 8.41
0.58 0.14 0.00 7.28
- ----------------------------------------------------------
- --------------------------------------------------
7/31/92 7.98 8.55
0.68 0.00 0.07 17.12
- ----------------------------------------------------------
- --------------------------------------------------
7/31/91 8.06 7.98
0.71 0.06 0.09 10.42
- ----------------------------------------------------------
- -------------------------------------------------
Inception*
- 7/31/90 8.00 8.06
0.40 0.00 0.00 6.00
==========================================================
== =================================================
Total
$3.41 $0.30 $0.37
==========================================================
== =================================================
</TABLE>
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
- -Historical Performance -- Class C Shares ----------------
- ----------------------------------------------------------
- ----------------------------------
Net Asset Value -----------
---------Beginning End
Income Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
== =================================================
<S> <C> <C> <C>
<C> <C> <C>
7/31/95 $7.76 $7.84
$0.44 $0.00 $0.18 9.73%
- ----------------------------------------------------------
- --------------------------------------------------
7/31/94 8.41 7.76
0.60 0.10 0.03 0.66
- ----------------------------------------------------------
- -------------------------------------------------
Inception*
- 7/31/93 8.36 8.41
0.20 0.03 0.00 3.41
==========================================================
== =================================================
Total
$1.24 $0.13 $0.21
==========================================================
== =================================================
</TABLE>
4
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
- -Historical Performance -- Class Z Shares
- ----------------------------------------------------------
- --------------------------------------------------
Net Asset Value -----------
---------Beginning End
Income Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
== =================================================
<S> <C> <C> <C>
<C> <C> <C>
7/31/95 $7.76 $7.85
$0.49
$0.00 $0.20 10.94%
- ----------------------------------------------------------
- --------------------------------------------------
7/31/94 8.41 7.76
0.65
0.10 0.04 1.43
- ----------------------------------------------------------
- -------------------------------------------------
Inception*
- 7/31/93 8.24 8.41
0.47
0.12 0.00 9.47
==========================================================
== =================================================
Total
$1.61
$0.22 $0.24
==========================================================
== =================================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
<TABLE>
<CAPTION> ------------------------------------------------
- -------------------------------
Average Annual Total Return ------------------------------
- -------------------------------------------------
Without Sales
Charge/(1)/
-----------------------
- ---------------------
Class A Class B
Class C Class Z
==========================================================
== ====================
<S> <C> <C>
<C> <C>
Year Ended 7/31/95 10.35% 10.00%
9.73% 10.94% ---------------------------------------
- ----------------------------------------
Five Years Ended 7/31/95 N/A 8.96
N/A N/A ------------------------------------------
- -------------------------------------
Inception* through 7/31/95 7.56 9.11
5.77 7.93 ----------------------------------------
- ---------------------------------------
<CAPTION>
With Sales
Charge/(2)/
-----------------------
- ---------------------
Class A Class B
Class C Class Z
==========================================================
== ====================
<S> <C> <C>
<C> <C>
Year Ended 7/31/95 5.34% 5.50%
8.73% 10.94% ---------------------------------------
- ----------------------------------------
Five Years Ended 7/31/95 N/A 8.82
N/A N/A ------------------------------------------
- -------------------------------------
Inception* through 7/31/95 5.75 9.11
5.77 7.93 ----------------------------------------
- ---------------------------------------
</TABLE>
5
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- -------------------------------
Cumulative Total Return ----------------------------------
- ---------------------------------------------
Without Sales Charge/(1)/
---
- ---------------------
<S> <C>
Class A (Inception* through 7/31/95)
22.01% ---------------------------------------------------
- ----------------------------
Class B (Inception* through 7/31/95)
62.81 ----------------------------------------------------
- ---------------------------
Class C (Inception* through 7/31/95)
14.21 ----------------------------------------------------
- ---------------------------
Class Z (Inception* through 7/31/95)
23.18 ----------------------------------------------------
- ---------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect deduction of the
applicable sales charge
with respect to Class A shares or the applicable
contingent deferred sales
charges ("CDSC") with respect to Class B and Class C
shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 4.50% and Class B
shares reflect the
deduction of a 4.50% CDSC which applies if shares are
redeemed less than one
year from initial purchase. This CDSC declines by 0.50%
the first year after
purchase and by 1.00% per year thereafter until no CDSC
charge is incurred.
Class C shares reflect the deduction of a 1.00% CDSC
which applies if shares
are redeemed within the first year of purchase.
* Inception dates for Class A, B, C and Z shares are
November 6, 1992,
December 28, 1989, March 19, 1993 and November 6, 1992
respectively.
- ----------------------------------------------------------
- ---------------------
Portfolio Highlights (unaudited)
July 31, 1995 --------------------------------------------
- -----------------------------------
Portfolio Breakdown
[PIE CHART APPEARS HERE]
6
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Historical Performance -----------------------------------
- --------------------------------------------
Growth of $10,000 Invested in Class B
Shares of
the Smith Barney Diversified Strategic
Income Fund
vs. the Lehman Brothers Aggregate Bond
Index+
(unaudited)
- ----------------------------------------------------------
- ---------------------
December 1989 -- July 1995
[GRAPH APPEARS HERE]
+ Hypothetical illustration of $10,000 invested in Class B
shares at
December 28, 1989, assuming reinvestment of dividends and
capital gains, if
any, at net asset value through July 31, 1995. The Lehman
Brothers Aggregate
Bond Index is composed of the Government Corporate Bond
Index, the Asset-
Backed Securities Index and the Mortgage-Backed Securities
Index and includes
treasury issues, agency issues, corporate bond issues and
mortgage-backed
issues. The index is unmanaged and it is not subject to
the same management
and trading expenses as a mutual fund. The performance of
the Fund's other
classes may be greater or less than the Class B shares'
performance indicated
on this chart, depending on whether greater or lesser
sales charges and fees
were incurred by shareholders investing in other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
value may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital
gains.
7
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ==============================================
U.S. GOVERNMENT SECTOR -- 36.4%
==========================================================
== ==============================================
<C> <S>
<C>
U.S. Government Agencies & Obligations -- 36.4%
$ 38,000,000 U.S. Treasury Notes, 6.875% due
3/31/00 $ 39,036,640
40,000,000 U.S. Treasury Notes, 5.875% due
6/30/00 39,519,600
3,200,751 FHLMC, 7.000% due 2/1/08
3,116,731
4,473,944 FHLMC, 9.500% due 10/1/20
4,673,840
9,514,310 FHLMC, 8.500% due 7/1/21
9,758,067
37,667,492 FHLMC, 9.000% due 9/1/21
39,032,939
13,454,147 FHLMC, 10.000% due 12/1/22
14,496,844
84,128,281 FHLMC, 8.000% due 1/1/23
85,100,804
14,266,441 FHLMC, 7.500% due 2/1/23
14,186,193
324,146,373 FHLMC Gold, 9.000% due 4/15/25
337,922,595
8,449,970 FNMA, 8.000% due 1/1/08
8,589,923
3,584,540 FNMA, 10.000% due 11/1/16
3,904,909
20,000,000 FNMA Principal Strips, 7.050% due
12/18/98 19,441,800
31,125,000 FNMA Principal Strips, 8.040% due
10/10/01 28,913,880
20,000,000 FNMA Principal Strips, 7.940% due
11/22/01 18,291,800
32,500,000 FNMA Principal Strips, 7.890% due
3/9/02 29,222,700
112,232 GNMA, 9.000% due 2/15/21
117,984
190,123,322 GNMA Platinum, 9.000% due
12/15/17
202,243,685
18,000,000 SLMA Multi Currency PERLS,
11.100%
due 4/7/97 3,105,000
15,000,000 SLMA Reverse Principal Exchange
Rate Linked Securities,
12.050% due 3/19/96 10,200,000
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR
(Cost -- $910,704,350)
910,875,934
==========================================================
== ==============================================
HIGH YIELD SECTOR -- 31.1%
==========================================================
== ==============================================
CORPORATE BONDS AND NOTES -- 28.5%
Aerospace and Defense -- 0.2%
3,925,000 Tracor Inc., 10.875% due 8/15/01
4,057,469 ------------------------------------------------
- --------------------------------------------------------
Automobile/Auto Parts/Truck Manufacturing -- 0.7%
4,150,000 Fairfield Manufacturing Inc.,
11.375% due 7/1/01 3,958,063
4,050,000 Harvard Industries Inc., 12.000%
due 7/15/04 4,252,500
5,250,000 Harvard Industries Inc., 11.125%
due 8/1/05 @ 5,355,000
3,925,000 TCI Acquisition Inc., 12.250% due
6/30/01 4,278,250
- ----------------------------------------------------------
- -----------------------------------------------
17,843,813 -----------------------------------------------
- ---------------------------------------------------------
Broadcasting - TV, Cable, and Radio -- 2.1%
14,825,000 Bell Cablemedia PLC., step bond
to
yield 11.950% due 7/15/04 9,988,344
7,700,000 Cablevision Systems Corp.,
10.750%
due 4/1/04 8,277,500
5,200,000 Cablevision Systems Corp., 9.875%
due 2/15/13 5,707,000
</TABLE>
See Notes to Financial Statements.
8
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
Broadcasting - TV, Cable, and Radio -- 2.1% (continued)
$ 7,300,000 Continental Cablevision Inc.,
11.000% due 6/1/07 $ 8,066,500
5,100,000 Marcus Cable Co., 11.875% due
10/1/05 5,176,500
3,125,000 Rogers Cablesystems Limited,
10.125% due 9/1/12 3,218,750
5,700,000 Rogers Cablesystems Limited,
9.650%
due 1/15/14 3,488,779
6,650,000 Rogers Communications Inc.,
10.875%
due 4/15/04 6,882,750
2,850,000 Young Broadcasting Inc., 11.750%
due 11/15/04 3,142,125
- ----------------------------------------------------------
- -----------------------------------------------
53,948,248 -----------------------------------------------
- ---------------------------------------------------------
Building/Construction -- 1.2%
10,550,000 American Standard Inc., 11.375%
due
5/15/04 11,605,000
7,050,000 G-I Holdings Inc., zero coupon
bond
to yield
10.880% due 10/1/98
5,040,750
7,350,000 Greystone Homes Inc., 10.750% due
3/1/04 6,596,625
2,800,000 Miles Home Services Inc., 12.000%
due 4/1/01 2,107,000
4,425,000 U.S. Home Corp., 9.750% due
6/15/03
4,336,500 ------------------------------------------------
- ---------------------------------------------------------
29,685,875
- ----------------------------------------------------------
- -----------------------------------------------
Chemicals -- 0.8%
13,000,000 NL Industries Inc., 11.750% due
10/15/03 13,975,000
6,350,000 Terra Industries Inc., 10.500%
due
6/15/05@ 6,731,000
- ----------------------------------------------------------
- -----------------------------------------------
20,706,000 -----------------------------------------------
- ----------------------------------------------------------
Consumer Durable Goods/Home Furnishings -- 0.7%
24,700,000 International Semi Tech
Microelectronics Inc.,
step bond to yield 11.500% due
8/15/03 13,029,250
3,350,000 Samsonite, 11.125% due 7/15/05@
3,433,750 ------------------------------------------------
- ---------------------------------------------------------
16,463,000 -----------------------------------------------
- ---------------------------------------------------------
Diversified/Conglomerate Manufacturing -- 0.6%
2,875,000 Interlake Corp., 12.000% due
11/15/01 2,990,000
11,375,000 Interlake Corp., 12.125% due
3/1/02
11,545,625 -----------------------------------------------
- ----------------------------------------------------------
14,535,625 -----------------------------------------------
- ---------------------------------------------------------
Diversified/Conglomerate Services -- 0.3%
7,825,000 Russel Metals Inc., 10.125% due
6/15/00 7,482,656
- ----------------------------------------------------------
- -----------------------------------------------
Electric Utilities -- 0.5%
12,759,744 Midland Funding Corp. I, 10.330%
due 7/23/02 13,302,034
- ----------------------------------------------------------
- ----------------------------------------------
Electronics/Computers -- 0.3%
13,750,000 Bell & Howell Holdings Corp.,
step
bond to yield 11.500%
due 3/1/05
8,456,250 ------------------------------------------------
- ---------------------------------------------------------
Finance Companies/Consumer Credit -- 0.1%
3,950,000 GPA Delaware Inc., 8.750% due
12/15/98 3,594,500
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
Grocery/Convenience Stores -- 2.3%
$ 11,225,000 Farm Fresh Inc., 12.250% due
10/1/00 $ 10,270,875
6,150,000 Kash N' Karry, 11.500% due 2/1/03
6,203,813
3,195,000 P & C Food Markets Inc., 11.500%
due 10/15/01 3,390,694
7,325,000 Pathmark Stores Inc., 11.625% due
6/15/02 7,837,750
7,615,000 Pathmark Stores Inc., 12.625% due
6/15/02 8,262,275
3,400,000 Pathmark Stores Inc., step bond
to
yield 10.750% due 11/1/03 2,142,000
20,105,000 Ralph's Grocery Co., 11.000% due
6/15/05 19,351,063
- ----------------------------------------------------------
- -----------------------------------------------
57,458,470 -----------------------------------------------
- ---------------------------------------------------------
Healthcare/Drugs/Hospital Supplies -- 1.0%
6,350,000 Charter Medical Corp., 11.250%
due
4/15/04 6,818,313
17,425,000 Ornda Healthcorp, 12.250% due
5/15/02 19,298,188
- ----------------------------------------------------------
- -----------------------------------------------
26,116,501 -----------------------------------------------
- ---------------------------------------------------------
Hotel/Gaming -- 3.0%
9,275,000 Aztar Corp., 13.750% due 10/1/04
10,480,750
12,000,000 Bally's Grand Inc., 10.375% due
12/15/03 12,000,000
8,950,000 Boyd Gaming Corp., 10.750% due
9/1/03 9,263,250
4,625,000 Empress River Casino Finance
Corp.,
10.750% due 4/1/02 4,763,750
14,850,000 GNF Corp., 10.625% due 4/1/03
13,216,500
6,200,000 Station Casinos Inc., 9.625% due
6/1/03 5,921,000
6,975,000 Station Casinos Inc. Series B,
9.625% due 6/1/03 6,661,125
15,416,951 Trump Taj Mahal Funding Inc.
Units,
11.350% due 11/15/99 13,181,493
- ----------------------------------------------------------
- -----------------------------------------------
75,487,868 -----------------------------------------------
- ----------------------------------------------------------
Insurance Companies -- 0.8%
7,455,000 Bankers Life Holding Corp.,
13.000%
due 11/1/02 8,535,975
9,720,000 Life Partners Group Inc., 12.750%
due 7/15/02 10,874,250
- ----------------------------------------------------------
- -----------------------------------------------
19,410,225 -----------------------------------------------
- ---------------------------------------------------------
Leisure/Amusement/Motion Pictures -- 0.8%
8,825,000 Coleman Holdings Inc., 10.875%
due
5/27/98 6,839,375
4,200,000 Gillett Holdings Inc., 12.250%
due
6/30/02 4,394,250
8,350,000 Remington Arms Inc., 9.500% step
bond to yield 10.000%
due 12/1/03@
7,734,187 ------------------------------------------------
- ---------------------------------------------------------
18,967,812 -----------------------------------------------
- ----------------------------------------------------------
Machinery -- 0.1%
2,500,000 Day International Group Inc.,
11.125% due 6/1/05@ 2,606,250
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
See Notes to Financial Statements.
10
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
Metals/Mining -- 1.4%
$ 6,250,000 Algoma Steel, 12.375% due 7/15/05
$ 5,937,500
2,825,000 Inland Steel Industries Inc.,
12.750% due 12/15/02 3,164,000
8,875,000 Kaiser Aluminum & Chemical Corp.,
12.750% due 2/1/03 9,862,344
12,365,000 Stelco Inc., 10.400% due 11/30/09
9,144,910
6,400,000 UCAR Global Enterprises Inc.,
12.000% due 1/15/05 7,040,000
- ----------------------------------------------------------
- -----------------------------------------------
35,148,754 -----------------------------------------------
- ----------------------------------------------------------
Oil/Natural Gas -- 0.4%
4,100,000 Giant Industries Inc., 9.750% due
11/15/03 3,997,500
2,000,000 Global Marine Inc., 12.750% due
12/15/99 2,220,000
3,725,000 Santa Fe Energy Resources Inc.,
11.000% due 5/15/04 4,009,031
- ----------------------------------------------------------
- -----------------------------------------------
10,226,531 -----------------------------------------------
- ----------------------------------------------------------
Other Utilities -- 0.1%
2,325,000 California Energy, 9.875% due
6/30/03 2,356,969
- ----------------------------------------------------------
- ----------------------------------------------
Packaging/Containers -- 1.8%
4,950,000 Container Corp. America, 11.250%
due 5/1/04 5,271,750
6,650,000 Gaylord Container Corp., 11.500%
due 5/15/01 7,173,687
10,375,000 Silgan Holdings Inc., step bond
to
yield 13.250% due 12/15/02 9,545,000
9,100,000 Stone Consolidated Corp., 10.250%
due 12/15/00 9,600,500
475,000 Stone Container Corp., 12.625%
due
7/15/98 521,906
1,200,000 Stone Container Corp., 11.875%
due
12/1/98 1,305,000
10,600,000 Stone Container Corp., 11.500%
due
10/1/04 11,448,000
- ----------------------------------------------------------
- -----------------------------------------------
44,865,843 -----------------------------------------------
- ---------------------------------------------------------
Paper/Forest Products/Printing -- 3.0%
3,575,000 Domtar Inc., 11.750% due 3/15/99
3,932,500
13,625,000 Domtar Inc., 12.000% due 4/15/01
15,736,875
5,600,000 Indah Kiat International Finance
Co., 11.375% due 6/15/99 5,712,000
10,450,000 Indah Kiat International Finance
Co., 11.875% due 6/15/02 10,554,500
8,300,000 Repap New Brunswick Inc., 10.625%
due 4/15/05 8,590,500
3,500,000 Repap New Brunswick Inc. Foreign,
9.038% due 7/15/00@ 3,526,250
1,875,000 Repap Wisconsin Inc., 9.875% due
5/1/06 1,870,312
3,790,000 Riverwood International Corp.,
11.250% due 6/15/02 4,126,362
7,910,000 Riverwood International Corp.
Series II, 11.250% due 6/15/02 8,641,675
5,700,000 SD Warren Co., 12.000% due
12/15/04
6,341,250
8,500 SD Warren Co. Units, 15.000% due
7/6/99@ 2,299,250
2,900,000 Tjiwi Kimia International Finance
Co., 13.250% due 8/1/01 3,117,500
- ----------------------------------------------------------
- -----------------------------------------------
74,448,974 -----------------------------------------------
- ----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
Personal Care Products/Cosmetics -- 1.8%
$ 1,250,000 American Safety Razor, 9.875% due
8/1/05 @ $ 1,262,500
4,635,000 MacAndrews & Forbes Group Inc.,
12.250% due 7/1/96 4,640,794
8,100,000 Revlon Consumer Products Corp.,
10.500% due 2/15/03 8,181,000
41,825,000 Revlon Worldwide Corp., zero
coupon
bond to yield 12.928%
due 3/15/98
30,114,000 -----------------------------------------------
- ----------------------------------------------------------
44,198,294 -----------------------------------------------
- ----------------------------------------------------------
Publishing -- 0.9%
23,850,000 Marvel Holdings Inc. Variable
Rate
B, zero coupon bond to
yield 13.068% due 4/15/98
16,933,500
7,975,000 News America Holdings Inc.,
8.625%
due 2/7/14 4,687,257
- ----------------------------------------------------------
- -----------------------------------------------
21,620,757 -----------------------------------------------
- ----------------------------------------------------------
Retail -- 0.5%
8,875,000 Barnes & Noble Inc., 11.875% due
1/15/03 9,873,437
3,300,000 Wickes Lumber Co., 11.625%
12/15/03
2,821,500 ------------------------------------------------
- ---------------------------------------------------------
12,694,937 -----------------------------------------------
- ---------------------------------------------------------
Telephone/Communications -- 2.2%
9,200,000 Australis Media Ltd. Units, step
bond to yield
14.000% due 5/15/03
5,290,000
6,250,000 Dial Call Communications Inc.,
step
bond to yield
12.250% due 4/15/04
3,281,250
26,080,000 Marcus Cable Operating Co., step
bond to yield
13.500% due 8/1/04
16,826,595
19,875,000 Nextel Communications Inc., step
bond to yield
9.750% due 8/15/04
10,533,750
9,150,000 Pagemart Inc., step bond to yield
12.250% due 11/1/03
5,958,938
5,500,000 Pagemart Nationwide Inc. Units,
step bond to yield
15.000% due 2/1/05
3,300,000
3,100,000 Paging Network, 10.125% due
8/1/07
3,146,500
5,300,000 U.S.A. Mobile Communications Inc.
II, 14.000% due 11/1/04 5,836,625
- ----------------------------------------------------------
- -----------------------------------------------
54,173,658 -----------------------------------------------
- ---------------------------------------------------------
Textiles/Apparel -- 0.5%
4,675,000 CMI Industries Inc., 9.500% due
10/1/03 4,254,250
4,750,000 Dan River Inc., 10.125% due
12/15/03 4,750,000
4,000,000 Hartmarx Corp., 10.875% due
1/15/02
3,980,000 ------------------------------------------------
- ---------------------------------------------------------
12,984,250 -----------------------------------------------
- ----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
Tobacco -- 0.2%
$ 5,200,000 Consolidated Cigar Corp., 10.500%
due 3/1/03 $ 5,193,500
- ----------------------------------------------------------
- ----------------------------------------------
Transportation -- 0.2%
4,575,000 Sea Containers Ltd. Series A,
12.500% due 12/1/04 5,009,625
- ----------------------------------------------------------
- -----------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $697,767,988)
713,044,688
==========================================================
== ==============================================
<CAPTION>
SHARES SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
COMMON STOCK -- 0.1%
Packaging/Containers -- 0.1%
121,794 Gaylord Container
(Cost -- $654,205)
1,415,855
==========================================================
== ==============================================
CONVERTIBLE PREFERRED STOCKS -- 2.3%
Automobile/Auto Parts/Truck Manufacturing -- 0.4%
169,800 Navistar International Corp.
$6.00
Series G 8,872,050
- ----------------------------------------------------------
- --
- ----------------------------------------------
Finance Companies/Consumer Credit -- 0.3%
482,069 Algoma Finance Corporation 1.375
CAD 8,254,606
- ----------------------------------------------------------
- ----------------------------------------------
Healthcare/Drugs/Hospital Supplies -- 0.5%
299,226 Foxmeyer Health Corp. $4.20
Series
A 11,146,169
- ----------------------------------------------------------
- ----------------------------------------------
Metals/Mining -- 0.2%
112,413 BCP/Essex Holdings Inc. 15.000%
Series A@ 2,894,635
30,400 Geneva Steel Co. 14.000% Series B
2,249,600 ------------------------------------------------
- ---------------------------------------------------------
5,144,235 ------------------------------------------------
- ---------------------------------------------------------
Oil/Natural Gas -- 0.1%
663,350 Gulf Canada Resources Ltd. Series
1@ 1,907,131
- ----------------------------------------------------------
- -----------------------------------------------
Publishing -- 0.3%
156,000 K-III Communications Corp. $2.875
3,997,500
44,700 K-III Communications Corp.
$11.625
Series B 4,224,184
- ----------------------------------------------------------
- -----------------------------------------------
8,221,684 ------------------------------------------------
- --------------------------------------------------------
Telephone/Communications -- 0.5%
12,805 Panamsat Corp. 12.750%
13,381,225 -----------------------------------------------
- ----------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED
STOCKS (Cost -- $58,622,079)
56,927,100
==========================================================
== ==============================================
</TABLE>
See Notes to Financial Statements.
13
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------
- ----------------------------------------------
SHARES SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
WARRANTS -- 0.2%
Building/Construction -- 0.0%
33,600 Miles Homes Inc. Warrants, expire
4/1/97# $ 16,800
- ----------------------------------------------------------
- ----------------------------------------------
Packaging/Containers -- 0.1%
294,781 Gaylord Container Corp. Warrants,
expire 7/31/96# 3,021,505
- ----------------------------------------------------------
- ----------------------------------------------Paper/Forest
Products/Printing -- 0.1%
209,250 SD Warren Holdings Corp.
Warrants,
expire 12/15/06@# 1,360,125
- ----------------------------------------------------------
- ----------------------------------------------
Telephone/Communications -- 0.0%
5,600 Dial Page Inc. Warrants, expire
4/25/99 # 15,400
42,090 Pagemart Inc. Warrants, expire
11/1/03@ # 210,450
19,250 Pagemart Nationwide Inc.
Warrants,
expire 12/31/03@# 154,000
- ----------------------------------------------------------
- -----------------------------------------------
379,850 --------------------------------------------------
- -------------------------------------------------------
TOTAL WARRANTS
(Cost -- $1,707,212)
4,778,280
==========================================================
== ==============================================
TOTAL HIGH YIELD SECTOR
(Cost -- $758,751,484)
776,165,923
==========================================================
== ==============================================
<CAPTION>
FACE
AMOUNT+ SECURITY
VALUE
==========================================================
== ==============================================
INTERNATIONAL SECTOR -- 32.5%
==========================================================
== ==============================================
<C> <S>
<C>
BONDS -- 32.5%
Argentina -- 0.3%
3,000,000 Argentina Discount Series L,
6.875%
due 3/31/23 1,726,890
10,000,000 Argentina Par Series L, 5.000%
due
3/31/23++ 4,656,300
3,500,000 Republic of Argentina Foreign,
6.083% due 5/31/96++ 764,750
- ----------------------------------------------------------
- -----------------------------------------------
7,147,940 ------------------------------------------------
- ---------------------------------------------------------
Australia -- 3.4%
17,100,000 New South Wales Treasury Corp.,
12.000% due 12/1/01 14,267,804
60,000,000 Queensland Treasury Corp., 8.000%
due 5/14/97 44,385,974
40,000,000 Queensland Treasury Corp., 8.000%
due 5/14/03 27,428,048
- ----------------------------------------------------------
- -----------------------------------------------
86,081,826 -----------------------------------------------
- ----------------------------------------------------------
Austria -- 0.9%
7,000,000 Asfinag, 10.125% due 3/15/01
5,479,907
2,000,000 Oesterreichischekontrollbank,
9.000% due 5/21/97 1,491,001
8,000,000 Oesterreichischekontrollbank,
10.250% due 7/27/99 6,248,616
10,000,000 Oesterreichischepostsparkasse,
10.750% due 8/8/01 8,051,588
- ----------------------------------------------------------
- -----------------------------------------------
21,271,112 -----------------------------------------------
- ----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
14
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT+ SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
Barbados -- 0.0%
1,000,000 Barbados Government, 10.500% due
6/9/97@ $ 1,003,750
- ----------------------------------------------------------
- --
- ----------------------------------------------
Canada -- 1.2%
6,000,000 Eurofima, 10.750% due 7/31/01
4,833,685
3,500,000 Government of Canada, 7.750% due
9/15/96 2,561,753
5,000,000 Government of Canada, 7.500% due
7/1/97 3,645,439
7,000,000 Government of Canada, 9.000% due
12/1/04 5,285,499
5,400,000 International Finance Corp.,
7.750%
due 8/18/98 3,934,713
9,000,000 Kingdom of Sweden, 10.625% due
6/3/98 7,004,609
2,000,000 Province of Alberta, 7.750% due
2/4/98 1,456,543
3,000,000 Province of Ontario, 10.000% due
9/30/96 2,246,065
- ----------------------------------------------------------
- -----------------------------------------------
30,968,306 -----------------------------------------------
- ----------------------------------------------------------
Czech Republic -- 0.2%
100,000,000 Czech Electric Co., 14.375% due
1/27/01 4,327,567
- ----------------------------------------------------------
- -----------------------------------------------
Denmark -- 0.7%
15,000,000 Great Belt AS, 7.000% due 9/2/03
2,626,677
65,000,000 Kingdom of Denmark, 8.000% due
5/15/03 11,981,651
20,000,000 Oeresundsforbindelsen, 6.500% due
9/22/98 3,651,267
- ----------------------------------------------------------
- -----------------------------------------------
18,259,595 -----------------------------------------------
- ----------------------------------------------------------
Finland -- 2.4%
50,000,000 Finnish Export Credit, 6.000% due
1/15/99 11,306,683
56,000,000 Government of Finland, 9.500% due
3/15/04 14,019,513
58,000,000 Republic of Finland, 11.000% due
1/15/99 15,236,558
25,000,000 Republic of Finland Foreign,
4.500%
due 9/16/02++ 18,128,486
- ----------------------------------------------------------
- -----------------------------------------------
58,691,240 -----------------------------------------------
- ----------------------------------------------------------
France -- 0.3%
11,000,000 Electricite de France, 9.750% due
9/8/99 8,466,008
- ----------------------------------------------------------
- -----------------------------------------------
Germany -- 0.3%
10,000,000 Bundesrepublic, 6.500% due
7/15/03
7,125,371 ------------------------------------------------
- ------------
- ----------------------------------------------
Ireland -- 3.3%
30,000,000 Republic of Ireland, 8.750% due
7/27/97 50,388,618
20,000,000 Republic of Ireland, 8.000% due
10/18/00 32,604,400
- ----------------------------------------------------------
- -----------------------------------------------
82,993,018 -----------------------------------------------
- ----------------------------------------------------------
Italy -- 2.0%
40,000,000,000 Italy BTP, 12.000% due 6/1/96
25,286,117
40,000,000,000 Italy BTP, 12.000% due 1/1/98
25,543,316 -----------------------------------------------
- ----------------------------------------------------------
50,829,433 -----------------------------------------------
- ----------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
15
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT+ SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
Japan -- 0.4%
6,500,000 Electric Power Development Co.,
8.750% due 6/11/97 $ 4,830,953
7,000,000 Tokyo Electric Power Co. Inc.,
10.500% due 6/14/01 5,546,852
- ----------------------------------------------------------
- -----------------------------------------------
10,377,805 -----------------------------------------------
- ----------------------------------------------------------
Mexico -- 0.5%
250,000,000 Bancomex, 13.000% due 1/29/97
2,027,340
2,000,000 Mexico Repackage Foreign, 8.125%
due 3/31/08++ 2,000,000
320,000,000 Nacional Financiera, 13.600% due
4/2/98 2,439,970
8,000,000 United Mexican States Series B,
6.250% due 12/31/19 4,850,000
10,000,000 Mexican Value Recovery Rights,
expire 6/30/03# 1
- ----------------------------------------------------------
- -----------------------------------------------
11,317,311 -----------------------------------------------
- ----------------------------------------------------------
New Zealand -- 3.1%
40,000,000 New Zealand Government, 8.000%
due
11/15/95 26,897,382
46,000,000 New Zealand Government, 9.000%
due
11/15/96 31,284,611
27,000,000 New Zealand Government, 10.000%
due
3/15/02 20,165,326
- ----------------------------------------------------------
- -----------------------------------------------
78,347,319 -----------------------------------------------
- ----------------------------------------------------------
Norway -- 0.0%
1,500,000 Eksportfinans AS, 10.250% due
5/29/96 1,118,169
- ----------------------------------------------------------
- -----------------------------------------------
Spain -- 6.7%
400,000,000 Eurofima, 11.350% due 7/22/97
3,405,931
3,150,000,000 European Investment Bank, 11.250%
due 3/15/00 26,639,249
6,500,000,000 Government of Spain, 10.250% due
11/30/98 54,763,417
7,250,000,000 Government of Spain, 12.250% due
3/25/00 63,526,835
25,000,000 Kingdom of Spain Foreign, 4.563%
due 6/28/02++ 18,022,561
- ----------------------------------------------------------
- -----------------------------------------------
166,357,993 ----------------------------------------------
- ----------------------------------------------------------
- -
Sweden -- 3.0%
200,000,000 Kingdom of Sweden, 10.750% due
1/23/97 28,672,627
325,000,000 Kingdom of Sweden, 11.000% due
1/21/99 47,342,912
- ----------------------------------------------------------
- -----------------------------------------------
76,015,539 -----------------------------------------------
- ----------------------------------------------------------
Thailand -- 0.1%
50,000,000 ABN Ambro Bank N.V., 9.100% due
8/5/97@ 1,968,289
- ----------------------------------------------------------
- -----------------------------------------------
Trinidad -- 0.1%
2,000,000 Trinidad & Tobago, 11.500% due
11/20/97 1,935,000
- ----------------------------------------------------------
- -----------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- ----------------------------------------------------------
- ---
FACE
AMOUNT+ SECURITY
VALUE
==========================================================
== ==============================================
<C> <S>
<C>
United Kingdom -- 3.3%
15,000,000 U.K. Treasury Loan, 15.500% due
9/30/98 $ 29,199,369
20,200,000 U.K. Treasury, 8.000% due 12/7/00
32,544,283
12,500,000 U.K. Treasury, 8.000% due 6/10/03
19,832,519 -----------------------------------------------
- ----------------------------------------------------------
81,576,171 -----------------------------------------------
- ----------------------------------------------------------
Uruguay -- 0.2%
2,000,000 Uruguay Banco Central, 6.750% due
2/19/21 1,200,000
4,500,000 Uruguay Banco Central Foreign,
6.750% due 2/18/07++ 2,880,000
- ----------------------------------------------------------
- -----------------------------------------------
4,080,000 ------------------------------------------------
- ---------------------------------------------------------
Venezuela -- 0.1%
500,000 Republic of Venezuela, 9.000% due
5/27/96 490,000
1,000,000 Republic of Venezuela Foreign,
7.000% due 12/28/98++ 715,000
3,000,000 Republic of Venezuela Foreign,
7.000% due 12/31/03++ 2,090,400
- ----------------------------------------------------------
- -----------------------------------------------
3,295,400 ------------------------------------------------
- ---------------------------------------------------------
TOTAL INTERNATIONAL SECTOR
(Cost -- $780,871,433)
813,554,162
==========================================================
== ==============================================
TOTAL INVESTMENTS -- 100%
(Cost -- $2,450,327,267*)
$2,500,596,019
==========================================================
== ==============================================
</TABLE>
+ Represents local currency.
++ Variable rate security interest rate resets quarterly.
# Non-income producing security.
@ Securities exempt from registration under Rule 144A of
the Securities Act of
1933. These securities may be resold in transactions
exempt from
registration, normally to qualified institutional
buyers.
* Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
17
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Statement of Assets and Liabilities
July 31, 1995 --------------------------------------------
- --------------------------------------------------
<S>
<C>
ASSETS:
Investments, at value (Cost -- $2,450,327,267)
$2,500,596,019
Foreign currency (Cost -- $24,230,567)
24,477,421
Receivable for Fund shares sold
5,757,998
Receivable for securities sold
11,388,890
Dividends and interest receivable
49,433,181 -----------------------------------------------
- -----------------------------------------------
Total Assets
2,591,653,509 --------------------------------------------
- --------------------------------------------------
LIABILITIES:
Payable for Fund shares purchased
2,353,790
Payable for securities purchased
2,301,909
Payable for open forward foreign currency contracts
4,056,736
Investment advisory fees payable
1,624,723
Administration fees payable
812,362
Distribution fees payable
2,862,471
Accrued expenses
3,174,945
Other liabilities
3,359,516 ------------------------------------------------
- ----------------------------------------------
Total Liabilities
20,546,452 -----------------------------------------------
- -----------------------------------------------
Total Net Assets
$2,571,107,057
==========================================================
== ===================================
NET ASSETS:
Par value of shares of beneficial interest
$ 327,079
Capital paid in excess of par value
2,637,911,258
Overdistributed net investment income
(11,805,103)
Accumulated net realized loss on investments
(102,365,054)
Net unrealized appreciation of investments and foreign
currencies 47,038,877 --------------------
- ----------------------------------------------------------
- ----------------
Total Net Assets
$2,571,107,057
==========================================================
== ===================================
Shares Outstanding:
Class A
22,583,437 -----------------------------------------------
----------
- -----------------------------------
Class B
301,043,025 ----------------------------------------------
-----------
- -----------------------------------
Class C
1,623,067 ------------------------------------------------
---------
- -----------------------------------
Class Z
1,829,176 ------------------------------------------------
---------
- -----------------------------------
Net Asset Value:
Class A (and redemption price)
$7.85 ----------------------------------------------------
-----
- -----------------------------------
Class B*
$7.86 ----------------------------------------------------
-----
- -----------------------------------
Class C**
$7.84
---------------------------------------------------------
- -----------------------------------
Class Z (and redemption price)
$7.85 ----------------------------------------------------
-----
- -----------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.71% of net asset value per share)
$8.22
==========================================================
== ===================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a
4.50% CDSC if shares
are redeemed less than one year from initial purchase
(See Note 2).
** Redemption price is NAV of Class C shares reduced by a
1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
18
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Statement of Operations
For the Year Ended July 31, 1995 -------------------------
- ----------------------------------------------------------
- -----------
<S>
<C>
INVESTMENT INCOME:
Interest
$229,128,830
Dividends
4,292,216
Less: Foreign tax withholding
(892,085) ------------------------------------------------
- ----------------------------------------------
Total Investment Income
232,528,961 ----------------------------------------------
- ------------------------------------------------
EXPENSES:
Distribution fees (Note 2)
17,817,988
Investment advisory fees (Note 2)
11,112,553
Administration fees (Note 2)
4,938,912
Custody
2,472,323
Shareholder and system servicing fees
1,805,435
Shareholder communications
342,814
Registration fees
121,722
Audit and legal
74,768
Trustees' fees
12,448
Other
722,659 --------------------------------------------------
- --------------------------------------------
Total Expenses
39,421,622
Less: Fee waiver
1,234,728 ------------------------------------------------
- ----------------------------------------------
Expenses Net of Fee Waiver
38,186,894 -----------------------------------------------
- -----------------------------------------------
Net Investment Income
194,342,067 ----------------------------------------------
- ------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Loss From:
Securities transactions (excluding short-term
securities) (98,302,752)
Foreign currency transactions
(21,757,610) ---------------------------------------------
- -------------------------------------------------
Net Realized Loss
(120,060,362) --------------------------------------------
- --------------------------------------------------
Change in Net Unrealized Appreciation
of Investments and Foreign Currencies:
Beginning of year
(111,470,602)
End of year
47,038,877 -----------------------------------------------
- -----------------------------------------------
Increase in Net Unrealized Appreciation
158,509,479 ----------------------------------------------
- ------------------------------------------------
Net Gain on Investments and Foreign Currencies
38,449,117 -----------------------------------------------
- -----------------------------------------------
Increase in Net Assets From Operations
$232,791,184
==========================================================
== ===================================
</TABLE>
See Notes to Financial Statements.
19
Smith Barney
Diversified Strategic Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Statements of Changes in Net Assets
For the Years Ended July 31, -----------------------------
- ----------------------------------------------------------
- ------------
1995 1994
==========================================================
== ========================================
<S>
<C> <C>
OPERATIONS:
Net investment income
$ 194,342,067 $ 180,627,831
Net realized loss
(120,060,362) (37,948,143)
Increase (decrease) in net unrealized appreciation of
investments and foreign currencies
158,509,479 (133,930,059)
- ----------------------------------------------------------
- -----------------------------------------
Increase in Net Assets from Operations
232,791,184 8,749,629
- ----------------------------------------------------------
- -----------------------------------------
DISTRIBUTIONS TO
SHAREHOLDERS FROM:
Net investment income
(144,007,998) (163,749,640)
Overdistribution of net income
- -- (17,286,629)
Net realized gains
- -- (28,926,801)
Capital
(58,367,013) (10,499,572)
- ----------------------------------------------------------
- -----------------------------------------
Decrease in Net Assets from
Distributions to Shareholders
(202,375,011) (220,462,642)
- ----------------------------------------------------------
- -----------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares
434,771,060 877,448,722
Net asset value of shares issued
for reinvestment of dividends
116,727,753 133,659,183
Cost of shares reacquired
(568,365,595) (407,074,574)
- ----------------------------------------------------------
- -----------------------------------------
Increase (Decrease) in Net Assets from
Fund Share Transactions
(16,866,782) 604,033,331
- ----------------------------------------------------------
- -----------------------------------------
Increase in Net Assets
13,549,391 392,320,318
NET ASSETS:
Beginning of year
2,557,557,666 2,165,237,348 -----------------------
- ----------------------------------------------------------
- ------------------
End of year*
$2,571,107,057 $2,557,557,666
==========================================================
== ========================================
* Includes overdistributed
net investment income of:
$(11,805,103) $(40,386,368)
==========================================================
== ========================================
</TABLE>
See Notes to Financial Statements.
20
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Notes to Financial Statements ----------------------------
- ---------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Diversified Strategic Income Fund
("Fund"), a separate
investment fund of the Smith Barney Income Funds
("Trust"), a Massachusetts
business trust, is registered under the Investment Company
Act of 1940, as
amended, as a diversified, open-end management investment
company. The Trust
consists of the Fund and six other separate investment
funds: Smith Barney
Exchange Reserve Fund, Smith Barney Convertible Fund,
Smith Barney High Income
Fund, Smith Barney Tax-Exempt Income Fund, Smith Barney
Premium Total Return
Fund and Smith Barney Utilities Fund. The financial
statements and financial
highlights for the other funds are presented in separate
annual reports.
The significant accounting policies consistently
followed by the Trust are:
(a) securities transactions are accounted for on trade
date; (b) securities
traded in national securities markets are valued at the
closing prices in the
primary exchange on which they are traded; securities
listed or traded on
certain foreign exchanges or other markets whose
operations are similar to the
U.S. over-the-counter market (including securities listed
on exchanges where the
primary market is believed to be over-the-counter) and
listed securities for
which no sale was reported on that date are valued at the
mean between the bid
and ask prices. Securities which are listed or traded on
more than one exchange
or market are valued at the quotations on the exchange or
market determined to
be the primary market for such securities; (c) short-term
securities that have a
maturity of more than 60 days are valued at prices based
on market quotations
for securities of similar type, yield and maturity; (d)
short-term investments
that have a maturity of 60 days or less are valued at cost
plus accreted
discount, or minus amortized premium, as applicable; (e)
dividend income is
recorded on ex-dividend date and interest income is
recorded on the accrual
basis; (f) gains or losses on the sale of securities are
recorded on the
identified cost basis; (g) dividends and distributions to
shareholders are
recorded on the ex-dividend date; (h) the accounting
records are maintained in
U.S. dollars. All assets and liabilities denominated in
foreign currencies are
translated into U.S. dollars based on the rate of exchange
of such currencies
against U.S. dollars on the date of valuation. Purchases
and sales of securities
and income and expenses are translated at the rate of
exchange quoted on the
respective
21
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
date that such transactions are recorded. Differences
between income and expense
amounts recorded and collected or paid are adjusted when
reported by the
custodian bank and; (i) direct expenses are charged to the
Fund and each class;
management fees and general fund expenses are allocated on
the basis of relative
net assets of each class; (j) in accordance with Statement
of Position 93-2
Determination, Disclosure, and Financial Statement
Presentation of Income, ----------------------------------
- ---------------------------------------
Capital Gain, and Return of Capital Distributions by
Investment Companies, book -------------------------------
- ------------------------------------------
and tax differences relating to shareholder distributions
and other permanent
book and tax differences are reclassified to paid-in
capital. As of July 31,
1995, the cumulative effect of such differences, totaling
$58,367,013, were
reclassified to paid-in capital from accumulated net
investment loss. Net
investment income, net realized gains, and net assets were
not affected by this
change; and (k) the Fund intends to comply with the
applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to
regulated investment
companies and to make distributions of taxable income
sufficient to relieve it
from substantially all Federal income and excise taxes.
In addition, the Fund may enter into forward exchange
contracts in order to
hedge against foreign currency risk. These contracts are
marked to market daily,
by recognizing the difference between the contract
exchange rate and the current
market rate as an unrealized gain or loss. Realized gains
or losses are
recognized when contracts are settled.
2. Investment Advisory Agreement, Administration
Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment advisor
to the Fund. The Fund
pays SBMFM an advisory fee calculated at an annual rate of
0.35% of the average
daily net assets. The Fund has also entered into a sub
advisory agreement with
Smith Barney Global Capital Management ("Global Capital
Management"), a
subsidiary of SBH. The Fund pays Global Capital Management
a sub-advisory fee
calculated at an annual rate of 0.10% of the average daily
net assets. These
fees are calculated daily and paid monthly. Global Capital
Management waived
$1,234,728 of its advisory fee for the year ended July 31,
1995.
22
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
SBMFM also acts as the Fund's administrator for which
the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily
net assets; this fee
is calculated daily and paid monthly.
In addition, The Boston Company Advisors, Inc.
("Boston
Advisors"), an
indirect wholly owned subsidiary of Mellon Bank
Corporation, acted as sub-
administrator to the Fund. SBMFM paid Boston Advisors a
portion of its
administration fee at a rate agreed upon from time to time
between SBMFM and
Boston Advisors. As of March 27, 1995 this relationship
was terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
year ended July 31, 1995, SB received sales charges of
approximately $471,500
for sales of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC")
of 4.50% on Class B
shares if redemption occurs less than one year from
initial purchase and
thereafter declines by 0.50% the first year after purchase
and by 1.00% per year
until no CDSC is incurred. Class C shares have a 1.00%
CDSC if redemption occurs
within the first year from the date such investment was
made. For the year ended
July 31, 1995, CDSC's of approximately $6 million were
paid to SB.
Pursuant to a Distribution Plan, the Fund pays a
distribution fee with
respect to Class B and C shares calculated at the annual
rate of 0.50% and
0.45%, respectively, of the average daily net assets for
each class. The Fund
also pays a service fee with respect to Class A, B and C
shares calculated at
the annual rate of 0.25% of the average daily net assets
of each class,
respectively.
All officers and one trustee of the Fund are
employees of SB.
3. Investments
During the year ended July 31, 1995, the aggregate
cost of purchases and
proceeds from sales of investments (including maturities,
but excluding short-
term securities) was $2,043,048,842 and $2,019,866,699,
respectively.
23
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
At July 31, 1995, the net unrealized appreciation of
investments for
Federal income tax purposes consisted of the following:
<TABLE>
<S>
<C>
==========================================================
== ====================
Gross unrealized appreciation
$90,199,781
Gross unrealized depreciation
(39,931,029) ---------------------------------------------
- ----------------------------------
Net unrealized appreciation
$50,268,752
==========================================================
== ====================
</TABLE>
4. Capital Loss Carryforward
At July 31, 1995, the Fund had for Federal tax
purposes approximately
$40,748,331 of unused capital loss carryforwards available
to offset future
capital gains through 2003. To the extent that these
carryforward losses are
used to offset capital gains, it is probable that the
gains so offset will not
be distributed.
5. Forward Foreign Currency Contracts
At July 31, 1995, the Fund had the following open
forward foreign currency
contracts:
<TABLE>
<CAPTION>
Local
Market Settlement Unrealized
Currency
Value Date Gain (Loss)
==========================================================
== ===============================
<S> <C> <C>
<C> <C>
To Sell:
British Pound 20,000,000 $
32,002,048 9/18/95 $ (230,048)
Canadian Dollar 45,000,000
32,789,274 9/18/95 363,560
Danish Krone 20,000,000
3,725,782 9/18/95 (79,474)
Finnish Markka 140,000,000
33,412,888 9/18/95 (934,057)
Italian Lira 18,000,000,000
11,346,981 9/18/95 (303,359)
Spanish Peseta 9,000,000,000
75,827,787 9/18/95 (1,383,020)
Swedish Krona 350,000,000
49,666,525 9/18/95 (1,490,338) ------------------
- ------------------------------------------
- -------------------------------
Total Market Value and
Unrealized Loss on Forward
Foreign Currency Contracts
$238,771,285 $(4,056,736)
==========================================================
== ===============================
</TABLE>
6. Repurchase Agreements
The Fund purchases (and its custodian takes
possession of) U.S. Government
securities from banks and securities dealers subject to
agreements to resell the
securities to the sellers at a future date (generally, the
next business day) at
an agreed-upon higher repurchase price. The Fund requires
continual maintenance
of the market value of the collateral in amounts at least
equal to the
repurchase price.
At July 31, 1995, the Fund had no outstanding
repurchase agreements.
24
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
7. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of
beneficial interest of
each class in each separate series with a $0.001 par
value. The Fund has the
ability to issue multiple classes of shares. Each share of
a class represents an
identical interest and has the same rights, except that
each class bears certain
direct expenses, including those specifically related to
the distribution of its
shares. Effective November 7, 1994, the Fund adopted a new
class structure,
renaming the former Class C and Class D shares as Class Z
and Class C shares,
respectively. At July 31, 1995, total paid-in capital
amounted to the following
for each class:
<TABLE>
<CAPTION>
Class A Class B
Class C Class Z
==========================================================
== ===============================
<S> <C> <C>
<C> <C>
Total Paid-in Capital $175,890,302
$2,435,277,974
$12,398,940 $14,671,121
==========================================================
== ===============================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
July 31, 1995
July 31, 1994
---------------------------
- -- --------------------------------
Shares Amount
Shares Amount
==========================================================
== =====================================
<S> <C> <C>
<C> <C>
Class A
Shares sold 16,995,643 $
130,357,316
5,922,523 $ 49,276,958
Shares issued on
reinvestment 1,056,344
8,081,035
527,613 4,331,434
Shares redeemed (5,260,464)
(40,179,768)
(2,408,094) (19,748,584)
- ----------------------------------------------------------
- --------------------------------------
Net Increase 12,791,523 $
98,258,583
4,042,042 $ 33,859,808
==========================================================
== =====================================
Class B
Shares sold 37,672,470 $
288,491,309
98,298,288 $ 819,073,265
Shares issued on
reinvestment 14,007,761
107,194,835
15,557,855 128,023,970
Shares redeemed (68,658,784)
(524,800,223)
(46,268,945) (378,897,723)
- ----------------------------------------------------------
- --------------------------------------
Net Increase (Decrease) (16,978,553)
$(129,114,079)
67,587,198 $ 568,199,512
==========================================================
== =====================================
Class C*
Shares sold 1,589,260 $
12,192,975
141,778 $ 1,148,159
Shares issued on
reinvestment 39,755
306,081
3,978 31,889
Shares redeemed (143,121)
(1,099,986)
(9,930) (79,791)
- ----------------------------------------------------------
- --------------------------------------
Net Increase 1,485,894 $
11,399,070
135,826 $ 1,100,257
==========================================================
== =====================================
</TABLE>
* On November 7, 1994, the former Class D shares were
renamed Class C shares.
25
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
<TABLE>
<CAPTION>
Year Ended
Year Ended
July 31, 1995
July 31, 1994
------------------------------
- -----------------------------
Shares Amount
Shares Amount
==========================================================
== ===================================
<S> <C> <C>
<C> <C>
Class Z**
Shares sold 489,667 $ 3,729,460
958,456 $ 7,950,340
Shares issued on
reinvestment 149,667 1,145,802
154,190 1,271,890
Shares redeemed (298,158)
(2,285,618)
(1,028,793) (8,348,476) --------------------------
- ----------------------------------------------------------
- ----------
Net Increase 341,176 $ 2,589,644
83,853 $ 873,754
==========================================================
== ===================================
</TABLE>
** On November 7, 1994, the former Class C shares were
renamed Class Z shares.
8. Fund Concentration
The Fund's investment in foreign securities may
involve risks not present
in domestic investments. Since securities may be
denominated in a foreign
currency and may require settlement in foreign currencies
and pay interest and
or dividends in foreign currencies, changes in the
relationship of these foreign
currencies to the U.S. dollar can significantly affect the
value of the
investments and earnings of the Fund. Foreign investments
may also subject the
Fund to foreign government exchange restrictions,
expropriation, taxation or
other political, social or economic developments, all of
which could affect the
market and/or credit risk of the investments.
26
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Financial Highlights -------------------------------------
- ------------------------------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class A Shares 1995
1994 1993(1)
==========================================================
== ====================
<S> <C>
<C> <C>
Net Asset Value, Beginning of Year $ 7.76
$
8.41 $ 8.24 ----------------------------------------
- ---------------------------------------
Income From Operations:
Net investment income (2) 0.94
0.63 0.47
Net realized and unrealized
gain (loss) on investments (0.18)
(0.52) 0.27 ---------------------------------------
- ----------------------------------------
Total Income From Operations 0.76
0.11 0.74 ----------------------------------------
- ---------------------------------------
Less Distributions From:
Net investment income (0.48)
(0.56) (0.45)
Overdistributions of net income --
(0.06) --
Net realized gains --
(0.10) (0.12)
Capital (0.19)
(0.04) ------------------------------------------
- --------------------------------------
Total Distributions (0.67)
(0.76) (0.57) --------------------------------------
- -----------------------------------------
Net Asset Value, End of Year $ 7.85
$
7.76 $ 8.41 ----------------------------------------
- ---------------------------------------
Total Return 10.35%
1.16% 9.30%++ -------------------------------------
- ------------------------------------------
Net Assets, End of Year (000s) $177,336
$76,019 $48,334 -------------------------------------
- -----------------------
- --------------------
Ratios to Average Net Assets:
Expenses (2) 1.09%
1.10% 1.10%+
Net investment income 8.15
7.67 8.26+ ---------------------------------------
- ----------------------------------------
Portfolio Turnover Rate 83%
93% 116%
==========================================================
== ====================
</TABLE>
(1) For the period from November 6, 1992 (inception date)
to July 31, 1993.
(2) The manager has waived part of its fees for the years
ended July 31, 1995
and 1994. If such fees were not waived, the per share
effect on expenses and
the ratios of expenses to average net assets would be
as follows:
<TABLE>
<CAPTION>
Ratios without
Per Share Decrease
Fee Waivers ----------------------------------------------
- -------------------------------
1995 1994
1995 1994
---- ---- --
- -----
<S> <C> <C>
<C>
<C>
Class A $0.01 --*
1.14% 1.12%
</TABLE>
* Net investment income per share decrease is less than
$0.01.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
27
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class B Shares 1995
1994
1993 1992 1991
==========================================================
== ===========================================
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Year $7.76
$8.41
$8.55 $7.98 $8.06
- ----------------------------------------------------------
- --------------------------------------------
Income From Operations:
Net investment income (1) 0.70
0.59
0.65 0.68 0.71
Net realized and unrealized
gain (loss) on investments 0.02
(0.51)
(0.07) 0.64 0.07
- ----------------------------------------------------------
- --------------------------------------------
Total Income From Operations 0.72
0.08
0.58 1.32 0.78
- ----------------------------------------------------------
- --------------------------------------------
Less Distributions From:
Net investment income (0.44)
(0.54)
(0.58) (0.68) (0.71)
Overdistributions of net income --
(0.06)
- -- -- --
Net realized gains --
(0.10)
(0.14) -- (0.06)
Capital (0.18)
(0.03)
- -- (0.07) (0.09)
- ----------------------------------------------------------
- --------------------------------------------
Total Distributions (0.62)
(0.73)
(0.72) (0.75) (0.86)
- ----------------------------------------------------------
- --------------------------------------------
Net Asset Value, End of Year $7.86
$7.76
$8.41 $ 8.55 $7.98
- ----------------------------------------------------------
- --------------------------------------------
Total Return 10.00%
0.66%
7.28% 17.12% 10.42% ------------------------
- ----------------------------------------------------------
- --------------------
Net Assets, End of Year (000s) $2,366,680
$2,468,922 $2,105,089 $1,464,744
$502,571
- ----------------------------------------------------------
- --------------------------------------------
Ratios to Average Net Assets:
Expenses (1) 1.56%
1.57%
1.59% 1.62% 1.63%
Net investment income 6.82
7.20
7.77 7.99 9.21
- ----------------------------------------------------------
- --------------------------------------------
Portfolio Turnover Rate 83%
93%
116% 125% 131%
==========================================================
== ===========================================
</TABLE>
(1) The manager has waived part of its fees for the years
ended July 31, 1995
and 1994. If such fees were not waived, the per share
effect on expenses and
the ratios of expenses to average net assets would be
as follows:
<TABLE>
<CAPTION>
Ratios without
Per Share Decrease
Fee Waivers ----------------------------------------------
- ---------------------------------
1995 1994
1995 1994
---- ---- ---
- ----
<S> <C> <C> <C>
<C>
Class B --* --*
1.61%
1.59%
</TABLE>
* Net investment income per share decrease is less than
$0.01.
28
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class C Shares(1) 1995
1994 1993(2)
==========================================================
== =============================
<S> <C>
<C> <C>
Net Asset Value, Beginning of Year $ 7.76
$ 8.41 $ 8.36
- ----------------------------------------------------------
- ------------------------------
Income From Operations:
Net investment income (3) 1.16
0.55 0.22
Net realized and unrealized
gain (loss) on investments (0.46)
(0.47) 0.06 ------------------------------------
- ----------------------------------------------------
Total Income From Operations 0.70
0.08 0.28 -------------------------------------
- ---------------------------------------------------
Less Distributions From:
Net investment income (0.44)
(0.54) (0.20)
Overdistributions of net income --
(0.06) --
Net realized gains --
(0.10) (0.03)
Capital (0.18)
(0.03) ---------------------------------------
- --------------------------------------------------
Total Distributions (0.62)
(0.73) (0.23) -----------------------------------
- -----------------------------------------------------
Net Asset Value, End of Year $ 7.84
$ 7.76 $ 8.41
- ----------------------------------------------------------
- ------------------------------
Total Return 9.73%
0.66% 3.41%++ ----------------------------------
- ------------------------------------------------------
Net Assets, End of Year (000s) $12,730
$1,065 $ 11 -----------------------------------
- -----------------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 1.46%
1.57% 1.50%+
Net investment income 10.23
7.20 7.87+ ------------------------------------
- ----------------------------------------------------
Portfolio Turnover Rate 83%
93% 116%
==========================================================
== =============================
</TABLE>
(1) On November 7, 1994, the former Class D shares were
renamed Class C shares.
(2) For the period from March 19, 1993 (inception date) to
July 31, 1993.
(3) The manager has waived part of its fees for the years
ended July 31, 1995
and 1994. If such fees were not waived, the per share
effect on expenses and
the ratios of expenses to average net assets would be
as follows:
<TABLE>
<CAPTION>
Ratios without
Per Share Decrease
Fee Waivers ----------------------------------------------
- -------------------------------------
1995 1994
1995 1994
---- ----
- ---- ----
<S> <C> <C>
<C> <C>
Class C --* --*
1.51% 1.58%
</TABLE>
* Net investment income per share decrease is less
than
$0.01.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
29
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class Z Shares (1) 1995
1994 1993(2)
==========================================================
== ====================
<S> <C>
<C>
<C>
Net Asset Value, Beginning of Year $7.76
$8.41 $8.24 -------------------------------------
- ------------------------------------------
Income From Operations:
Net investment income (3) 0.84
0.68 0.51
Net realized and unrealized
gain (loss) on investments (0.06)
(0.54) 0.25 -------------------------------------
- ------------------------------------------
Total Income From Operations 0.78
0.14 0.76 --------------------------------------
- -----------------------------------------
Less Distributions From:
Net investment income (0.49)
(0.59) (0.47)
Overdistributions of net income --
(0.06) --
Net realized gains --
(0.10) (0.12)
Capital (0.20)
(0.04) ----------------------------------------
- ----------------------------------------
Total Distributions (0.69)
(0.79) (0.59) ------------------------------------
- -------------------------------------------
Net Asset Value, End of Year $7.85
$7.76 $8.41 -------------------------------------
- ------------------------------------------
Total Return 10.94%
1.43% 9.47%++ -----------------------------------
- --------------------------------------------
Net Assets, End of Year (000s) $14,361
$11,552 $11,803 -----------------------------------
- --------------------------------------------
Ratios to Average Net Assets:
Expenses (3) 0.75%
0.75% 0.80%+
Net investment income 8.30
8.02 8.56+ -------------------------------------
- ------------------------------------------
Portfolio Turnover Rate 83%
93% 116%
==========================================================
== ====================
</TABLE>
(1) On November 7, 1994, the former Class C shares were
renamed Class Z shares.
(2) For the period from November 6, 1992 (inception date)
to July 31, 1993.
(3) The manager has waived part of its fees for the years
ended July 31, 1995
and 1994. If such fees were not waived, the per share
effect on expenses and
the ratios of expenses to average net assets would be
as follows:
<TABLE>
<CAPTION>
Ratios without
Per Share Decrease
Fee Waivers ----------------------------------------------
- ---------------------------------------------
1995 1994
1995 1994
---- ------
- - ----
<S> <C> <C>
<C> <C>
Class Z --* --*
0.80% 0.77%
</TABLE>
* Net investment income per share decrease is less than
$0.01.
++ Not annualized as it may not be representative of the
total return for the
year.
+ Annualized.
30
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Additional Information -----------------------------------
- -------------------------
- --------------------
Change in Independent Auditor: On October 20, 1994,
based upon the
recommendation of the Audit Committee of the Fund, the
Board of Trustees
determined not to retain Coopers & Lybrand L.L.P.
("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat
Marwick LLP. During
the Fund's two most recent fiscal years, Coopers &
Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor
were the reports
qualified or modified as to uncertainty, audit scope, or
accounting principles.
Further, during this same period there were no
disagreements with Coopers &
Lybrand on any matter of accounting principles or
practices, financial statement
disclosure, or auditing scope or procedure, which
disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have
caused it to make reference
to the subject matter of such disagreements in connection
with its audit
reports. The Fund has requested Coopers & Lybrand to
provide a letter to the
Securities and Exchange Commission stating whether Coopers
& Lybrand agrees with
the foregoing statements, and to provide the Fund with a
copy of such letter. A
copy of this letter is available upon request by calling
the Fund at
(212) 723-9218.
31
Smith Barney
Diversified Strategic Income Fund ------------------------
- -------------------------------------------------------
Independent Auditors' Report -----------------------------
- --------------------------------------------------
The Shareholders and Board of Trustees of
Smith Barney Diversified Strategic Income Fund of
Smith Barney Income Funds:
We have audited the accompanying statement of assets
and liabilities,
including the schedule of investments, of Smith Barney
Diversified Strategic
Income Fund of Smith Barney Income Funds as of July 31,
1995, and the related
statement of operations, statement of changes in net
assets, and financial
highlights for the year then ended. These financial
statements and financial
highlights are the responsibility of the Fund's
management. Our responsibility
is to express an opinion on these financial statements and
financial highlights
based on our audit. The statement of changes in net assets
for the year ended
July 31, 1994 and the financial highlights for each of the
years in the four-
year period then ended, were audited by other auditors
whose report thereon,
dated September 30, 1994, expressed an unqualified opinion
on that statement of
changes in net assets and those financial highlights.
We conducted our audit in accordance with generally
accepted auditing
standards. Those standards require that we plan and
perform the audit to obtain
reasonable assurance about whether the financial
statements and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of July
31, 1995, by correspondence with the custodian. An audit
also includes assessing
the accounting principles used and significant estimates
made by management, as
well as evaluating the overall financial statement
presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly,
in all material respects, the financial position of Smith
Barney Diversified
Strategic Income Fund of Smith Barney Income Funds as of
July 31, 1995, and the
results of its operations, changes in its net assets and
financial highlights
for the year then ended, in conformity with generally
accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
New York, New York
September 25, 1995
32
Smith Barney
Diversified
Strategic Income
Fund
Directors
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
Officers
Heath B. McLendon
Chairman and Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
James E. Conroy
First Vice President and
Investment Officer
John C. Bianchi
Vice President and
Investment Officer
Victor S. Filatov
Vice President and
Investment Officer
Christina T. Sydor
Secretary
[LOGO OF SMITH BARNEY APPEARS HERE]
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of
the shareholders of
Smith Barney 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.
Smith Barney
Diversified Strategic Income Fund
388 Greenwich Street
New York, New York 10013
FD 0149 9/95
- ----------------------------------------------------------
- ---------------------
Annual Report -----------
- ----------------------------------------------------------
- ----------
1995
1995
1995
1995
1995
Smith Barney
Premium Total
Return Fund -----------------------------------------
--------------
- --------------------
July 31, 1995
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future.
Everyday.
- --------------------------------------
Smith Barney Premium Total Return Fund -------------------
- -------------------
Dear Shareholder:
The Smith Barney Premium Total Return Fund delivered a
total return of 13.06%
for Class A shares for the year ended July 31, 1995. The
total distributions for
the 12 months ended July 31, 1995 were $1.28 per share for
Class A shares.
During the second half of 1994, interest-rate increases
and the fear of expected
inflation combined to cause investors to become negative
toward interest-rate
sensitive and basic-industry stocks. Beginning in February
1995, however,
falling interest rates, low inflation, and moderate
economic growth have
combined to fuel rapid advances across the domestic equity
markets.
During its past fiscal year, good stock selection helped
the Fund's performance
in the banking and financial services and consumer non
durables sectors of the
market. The Fund's holdings in these sectors performed
better than specific
stocks in the same sectors in the unmanaged Standard &
Poor's 500 Stock Index, a
common benchmark for U.S. stock market performance. A
continued portfolio
overweight in financial-sector stocks has also worked well
this year. As
interest rates have fallen, these stocks have risen more
than 28% on average.
Conversely, the Fund's low exposure to technology stocks
has had a detrimental
effect on its performance. The Fund's investment style
emphasizes value rather
than growth investing, therefore the portfolio will
typically be overweighted in
finance stocks and underweighted in technology stocks. The
technology and
finance sectors are the only areas of the market that have
outperformed the
overall S&P 500 Index return so far this year. The S&P 500
Index produced a
total return of 26.07% for the year ended July 31, 1995.
As 1995 began, the market environment for stocks seemed
difficult due to the
potential of further tightening of monetary policy by the
Federal Reserve, and a
market that was trading at the high end of fair value
based on dividend yield,
price-to-earnings and price-to-book ratios. As we have
seen this year, those
potential negatives did not materialize. Federal Reserve
actions to cut interest
rates, coupled with low inflation and moderate economic
growth, have fueled a
market surge this year. Looking ahead, the market
continues to be at the high
end of its historical valuation range. We continue to
maintain a defensive
positioning in the Fund with current cash reserves at 15%
of assets. In
addition, we are using S&P 500 Index options to lower
potential portfolio
volatility.
1
The Fund is well positioned to meet its investment
objectives, and we continue
to implement our disciplined value style of investing,
which focuses on buying
companies with low valuations, sound business fundamentals
and favorable
business momentum.
We would also like to advise you that at a meeting held on
August 10, 1995,
shareholders of the Premium Total Return Fund approved a
new sub-advisory
agreement with Boston Partners Asset Management, L.P.
Under this sub-advisory
agreement, Harry J. Rosenbluth will again serve as
portfolio manager of the
Fund.
We thank you for your confidence in our investment
management and encourage you
to contact us or your Smith Barney Financial Consultant if
you have any
questions about the Fund.
/s/ Heath B. McLendon /s/
Harry J. Rosenbluth
Heath B. McLendon Harry
J. Rosenbluth
Chairman and Investment Officer
Investment Officer
August 11, 1995
2
Smith Barney Premium Total Return Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Historical Performance -- Class A Shares -----------------
- ----------------------------------------------------------
- -------------------
Net Asset Value
--------------------
Beginning End Income
Capital Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns/(1)/
==========================================================
== ===================================
<S> <C> <C> <C> <C>
<C> <C>
7/31/95 $15.69 $16.33 $0.43
$0.14 $0.71 12.92%
- ----------------------------------------------------------
- ------------------------------------
7/31/94 15.65 15.69 0.55
0.52 0.21 8.65
- ----------------------------------------------------------
- ------------------------------------
Inception*
- 7/31/93 15.15 15.65 0.20
0.49 0.33 10.31
==========================================================
== ===================================
Total $1.18
$1.15 $1.25
==========================================================
== ===================================
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Historical Performance -- Class B Shares -----------------
- ----------------------------------------------------------
- -------------------
Net Asset Value
--------------------
Beginning End Income
Capital Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns/(1)/
==========================================================
== ===================================
<S> <C> <C> <C> <C>
<C> <C>
7/31/95 $15.69 $16.33 $0.34
$0.14 $0.72 12.36%
- ----------------------------------------------------------
- ------------------------------------
7/31/94 15.65 15.69 0.49
0.52 0.20 8.12
- ----------------------------------------------------------
- ------------------------------------
7/31/93 15.21 15.65 0.19
0.63 0.44 11.68
- ----------------------------------------------------------
- ------------------------------------
7/31/92 14.26 15.21 0.22
0.00 0.98 15.68
- ----------------------------------------------------------
- ------------------------------------
7/31/91 13.30 14.26 0.24
0.00 0.96 17.53
- ----------------------------------------------------------
- ------------------------------------
7/31/90 13.98 13.30 0.22
0.00 1.06 4.62
- ----------------------------------------------------------
- ------------------------------------
7/31/89 12.90 13.98 0.89
0.26 0.33 21.49
- ----------------------------------------------------------
- ------------------------------------
7/31/88 14.47 12.90 0.18
1.28 0.00 0.21
- ----------------------------------------------------------
- ------------------------------------
7/31/87 14.52 14.47 0.28
1.42 0.00 12.07
- ----------------------------------------------------------
- ------------------------------------
Inception*
- 7/31/86 13.00 14.52 0.42
0.76 0.00 21.28
==========================================================
== ===================================
Total $3.47
$5.01 $4.69
==========================================================
== ===================================
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Historical Performance -- Class C Shares -----------------
- ----------------------------------------------------------
- -------------------
Net Asset Value
--------------------
Beginning End Income
Capital
Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns/(1)/
==========================================================
== ===================================
<S> <C> <C> <C> <C>
<C> <C>
7/31/95 $15.69 $16.33 $0.35
$0.14 $0.71 12.36%
- ----------------------------------------------------------
- ------------------------------------
7/31/94 15.65 15.69 0.49
0.52 0.20 8.12
- ----------------------------------------------------------
- ------------------------------------
Inception*
- 7/31/93 15.45 15.65 0.04
0.09 0.07 2.60
==========================================================
== ===================================
Total $0.88
$0.75 $0.98
==========================================================
== ===================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
3
Smith Barney Premium Total Return Fund
<TABLE>
<CAPTION> ------------------------------------------------
- -------------------------------
Average Annual Total Return ------------------------------
- -------------------------------------------------
Without
Sales Charge/(1)/
----------
- --------------------
Class A
Class B Class C
==========================================================
== ===================
<S> <C>
<C> <C>
Year Ended 7/31/95 12.92%
12.36% 12.36% ---------------------------------------
- ---------------------------------------
Five Years Ended 7/31/95 N/A
13.03 N/A ----------------------------------------
- --------------------------------------
Inception* through 7/31/95 11.72
12.47 10.77 ----------------------------------------
- --------------------------------------
<CAPTION>
With
Sales Charge/(2)/
----------
- --------------------
Class A
Class B Class C
==========================================================
== ===================
<S> <C>
<C> <C>
Year Ended 7/31/95 7.25%
7.36% 11.36% ----------------------------------------
- --------------------------------------
Five Years Ended 7/31/95 N/A
12.90 N/A ----------------------------------------
- --------------------------------------
Inception* through 7/31/95 9.63
12.47 10.77
- ----------------------------------------------------------
- --------------------
</TABLE>
<TABLE>
<CAPTION> ------------------------------------------------
- -------------------------------
Cumulative Total Return ----------------------------------
- ---------------------------------------------
Without
Sales Charge/(1)/
----------
- --------------------
<S>
<C>
Class A (Inception* through 7/31/95)
35.33% ---------------------------------------------------
- ----------------------------
Class B (Inception* through 7/31/95)
219.30 ---------------------------------------------------
- ----------------------------
Class C (Inception* through 7/31/95)
24.65 ----------------------------------------------------
- ---------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital
gain distributions at net
asset value and does not reflect deduction of the
applicable sales charge
with respect to Class A shares or the applicable
contingent deferred sales
charges ("CDSC") with respect to Class B and Class C
shares.
(2) Assumes reinvestment of all dividends and capital
gain distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 5.00% and Class B
shares reflect the
deduction of a 5.00% CDSC which applies if shares are
redeemed less than
one year from initial purchase and declines by 1.00%
per year until no CDSC
occurs. Class C shares reflect the deduction of a
1.00% CDSC which applies
if shares are redeemed within the first year of
purchase.
* Inception dates for Class A, B and C shares are
November 6, 1992, September
16, 1985 and June 1, 1993, respectively.
4
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Historical Performance -----------------------------------
- -------------------------
- --------------------
Growth of $10,000 Invested in Class B
Shares of
the Smith Barney Premium Total Return
Fund vs. the Standard & Poor's 500
Index+
(unaudited)
- ----------------------------------------------------------
- ---------------------
September 1985 - July 1995
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Smith Barney Premium Total Return Fund Inc.
S&P 500 Index
<S> <C>
<C>
9/16/85 10,000
10,000
1/86 10,971
11,786
7/86 12,128
13,370
1/87 12,917
15,781
7/87 13,592
18,623
1/88 11,878
15,254
7/88 13,620
16,439
1/89 14,977
18,318
7/89 16,547
21,689
1/90 16,024
20,969
7/90 17,310
23,099
1/91 18,216
22,729
7/91 20,345
26,048
1/92 22,264
27,887
7/92 23,535
29,379
1/93 24,912
30,839
7/93 26,282
31,946
1/94 28,716
34,812
7/94 28,417
33,593
1/95 28,793
34,994
7/95 31,197
42,364
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class B
shares at inception
on September 16, 1985, assuming reinvestment of dividends
and capital gains,
if any, at net asset value through July 31, 1995. The
Standard & Poor's 500
Stock Index ("S&P 500 Index") is an index composed of
widely held common
stocks listed on the New York Stock Exchange, American
Stock Exchange and
over-the-counter market. Figures for the S&P 500 Index
include reinvestment of
dividends. The index is unmanaged and it is not subject to
the same management
and trading expenses as a mutual fund. The performance of
the Fund's other
classes may be greater or less than the Class B shares'
performance indicated
on this chart, depending on whether greater or lesser
sales charges and fees
were incurred by shareholders investing in other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
value may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital
gains.
5
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Portfolio Highlights (unaudited) July 31, 1995 -------
- ----------------------------------------------------------
- --------------
Portfolio Breakdown
[PIE CHART APPEARS HERE]
Top Ten Holdings
<TABLE>
<CAPTION>
Percentage of
Company
Total Investments ----------------------------------------
- ---------------------------------------
<S>
<C>
Loews Corp.
4.0%
Phillip Morris Co., Inc.
3.7
Philips Electronics NV
3.1
Republic of New York Corp.
2.8
Limited Inc.
2.1
J.P. Morgan & Co., Inc.
1.8
Canadian Pacific Ltd.
1.8
Chase Manhattan Corp.
1.7
IBM Corp.
1.6
Tandy Corp.
1.6
</TABLE>
6
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Schedule of Investments
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
==========================================================
== ====================
<S> <C>
<C>
COMMON STOCKS -- 81.3%
Banking & Financial Services -- 15.2%
290,000 American Express Co.
$ 11,165,000
811,700 American General Corp.
29,525,588
276,812 Bank of Boston Corp.
12,006,720
683,800 Chase Manhattan Corp.
36,668,775
600,000 Dean Witter Discover & Co.
30,300,000
142,900 Federal Home Loan Mortgage Corp.
9,359,950
125,900 Federal National Mortgage Association
11,787,388
480,500 First Chicago Corp.
29,190,375
548,900 J.P. Morgan & Co., Inc.
40,138,312
143,700 JSB Financial, Inc.
4,257,113
890,000 Lehman Brothers Holding Inc.
19,691,250
70,200 PHH Corp.
3,325,725
1,114,300 Republic of New York Corp.
62,400,800
625,000 Student Loan Marketing Association
33,671,875 -----------------------------------------------
- --------------------------------
333,488,871 ----------------------------------------------
- ---------------------------------
Capital Goods -- 5.2%
200,000 Emerson Electric Co.
14,150,000
210,600 Lockheed Martin Corp.
13,241,475
1,361,900 Philips Electronics NV
67,073,575
200,000 Raytheon Co.
16,525,000 -----------------------------------------------
- --------------------------------
110,990,050 ----------------------------------------------
- ---------------------------------
Consumer Durables -- 2.5%
485,400 Genuine Parts Co.
18,323,850
130,000 TRW Inc.
9,701,250
196,900 Volkswagen AG, Sponsored ADR
12,896,950
727,900 Volvo Aktie Bolget ADR
14,376,025 -----------------------------------------------
- --------------------------------
55,298,075 -----------------------------------------------
- --------------------------------
Consumer Non-Durables -- 6.9%
1,789,500 Liz Claiborne Inc.
40,934,813
711,700 Loews Corp.
85,670,885
456,800 Nestle, S.A., Sponsored ADR
23,468,100
18,260 Nestle, S.A., Sponsored ADR, Represents
One
Regular
Share+
938,108 --------------------------------------------------
- -----------------------------
151,011,906 ----------------------------------------------
- ---------------------------------
Consumer Services -- 9.4%
210,000 Alberto Culver Co., Class A Shares
5,407,500
600,000 American Stores Co.
17,625,000
935,700 Federated Department Stores Inc.
26,550,488
</TABLE>
See Notes to Financial Statements.
7
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
==========================================================
== ====================
<S> <C>
<C>
Consumer Services -- 9.4% (continued)
110,700 Hormel Foods Corp.
$ 2,725,988
2,252,800 Limited Inc.
46,182,400
268,312 Luby's Cafeterias Inc.
5,299,162
385,000 Masco Corp.
10,010,000
732,600 May Department Stores Co.
31,776,525
793,000 Rite Aid Corp.
22,501,375
708,767 Sears Roebuck & Co.
23,123,506
165,600 Sherwin-Williams Co.
6,044,400
192,700 VF Corp.
10,646,675 -----------------------------------------------
- --------------------------------
207,893,019 ----------------------------------------------
- ---------------------------------
Containers & Packaging -- 0.5%
300,000 Ball Corp.
11,100,000 -----------------------------------------------
- --------------------------------
Energy -- 6.6 %
117,700 Amoco Corp.
7,915,325
140,500 British Petroleum PLC ADR
12,750,375
310,400 Exxon Corp.
22,504,000
769,600 Horsham Corp.
10,293,400
273,500 Mobil Oil Corp.
26,734,625
931,000 Repsol S.A., Sponsored ADR
31,072,125
165,300 Royal Dutch Petroleum Co. of New York
20,993,100
277,200 Tosco Corp.
9,078,300
129,900 YPF Sociedad Anonima ADR
2,257,013 ------------------------------------------------
- -------------------------------
143,598,263 ----------------------------------------------
- ---------------------------------
Forest Products -- 1.1%
415,000 Champion International Corp.
23,395,625 -----------------------------------------------
- --------------------------------
Healthcare -- 5.5%
253,700 Abbott Laboratories Inc.
10,148,000
280,600 Allergan Inc.
8,488,150
517,700 Astra AB, Class A Shares, ADR
17,795,938
475,100 Bristol-Myers Squibb Co.
32,900,675
621,896 Columbia/HCA Healthcare Corp.
30,472,904
483,200 Smithkline Beecham PLC ADR
21,744,000 -----------------------------------------------
- --------------------------------
121,549,667 ----------------------------------------------
- ---------------------------------
Insurance -- 7.3%
600,900 Ace Limited
17,801,663
657,050 Allstate Corp.
20,532,813
274,800 American International Group Inc.
20,610,000
350,450 Aon Corp.
13,273,294
156,000 CIGNA Corp.
12,577,500
</TABLE>
See Notes to Financial Statements.
8
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
==========================================================
== ====================
<S> <C>
<C>
Insurance -- 7.3% (continued)
231,100 Exel Limited
$ 12,103,863
100,000 Horace Mann Educators
Co.
2,562,500
252,200 Mid Ocean Limited
8,385,650
522,500 St Paul Co., Inc.
25,471,875
200,000 TIG Holdings Inc.
4,950,000
122,600 Transatlantic Holdings Inc.
8,091,600
85,200 Trenwick Group Inc.
3,961,800
200,000 Unum Corp.
9,675,000 ------------------------------------------------
- -------------------------------
159,997,558 ----------------------------------------------
- ---------------------------------
Real Estate -- 1.8%
87,900 Associated Estates Realty Corp.
1,790,963
120,700 Avalon Properties Inc.
2,414,000
141,333 Cadman Property Trust
2,950,326
60,000 Chateau Properties Inc.
1,282,500
325,900 Equity Inns Inc.
3,503,425
242,200 General Growth Properties Inc.
4,722,900
149,600 Liberty Properties Trust
2,992,000
285,000 Mid-America Apartment Communities Inc.
7,125,000
200,000 Prime Residential Inc.
3,050,000
154,800 Charles E. Smith Residential Realty Inc.
3,560,400
200,000 Storage Trust Realty
4,200,000
160,000 Summit Properties Inc.
2,780,000 ------------------------------------------------
- -------------------------------
40,371,514 -----------------------------------------------
- --------------------------------
Technology -- 5.1%
507,700 Apple Computer Inc.
22,846,500
499,900 Digital Equipment Corp.
19,183,663
324,000 IBM Corp.
35,275,500
583,246 Tandy Corp.
34,630,274 -----------------------------------------------
- --------------------------------
111,935,937 ----------------------------------------------
- ---------------------------------
Transportation -- 2.5%
2,150,200 Canadian Pacific Ltd.
38,434,825
660,000 Pittston Services Group
16,500,000 -----------------------------------------------
- --------------------------------
54,934,825 -----------------------------------------------
- --------------------------------
Tobacco -- 5.2%
1,137,900 Phillip Morris Cos., Inc.
81,502,088
1,149,840 RJR Nabisco Holdings Corp. ++
31,764,330 -----------------------------------------------
- --------------------------------
113,266,418 ----------------------------------------------
- ---------------------------------
</TABLE>
See Notes to Financial Statements.
9
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE
==========================================================
== ====================
<S> <C>
<C>
Utilities -- 6.5%
745,800 CMS Energy Corp.
$ 18,645,000
338,200 Illinova Corp.
8,455,000
825,300 MCI Communications Corp.
19,807,200
575,000 Nynex Corp.
23,718,750
867,800 Pacific Enterprises
20,935,675
1,082,000 Pinnical West Capital Corp.
26,373,750
475,000 Portland General Corp.
10,925,000
450,000 Public Service Co. of Colorado
14,231,250 -----------------------------------------------
- --------------------------------
143,091,625 ----------------------------------------------
- ---------------------------------
TOTAL COMMON STOCKS
(Cost -- $1,442,098,388)
1,781,923,353
==========================================================
==
====================
PREFERRED STOCK -- 2.8%
Industrial -- 0.7%
305,000 Bowater Inc., Depository Shares,
Convertible,
Series B, Exchange 7.000%
12,047,500
200,000 Prime Retail Inc., Series A, Exchange
10.500% 3,750,000
- ----------------------------------------------------------
- ---------------------
15,797,500 -----------------------------------------------
- --------------------------------
Financial -- 2.1%
200,000 First Washington Realty Inc., Convertible,
Series A, Exchange 9.750% +
4,400,000
760,000 Glendale Federal Bank, Federal Savings
Bank
of
California, Convertible, Series E,
Exchange 8.750%
28,310,000
100,000 Allstate Corp., Convertible, Series 1998,
Exchange 6.760%
4,250,000
76,700 Property Trust of America, Series A,
Convertible,
Exchange 1.750%
1,725,750
304,767 Riggs National Corp., Convertible
Series B, Exchange 10.750%
7,771,558 ------------------------------------------------
- -------------------------------
46,457,308 -----------------------------------------------
- --------------------------------
TOTAL PREFERRED STOCKS
(Cost -- $51,901,643)
62,254,808
==========================================================
== ====================
</TABLE>
See Notes to Financial Statements.
10
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
==========================================================
==
====================
<S> <C>
<C>
CORPORATE BONDS -- 2.7%
Financial Services -- 0.3%
$ 7,500,000 B.F. Saul Real Estate Investment Trust,
Series B,
11.625% due 04/01/02
$ 7,012,500
- ----------------------------------------------------------
- ---------------------
Gas Transmission -- 0.4%
Columbia Gas Systems Inc., Debentures
(++): 3,750,000 9.000% due 11/01/13
5,160,938
2,039,000 10.150% due 11/01/13
2,908,124 ------------------------------------------------
- -------------------------------
8,069,062 ------------------------------------------------
- -------------------------------
Industrial -- 2.0%
5,635,000 Comcast Corp., 9.375% due 05/15/05
5,733,612
13,225,000 MDC Holdings Corp., Sr. Note, 11.125% due
12/15/03 11,902,500
4,915,000 Paging Network, 8.875% due 02/01/06
4,669,250
6,320,000 Penn Traffic Corp., 8.625% due 12/15/03
5,830,200
3,000,000 Riveria Holdings Corp., First Mortgage,
11.000%
due 12/31/02
2,756,250
6,000,000 Rogers Cable Systems Inc., 10.000% due
03/15/05 6,255,000
6,000,000 Tenet Healthcare, 10.125% due 03/01/05
6,390,000 ------------------------------------------------
- -------------------------------
43,536,812 -----------------------------------------------
- --------------------------------
TOTAL CORPORATE BONDS
(Cost -- $58,030,170)
58,618,374
==========================================================
== ====================
CONVERTIBLE BONDS -- 0.2%
5,952,000 Consorcio Grupo Dina, 8.000% due 09/08/04
2,261,760
1,500,000 Pacific Concord Financial, 4.750% due
12/10/98 1,252,500
- ----------------------------------------------------------
- ---------------------
TOTAL CONVERTIBLE BONDS
(Cost -- $6,159,600)
3,514,260
==========================================================
== ====================
</TABLE>
See Notes to Financial Statements.
11
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ====================
<S> <C>
<C>
REPURCHASE AGREEMENTS -- 13.0%
$ 33,788,000 Chemical Securities Inc., 5.769% due
08/01/95;
Proceeds at maturity -- $33,793,414;
(Fully collateralized by U.S. Treasury
Note, 7.375% due 11/15/97; Market value --
$34,466,871)
$ 33,788,000
100,000,000 Morgan Stanley Inc., 5.769% due 08/01/95;
Proceeds at maturity -- $100,016,025;
(Fully collateralized by U.S. Treasury
Note, 5.875% due 03/31/99; Market value --
$102,709,373)
100,000,000
150,000,000 Goldman Sachs & Co., 5.739% due 08/01/95;
Proceeds at maturity -- $150,023,912;
(Fully collateralized by U.S. Treasury
Note, 6.000% due 10/15/99; Market value --
$153,098,325)
150,000,000 ----------------------------------------------
- ---------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $283,788,000)
283,788,000
==========================================================
== ====================
TOTAL INVESTMENTS -- 100%
(Cost -- $1,841,977,803*)
$2,190,098,795
==========================================================
== ====================
</TABLE>
+ Security exempt from registration under Rule 144A of
the Securities Act of
1933. These securities may be resold in transactions
exempt from
registration, normally to qualified institution
buyers. ++ Non-income producing security.
(++) Security issuer has filed to reorganize under Chapter
11.
* Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
12
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Statement of Assets and Liabilities
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<S>
<C>
ASSETS:
Investments, at value (Cost -- $1,841,977,803)
$2,190,098,795
Cash
564
Receivable for Fund shares sold
3,769,624
Dividends and interest receivable
3,978,125 ------------------------------------------------
- ------------------------------
Total Assets
2,197,847,108 --------------------------------------------
- ----------------------------------
LIABILITIES:
Payable for Fund shares purchased
974,969
Investment advisory fees payable
990,130
Administration fees payable
366,212
Distribution costs payable
1,144,331
Payable for securities purchased
2,490,888
Options written
49,112,500
Accrued expenses
3,092,898 ------------------------------------------------
- ------------------------------
Total Liabilities
58,171,928 -----------------------------------------------
- -------------------------------
Total Net Assets
$2,139,675,180
==========================================================
== ===================
NET ASSETS:
Par value of shares of beneficial interest
$ 131,042
Capital paid in excess of par value
1,822,506,207
Undistributed net investment income
319,650
Accumulated net realized loss
(1,213,739)
Net unrealized appreciation of investments and options
written 317,932,020 -----------------------------------
- -------------------------
- -------------------
Total Net Assets
$2,139,675,180
==========================================================
== ===================
Shares Outstanding:
Class A
28,881,893 -----------------------------------------------
-----------
- -------------------
Class B
101,367,578 ----------------------------------------------
------------
- -------------------
Class C
792,180 --------------------------------------------------
--------
- -------------------
Net Asset Value:
Class A (and redemption price)
$16.33 ---------------------------------------------------
-------
- -------------------
Class B*
$16.33 ---------------------------------------------------
-------
- -------------------
Class C**
$16.33 ---------------------------------------------------
-------
- -------------------
Class A Maximum Public Offering Price Per Share
(Net Asset value plus 5.26% of net asset value per
share) $17.19
==========================================================
== ===================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a
5.00% CDSC if shares
are redeemed less than one year from initial purchase
(See Note 2).
** Redemption price is NAV of Class C shares reduced by a
1.00% CDSC if shares
are redeemed less than one year from initial purchase.
See Notes to Financial Statements.
13
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Statement of Operations For the
Year Ended July 31, 1995 ---------------------------------
- ----------------------------------------------
<TABLE>
<S>
<C>
INVESTMENT INCOME:
Dividends
$ 52,831,151
Interest
23,654,202 -----------------------------------------------
- -------------------------------
TOTAL INVESTMENT INCOME
76,485,353 -----------------------------------------------
- -------------------------------
EXPENSES:
Investment advisory fees (Note 2)
10,627,086
Distribution fees (Note 2)
12,565,954
Administration fees (Note 2)
3,930,566
Shareholder and system servicing fees
2,210,000
Shareholder communications
200,000
Custody
190,000
Registration fees
70,000
Audit and legal
40,000
Trustee's fees
15,000
Other
198,131 --------------------------------------------------
- ----------------------------
TOTAL EXPENSES
30,046,737 -----------------------------------------------
- -------------------------------
NET INVESTMENT INCOME
46,438,616 -----------------------------------------------
- -------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS, OPTIONS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities)
99,176,479
Options written
(67,231,425)
Foreign currency transactions
93,837 ---------------------------------------------------
- ---------------------------
NET REALIZED GAIN
32,038,891 -----------------------------------------------
- -------------------------------
Change in Net Unrealized Appreciation of Investments
and Options Written:
Beginning of year
162,131,787
End of year
317,932,020 ----------------------------------------------
- --------------------------------
INCREASE IN NET UNREALIZED APPRECIATION
155,800,233 ----------------------------------------------
- --------------
- -------------------
NET GAIN ON INVESTMENTS, OPTIONS AND FOREIGN CURRENCIES
187,839,124 ----------------------------------------------
- --------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS
$ 234,277,740
==========================================================
== ===================
</TABLE>
See Notes to Financial Statements.
14
Smith Barney Premium Total Return Fund
<TABLE>
<CAPTION> ------------------------------------------------
- -------------------------------
Statements of Changes in Net Assets For
the Years Ended July 31, ---------------------------------
- ----------------------------------------------
1995
1994
==========================================================
== ====================
<S> <C>
<C>
OPERATIONS:
Net investment income $
46,438,616 $ 24,757,776
Net realized gain
32,038,891 61,129,346
Increase in net unrealized appreciation
of investments
155,800,233 29,779,501
- ----------------------------------------------------------
- --------------------
INCREASE IN NET ASSETS FROM OPERATIONS
234,277,740 115,666,623
- ----------------------------------------------------------
- --------------------
DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income
(43,873,984) (22,955,206)
Overdistribution of net income
- -
- - (21,939,138)
Net realized gains
(17,566,601) (53,848,857)
Capital
(88,629,006) (19,306,035)
- ----------------------------------------------------------
- --------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS
TO SHAREHOLDERS
(150,069,591) (118,049,236)
- ----------------------------------------------------------
- --------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sales
809,725,275 589,505,838
Net asset value of shares issued for
reinvestment of dividends
112,530,432 91,233,097
Cost of shares reacquired (633,759,102)
(182,156,449)
- ----------------------------------------------------------
- --------------------
INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS
288,496,605 498,582,486 ----------------------------
- --------------------------------------------------
INCREASE IN NET ASSETS
372,704,754 496,199,873
NET ASSETS:
Beginning of year
1,766,970,426 1,270,770,553 --------------------------
- ----------------------------------------------------
END OF YEAR*
$2,139,675,180 $1,766,970,426
==========================================================
== ===================
*Includes undistributed (overdistributed)
net investment income of:
$319,650 $(2,338,819)
==========================================================
== ===================
</TABLE>
See Notes to Financial Statements.
15
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Notes to Financial Statements ----------------------------
- ---------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Premium Total Return Fund (the
"Fund"), a separate
investment fund of the Smith Barney Income Funds
("Trust"), a Massachusetts
business trust, is registered under the Investment Company
Act of 1940, as
amended, as a diversified, open-end management investment
company. The Trust
consists of the Fund and six other separate investment
funds: Smith Barney
Exchange Reserve Fund, Smith Barney Convertible Fund,
Smith Barney High Income
Fund, Smith Barney Tax-Exempt Income Fund, Smith Barney
Diversified Strategic
Income Fund and Smith Barney Utilities Fund. The financial
statements and
financial highlights for the other Funds are presented in
separate annual
reports.
The significant accounting policies consistently
followed by the Trust are:
(a) securities transactions are accounted for on trade
date;
(b) 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. Options are generally
valued at the last sale
price or, in the absence of the last price, the last offer
price. Investments in
U.S. government securities (other than short-term
securities) are valued at the
mean of the quoted bid and asked price; (c) short-term
securities that have a
maturity of more than 60 days are valued at prices based
on market quotations
for securities of similar type, yield and maturity; (d)
short-term investments
that have a maturity of 60 days or less are valued at cost
plus accreted
discount, or minus amortized premium, as applicable; (e)
dividend income is
recorded on ex-dividend date and interest income is
recorded on the accrual
basis; (f) gains or losses on the sale of securities are
recorded on the
identified cost basis; (g) dividends and distributions to
shareholders are
recorded on the ex-dividend date; (h) the accounting
records are maintained in
U.S. dollars. All assets and liabilities denominated in
foreign currencies are
translated into U.S. dollars based on the rate of exchange
of such currencies
against U.S. dollars on the date of valuation. Purchases
and sales of
16
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
securities, and income and expenses are translated at the
rate of exchange
quoted on the respective date that such transactions are
recorded. Differences
between income and expense amounts recorded and collected
or paid are adjusted
when reported by the custodian bank; (i) direct expenses
are charged to each
fund and each class; management fees and general fund
expenses are allocated on
the basis of relative net assets of each class; (j) in
accordance with Statement
of Position 93-2 Determination, Disclosure, and Financial
Statement Presentation
-----------------------------------------
--
- --------------------
of Income, Capital Gain, and Return of Capital
Distributions by Investment ------------------------------
- -------------------------------------------
Companies, book and tax basis differences relating to
shareholder distributions
- ---------
and other permanent book and tax differences are
reclassified to paid-in
capital. As of July 31, 1995, the cumulative effect of
such differences,
totaling $88,629,006, were reclassified to paid-in capital
from accumulated net
investment loss. Net investment income, net realized
gains, and net assets were
not affected by this change; and (k) the Fund intends to
comply with the
applicable provisions of the Internal Revenue Code of
1986, as amended,
pertaining to regulated investment companies and to make
distributions of
taxable income sufficient to relieve it from substantially
all Federal income
and excise taxes.
In addition, the Fund may from time to time enter
into options and/or
futures contracts in order to hedge market risk.
2. Investment Advisory Agreement, Administration
Agreement and Other
Transactions
Smith Barney Strategy Advisers Inc. ("SBSA"), a
subsidiary of Smith Barney
Mutual Funds Management Inc. ("SBMFM"), which is a
subsidiary of Smith Barney
Holdings Inc. ("SBH"), acts as investment advisor to the
Fund. The Fund pays
SBSA an advisory fee calculated at an annual rate of 0.55%
of the average daily
net assets; this fee is calculated daily and paid monthly.
In addition, The Boston Company Advisors, Inc.
("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank
Corporation, acted as Sub-
Investment Advisor to the Fund. SBSA paid Boston Advisors
a sub-advisory fee
calculated at an annual rate of 0.275% of average daily
net assets; this fee was
calculated daily and paid monthly. As of August 15, 1995
this relationship was
terminated.
17
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
On August 10, 1995 at a special meeting, the
shareholders of the Fund
approved a new investment advisory agreement ("Advisory
Agreement") between the
Fund and SBSA and a new sub-investment advisory agreement
("Sub-Advisory
Agreement") among the Fund, SBSA and Boston Partners Asset
Management, L.P.
("Boston Partners"). Under the Sub-Advisory Agreement,
which went into effect
August 16, 1995, SBSA pays Boston Partners a fee
calculated at an annual rate of
0.10% of the average daily net assets; this fee will be
calculated daily and
paid monthly.
Both the Advisory and Sub-Advisory Agreements
were approved by quorum of
shareholders by more than a 3 to 1 margin, with
approximately 10% of the voting
shares abstaining.
SBMFM acts as the Fund's administrator for which the
Fund pays a fee
calculated at an annual rate of 0.20% of the average daily
net assets; this fee
is calculated daily and paid monthly.
The Fund and SBMFM had entered into a sub
administration agreement ("Sub-
Administration Agreement") with Boston Advisors. Under the
Sub-Administration
Agreement, SBMFM paid Boston Advisors a portion of its
administration fee at a
rate agreed upon from time to time between SBMFM and
Boston Advisors. This Sub-
Administration Agreement was in effect until March 27,
1995.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
year ended July 31, 1995, SB received brokerage
commissions of $694,467 and
sales charges of approximately $594,400 for sales of the
Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC")
of 5.00% on Class B
shares if redemption occurs less than one year from
initial purchase and
thereafter declines by 1.00% per year until no CDSC is
incurred. Class C shares
have a 1.00% CDSC if redemption occurs within the first
year from the date such
investment was made. For the year ended July 31, 1995,
CDSC's of approximately
$1,765,800 were paid to SB.
18
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
Pursuant to a Distribution Plan, the Fund pays a
distribution fee with
respect to Class B and C shares calculated at the annual
rate of 0.50% and
0.45%, respectively, of the average daily net assets for
each class. The Fund
also pays a service fee with respect to Class A, B and C
shares calculated at
the annual rate of 0.25% of the average daily net assets
of each class,
respectively.
All officers and one trustee of the Fund are
employees of SB.
3. Investments
During the year ended July 31, 1995, the aggregate
cost of purchases and
proceeds from sales of investments (including maturities,
but excluding short-
term securities) was $1,158,160,306 and $1,043,455,523,
respectively.
At July 31, 1995, the net unrealized appreciation of
investments for
Federal income tax purposes consisted of the following:
<TABLE>
==========================================================
== ===================
<S>
<C>
Gross unrealized appreciation
$363,616,271
Gross unrealized depreciation
(15,495,279) ---------------------------------------------
- ---------------------------------
Net unrealized appreciation
$348,120,992
==========================================================
== ===================
</TABLE>
4. Option Contracts
Premiums paid when put or call options are purchased
by the Fund, represent
investments, which are marked-to-market daily. When a
purchased option expires,
the Fund will realize a loss in the amount of the premium
paid. When the Fund
enters into a closing sales transaction, the Fund will
realize a gain or loss
depending on whether the proceeds from the closing sales
transaction are greater
or less than the premium paid for the option. When the
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 a Fund writes a call or 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
19
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
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 cost of the security
sold will be 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 following option transactions occurred during the
fiscal year ended
July 31, 1995:
<TABLE>
<CAPTION>
Number of
Premiums Contracts
==========================================================
== ===================
<S> <C>
<C>
Options written, outstanding at July 31, 1994 $
31,985,942 16,000
Options written during the fiscal year
61,726,039 30,000
Options cancelled in closing purchase transactions
(74,788,453) (33,000) ----------------------------------
- --------------------------------------------
Options written, outstanding at July 31, 1995 $
18,923,528 13,000
==========================================================
== ===================
</TABLE>
The following table represents the open options
contracts as of July 31,
1995:
<TABLE>
<CAPTION>
Number of
Strike
Contracts Expiration
Price
Value
==========================================================
== ====================
<S> <C> <C>
<C>
Call Options Written
7,000 S&P 500 Index 9/16/95
$525
$(27,737,500)
6,000 S&P 500 Index 9/16/95
$530
(21,375,000) ---------------------------------------------
- ---------------------------------
TOTAL CALL OPTIONS WRITTEN
(Premiums received -- $18,923,528)
$(49,112,500)
==========================================================
== ====================
</TABLE>
5. Repurchase Agreements
The Fund purchases (and its custodian takes
possession of) U.S. Government
securities from banks and securities dealers subject to
agreements to resell the
securities to the sellers at a future date (generally, the
next business day) at
an agreed-upon higher repurchase price. The Fund requires
continual maintenance
of the market value of the collateral in amounts at least
equal to the
repurchase price.
20
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
6. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of
beneficial interest of
each class in each separate series with a $.001 par value.
The Fund has the
ability to issue multiple classes of shares. Each share of
a class represents an
identical interest and has the same rights, except that
each
class bears certain
direct expenses, including those specifically related to
the distribution of its
shares. Effective November 7, 1994, the Fund adopted a new
class structure,
renaming the former Class D shares as C shares. At July
31, 1995, total paid-in
capital amounted to the following for each class:
<TABLE>
<CAPTION>
Class A
Class B Class C
==========================================================
== ====================
<S> <C> <C>
<C>
Total Paid-in Capital $431,609,863
$1,378,905,395 $12,121,991
==========================================================
== ====================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
July 31, 1995
July 31, 1994
--------------------------------
- ------------------------
Shares Amount
Shares Amount
==========================================================
== =============================
<S> <C> <C>
<C> <C>
Class A
Shares sold 26,713,759 $ 417,476,828
2,416,033 $ 38,376,582
Shares issued on
reinvestment 1,700,397 26,539,686
237,495 3,757,532
Shares redeemed (3,846,700) (60,728,442)
(873,722) (13,837,727) -----------------------------
- ----------------------------------------------------------
- -
Net Increase 24,567,456 $ 383,288,072
1,779,806 $ 28,296,387
==========================================================
== =============================
Class B
Shares sold 24,240,345 $ 379,429,438
34,622,952 $ 549,526,346
Shares issued on
reinvestment 5,471,457 85,566,358
5,522,273 87,393,944
Shares redeemed (36,520,145) (570,325,145)
(10,605,754) (168,163,492) --------------------------
- ----------------------------------------------------------
- ----
Net Increase (Decrease) (6,808,343) $(105,329,349)
29,539,471 $ 468,756,798
==========================================================
==
=============================
Class C*
Shares sold 817,749 $ 12,819,009
101,169 $ 1,602,910
Shares issued on
reinvestment 26,905 424,388
5,174 81,621
Shares redeemed (172,141) (2,705,515)
(9,504) (155,230) -------------------------------
- ---------------------------------------------------------
Net Increase 672,513 $ 10,537,882
96,839 $ 1,529,301
==========================================================
== =============================
</TABLE>
* On November 7, 1994 the former Class D shares were
renamed Class C shares.
21
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Financial Highlights -------------------------------------
- ------------------------------------------
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS A SHARES
1995 1994 1993(1)
==========================================================
== ==================================
<S>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
$15.69 $15.65 $15.15 -----------------------------
- ----------------------------------------------------------
- ------
INCOME FROM OPERATIONS:
Net investment income
0.44 0.33 0.19
Net realized and unrealized gain on investments
1.48 0.99 1.33 -------------------------------
- ----------------------------------------------------------
- ----
Total Income From Operations
1.92 1.32 1.52 -------------------------------
- ----------------------------------------------------------
- ----
LESS DISTRIBUTIONS FROM:
Net investment income
(0.43) (0.31) (0.17)
Overdistribution of net income
- -- (0.24) (0.03)
Net realized gains
(0.14) (0.52) (0.44)
Overdistribution of net realized gains
- -- -- (0.05)
Capital
(0.71) (0.21) (0.33)
- ----------------------------------------------------------
- -----------------------------------
Total Distributions
(1.28) (1.28) (1.02)
- ----------------------------------------------------------
- -----------------------------------
NET ASSET VALUE, END OF YEAR
$16.33 $15.69 $15.65
- ----------------------------------------------------------
- -----------------------------------
TOTAL RETURN
12.92% 8.65% 10.31%++
- ----------------------------------------------------------
- -----------------------------------
NET ASSETS, END OF YEAR (000s)
$471,578 $67,699 $39,677
- ----------------------------------------------------------
- -----------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
1.16% 1.19% 1.20%+
Net investment income
2.81 2.05 1.64+
- ----------------------------------------------------------
- -----------------------------------
PORTFOLIO TURNOVER RATE
63% 34% 55%
==========================================================
== ==================================
<CAPTION>
CLASS B SHARES 1995
1994
1993 1992 1991
==========================================================
== ==================================
<S> <C> <C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.69
$15.65 $15.21 $14.26 $13.30
- ----------------------------------------------------------
- -----------------------------------
INCOME FROM OPERATIONS:
Net investment income 0.36 0.25
0.23 0.22 0.24
Net realized and unrealized
gain on investments 1.48
1.00 1.47 1.93 1.92
- ----------------------------------------------------------
- -----------------------------------
Total Income From Operations 1.84
1.25 1.70 2.15 2.16
- ----------------------------------------------------------
- -----------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.34)
(0.27) (0.16) (0.22) (0.24)
Overdistribution of net income --
(0.22) (0.03) -- --
Net realized gains (0.14)
(0.52) (0.57) -- --
Overdistribution of net realized gains -- --
(0.06) -- --
Capital (0.72)
(0.20) (0.44) (0.98) (0.96)
- ----------------------------------------------------------
- -----------------------------------
Total Distributions (1.20)
(1.21) (1.26) (1.20) (1.20)
- ----------------------------------------------------------
- -----------------------------------
NET ASSET VALUE, END OF YEAR $16.33
$15.69 $15.65 $15.21 $14.26
- ----------------------------------------------------------
- -----------------------------------
TOTAL RETURN 12.36%
8.12% 11.68% 15.68% 17.53% -------------------
- ----------------------------------------------------------
- ----------------
NET ASSETS, END OF YEAR (MILLIONS) $1,655
$1,697 $1,231 $585 $470
- ----------------------------------------------------------
- -----------------------------------
Ratios to Average Net Assets:
Expenses 1.66%
1.66% 1.69% 1.69% 1.75%
Net investment income 2.31 1.58
1.16 1.53 1.84
- ----------------------------------------------------------
- -----------------------------------
PORTFOLIO TURNOVER RATE 63%
34% 55% 57% 43%
==========================================================
== ==================================
</TABLE>
(1) For the period from November 6, 1992 (inception date)
to July 31, 1993.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
22
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS C SHARES(1) 1995
1994 1993(2)
==========================================================
== =====================
<S> <C>
<C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $15.69
$15.65 $15.45
- ----------------------------------------------------------
- --
- ---------------------
INCOME FROM OPERATIONS FROM:
Net investment income 0.36
0.23 0.05
Net realized and unrealized gain on investments 1.48
1.02 0.35
- ----------------------------------------------------------
- ----------------------
Total Income From Operations 1.84
1.25 0.40
- ----------------------------------------------------------
- ----------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.35)
(0.27) (0.03)
Overdistribution of net income --
(0.22) (0.01)
Net realized gains (0.14)
(0.52) (0.08)
Overdistribution of net realized gains --
- -- (0.01)
Capital (0.71)
(0.20) (0.07)
- ----------------------------------------------------------
- ----------------------
Total Distributions (1.20)
(1.21) (0.20)
- ----------------------------------------------------------
- ----------------------
NET ASSET VALUE, END OF YEAR $16.33
$15.69 $15.65
- ----------------------------------------------------------
- ----------------------
TOTAL RETURN 12.36%
8.12% 2.60%++
- ----------------------------------------------------------
- ----------------------
NET ASSETS, END OF YEAR (000s) $12,937
$1,878 $357
- ----------------------------------------------------------
- ----------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.62%
1.60% 1.31%+
Net investment income 2.35
1.65 1.54+
- ----------------------------------------------------------
- ----------------------
PORTFOLIO TURNOVER RATE 63%
34% 55%
==========================================================
== =====================
</TABLE>
(1) On November 7, 1994 the former Class D shares were
renamed Class C shares.
(2) For the period from June 1, 1993 (inception date) to
July 31, 1993.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
- ----------------------------------------------------------
- ---------------------
Additional Information
- ----------------------------------------------------------
- ---------------------
Change in Independent Auditor: On October 20, 1994,
based upon the
recommendation of the Audit Committee of the Fund, the
Board of Trustees
determined not to retain Coopers & Lybrand L.L.P.
("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat
Marwick LLP. During
Fund's two most recent fiscal years, Coopers & Lybrand's
audit reports contain
no adverse opinion or disclaimer of opinion; nor were the
reports qualified or
modified as to uncertainty, audit scope, or accounting
principles. Further,
during this same period there were no disagreements with
Cooper's & Lybrand on
any matter of accounting principles or practices,
financial statement
disclosure, or auditing scope or procedure, which
disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have
caused it to make reference
to the subject matter of such disagreements in connection
with its audit
reports. The Fund has requested Coopers & Lybrand to
provide a letter to the
Securities and Exchange Commission stating whether Coopers
& Lybrand agrees with
the foregoing statements, and to provide the Fund with a
copy of such letter. A
copy of this letter is available upon request by calling
the Fund at (212) 723-
9218.
23
Smith Barney Premium Total Return Fund -------------------
- ----------------------------------------------------------
- --
Independent Auditors' Report -----------------------------
- --------------------------------------------------
The Shareholders and Board of Trustees of
Smith Barney High Income Fund of
Smith Barney Income Funds:
We have audited the accompanying statement of assets
and liabilities,
including the schedule of investments, of Smith Barney
Premium Total Return Fund
of Smith Barney Income Funds as of July 31, 1995, and the
related statement of
operations, statement of changes in net assets, and
financial highlights for the
year then ended. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our
responsibility is to express an
opinion on these financial statements and financial
highlights based on our
audit. The statement of changes in net assets for the year
ended July 31, 1994
and the financial highlights for each of the years in the
four-year period then
ended, were audited by other auditors whose report
thereon, dated September 19,
1994, expressed an unqualified opinion on that statement
of changes in net
assets and those financial highlights.
We conducted our audit in accordance with generally
accepted auditing
standards. Those standards require that we plan and
perform the audit to obtain
reasonable assurance about whether the financial
statements and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of July
31, 1995, by correspondence with the custodian. An audit
also includes assessing
the accounting principles used and significant estimates
made by management, as
well as evaluating the overall financial statement
presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly,
in all material respects, the financial position of Smith
Barney Premium Total
Return Fund of Smith Barney Income Funds as of July 31,
1995, and the results of
its operations, changes in its net assets and financial
highlights for the year
then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat
Marwick LLP
New York, New York
September 20, 1995
24
Smith Barney
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 and Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Harry J. Rosenbluth
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
[LOGO OF SMITH BARNEY APPEARS HERE]
A Member of Travelers Group [LOGO]
Investment Adviser
Smith Barney Strategy Advisers Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of
the shareholders of
Smith Barney 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.
Smith Barney
Premium Total
Return Fund
388 Greenwich Street
New York, New York 10013
FD 0420 9/95
<PAGE>
- ----------------------------------------------------------
- ---------------------
ANNUAL REPORT -----------
- ----------------------------------------------------------
- ----------
1995
1995
1995
1995
1995
Smith Barney
Utilities Fund -----------
-----------------
- --------------------
July 31, 1995
[LOGO OF SMITH BARNEY MUTUAL FUNDS APPEARS HERE]
Investing for your future
Everyday.
<PAGE>
- ---------------------------
Smith Barney Utilities Fund
- ---------------------------
DEAR SHAREHOLDER:
We are pleased to present the annual report for the Smith
Barney Utilities
Fund for the year ended July 31, 1995.
During the past fiscal year, the financial markets
provided both fixed-income
and equity investors with substantial total returns. The
catalyst for these
positive returns was the pre-emptive actions of the
Federal Reserve Board to
orchestrate an economic slowdown while controlling
inflation. At the same
time, domestic corporations recorded better-than-expected
earnings as they
continued to benefit from improved productivity and
international
competitiveness. The 30-year Treasury bond market remained
volatile with
yields declining from 7.36% on July 31, 1994 to 6.86% on
July 31, 1995. The
majority of this decline occurred in the past six months
after long-term
yields rose to over 8% late in 1994. The equity markets
reacted positively to
this combination of lower interest rates and improved
corporate earnings. The
Standard & Poor's 500 Index, a common benchmark for the
U.S. stock market,
produced a total return of 26.07% for the year ended July
31, 1995 with the
majority of the gain occurring since the beginning of this
year. Utility
investors also participated in this rally with the
Standard & Poor's
Utilities Index, which is composed of telephone, natural
gas and electric
companies, generating a total return of 12.39% for the
same period.
Since January 1995, the rally in the utility sector has
more
than offset the
declines experienced during the previous fiscal year. In
our view, this
reinforces the benefits of long-term investing and the
importance of a
balanced investment portfolio. During the past fiscal
year, the Fund produced
a positive total return of 13.24% for Class A shares and
12.62% for Class B
shares. The Utilities Fund has proved to be a solid long
term investment with
average annual returns since 1988 (excluding sales charge)
to the end of its
fiscal year on July 31, 1995, of 9.79% to investors in
Class B shares (the
Fund's oldest investment class). For additional
performance information,
please see the Average Annual Total Return chart on page 6
of this report. In
our opinion, utilities offer high current income and tend
to provide lower
returns than more volatile, economically sensitive sectors
in an equity
market rally. When viewed over a full market cycle, we
believe that utilities
are a suitable alternative for more conservative
investors.
We have a positive long-term outlook for the financial
markets but our
expectations are realistic. We do not see the current pace
continuing without
a period of consolidation or possibly several short-term
market declines.
Over the next several quarters we envision sustainable 2%
to 3% economic
growth
1
<PAGE>
without inflationary pressures, combined with continued
corporate-productivity
and international-earnings gains. Financial-market
volatility could increase if
inflation fears emerge or corporate earnings do not meet
optimistic investor
expectations. The business climate should remain
favorable, however, since the
Federal Reserve recently lowered short-term interest
rates. Corporations are
focused on controlling costs and technological advances
continue to enhance
productivity.
INDUSTRY OVERVIEW
The domestic electric-utility industry continues to be
challenged by its
evolving transition to a more competitive operating
environment. This will be
particularly visible at the generation level of a
vertically integrated
industry. The goal of deregulation is to reduce the cost
of electricity and
improve industry efficiency. These changes will impact the
entire
electric-utility industry, although the effect on
individual companies and
the pace of change will vary. Many individual states are
now studying
proposals for restructuring the industry within their own
geographic
boundaries. California is the most visible of these states
with a proposal
for the creation of a power-pool structure to purchase
electricity from the
lowest-cost supplier. Other states are taking a more
cautious approach and
awaiting the results of further studies. This disparity of
proposals at the
state level, combined with the strong mandate on the
Federal level, will
likely result in a slower transition to a fully
competitive industry
structure. The industry's evolution has continued to
create investor
uncertainty although the recent recognition that utilities
are entitled to
recover part or all of their uneconomic assets in a fully
competitive
environment on both the federal and state levels, has been
encouraging.
In the past year, electric-utility managements have
studied and implemented
strategies designed to make companies more competitive.
These include
operating-cost reductions, using excess cash flow to
retire debt and repurchase
common stock, negotiating long-term contracts with large,
industrial customers,
accelerating depreciation schedules on nuclear plants, and
reviewing
diversification activities. The utilities that are a lower
cost provider, which
have strong management, a defined corporate strategy, and
focus on customer
needs, will benefit from a more competitive industry
structure. Those companies
with favorable competitive positions have performed better
than those that are
facing increasing competitive pressure. The uncertainty
created by the
industry's transition and the rally in the equity market
have caused utility
stocks to lag the market during 1995. During the second
quarter of 1995, the
yield on utility stocks was almost equal to the yield on
long-term Treasury
bonds. Historically, this has proven to be an attractive
level for utility
investors, relative to the fixed-income market. We expect
electric utilities to
perform in line with the broad equity market for the
balance of 1995. Electric-
utility stocks could, on occasion, outperform if
volatility increases and
investors seek more defensive investments.
2
<PAGE>
PORTFOLIO STRATEGY
Our portfolio strategy remains focused on solid fundamental
analysis and
attractive relative valuations in the selection of
investments. We combine
both fixed-income and equity investments, which gives us
access to market
opportunities in both areas as long-term interest rates
change. Our current
portfolio mix as of the date of this letter is 51% common
stocks (43%
electric and gas and 8% telecommunications), 41% long-term
investment-grade
utility bonds, and 8% cash.
During the past fiscal year, electric-utility stock prices
have reacted to
the level of long-term interest rates which continues to be
the major factor
in the price movement of the sector. The decline in longterm
interest rates
and strong rally in utility stocks during the first half of
1995 have caused
us to increase our cash holdings by taking profits in selected
issues that
appear to be fully valued. We intend to reinvest this cash
in the next
several months as the financial markets consolidate their
recent gains. A
market correction would be viewed as a buying opportunity.
Our current
electric-utility holdings combine yield-oriented defensive
issues with
growth-oriented, lower-yielding investments. Future
investments will include
both defensive and growth issues with special emphasis on
less current income
and more defined long-term growth opportunities. We feel
that companies with
solid management and service-territory growth will provide
attractive total
returns and achieve higher market valuations. During the
past fiscal year, we
have changed our focus to more long-term growth. We have
initiated or added
the following to our holdings: American Electric Power,
Baltimore Gas and
Electric, FPL Group Inc., DPL Inc., Portland General, and
Houston Industries.
We have sold or reduced our holdings in: Allegheny Power
Systems, Dominion
Resources, Florida Progress, Long Island Lighting, Pacific
Gas and Electric,
and Pacificorp. We have maintained our weighting in the
natural-gas sector as
the industry offers some attractive long-term growth
prospects but faces the
more immediate problems of high storage levels and a
declining commodity price
level. We will continue to monitor this sector and will
increase our holdings if
the demand/supply relationship for the industry improves. We
slightly reduced
our telecommunications holdings during the past year as the
industry awaits a
major telecommunication reform proposal from Congress.
This proposal would give
the regional Bell operating companies greater access to
the long-distance
telephone market. We will review this industry as the
legislation moves closer
to approval and may add to our growth-oriented holdings
such as GTE Corporation
and Bell South Corporation.
The portfolio's fixed-income holdings are relatively
unchanged and benefited
from the rally in long-term bonds. Our focus continues to
be on
investment-grade, first-mortgage debentures with favorable
price spreads to
the fixed-income market. The yield spread between utility
common stocks and
utility
3
<PAGE>
bonds has favored equity investment during the past fiscal
year. The number of
new electric-utility bond offerings has also declined
substantially resulting in
an improved price structure and has made it more difficult
to replace higher-
quality holdings. However, since we intend to retain our
higher-quality holdings
this should not affect the portfolio. The substantial
income received from this
sector of the portfolio has enabled us to place additional
emphasis on the
selection of growth-oriented equity holdings.
SOME FINAL THOUGHTS
Electric utilities provide essential services to our
growing economy. The
changes occurring within the industry are focused on
improving efficiency and
lowering the cost of electricity to the consumer. While
the industry must
endure a period of uncertainty until the final structure
is designed, it
should not deter the long-term investor from the potential
income and growth
benefits of utility investing. In our opinion, careful
stock selection,
diversification and professional management will help to
reduce the risks. We
appreciate your continued support and confidence and will
use all of our
resources to assist in achieving your investment goals.
Sincerely,
/s/ Heath B. McLendon /s/ Jack S. Levande
Heath B. McLendon Jack S. Levande
Chairman and Vice President and
Investment Officer Investment Officer
August 18, 1995
4
<PAGE>
Smith Barney Utilities Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Historical Performance -- Class A Shares -----------------
- ----------------------------------------------------------
- -------------------
Net Asset Value
--------------------
Beginning End Income
Capital
Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns/(1)/
==========================================================
== ===================================
<S> <C> <C> <C>
<C>
<C> <C>
7/31/95 $13.28 $14.03 $0.82
$0.08 $0.02 13.24%
- ----------------------------------------------------------
- ------------------------------------
7/31/94 15.97 13.28 0.83
0.50 0.00 (8.99)
- ----------------------------------------------------------
- ------------------------------------
Inception*
- 7/31/93 14.36 15.97 0.64
0.13 0.00 17.01
==========================================================
== ===================================
Total $2.29
$0.71 $0.02
==========================================================
== ===================================
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Historical Performance -- Class B Shares -----------------
- ----------------------------------------------------------
- -------------------
Net Asset Value
--------------------
Beginning End Income
Capital
Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns/(1)/
==========================================================
== ===================================
<S> <C> <C> <C>
<C>
<C> <C>
7/31/95 $13.28 $14.02 $0.76
$0.08 $0.02 12.62%
- ----------------------------------------------------------
- ------------------------------------
7/31/94 15.97 13.28 0.75
0.50 0.00 (9.52)
- ----------------------------------------------------------
- ------------------------------------
7/31/93 14.83 15.97 0.80
0.15 0.00 14.69
- ----------------------------------------------------------
- ------------------------------------
7/31/92 + 13.95 14.83 0.35
0.00 0.01 8.98
- ----------------------------------------------------------
- ------------------------------------
2/28/92 13.21 13.95 0.84
0.15 0.03 13.63
- ----------------------------------------------------------
- ------------------------------------
2/28/91 12.93 13.21 0.90
0.10 0.00 10.46
- ----------------------------------------------------------
- ------------------------------------
2/28/90 12.09 12.93 0.90
0.21 0.00 16.34
- ----------------------------------------------------------
- ------------------------------------
Inception*
- 2/28/89 12.00 12.09 0.57
0.15 0.00 6.80
==========================================================
== ===================================
Total $5.87
$1.34 $0.06
==========================================================
== ===================================
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Historical Performance -- Class C Shares -----------------
- ----------------------------------------------------------
- -------------------
Net Asset Value
--------------------
Beginning End Income
Capital
Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns/(1)/
==========================================================
== ===================================
<S> <C> <C> <C>
<C>
<C> <C>
7/31/95 $13.28 $14.02 $0.76
$0.08 $0.02 12.62%
- ----------------------------------------------------------
- ------------------------------------
7/31/94 15.97 13.28 0.75
0.50 0.00 (9.52)
- ----------------------------------------------------------
- ------------------------------------
Inception*
- 7/31/93 15.17 15.97 0.39
0.02 0.00 8.08
==========================================================
== ===================================
Total $1.90
$0.60 $0.02
==========================================================
== ===================================
</TABLE>
5
<PAGE>
Smith Barney Utilities Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------
Historical Performance -- Class Z Shares -----------------
- ----------------------------------------------------------
- -------------------
Net Asset Value
--------------------
Beginning End Income
Capital
Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns/(1)/
==========================================================
== ===================================
<S> <C> <C> <C>
<C>
<C> <C>
7/31/95 $13.28 $14.02 $0.87
$0.08 $0.02 13.55%
- ----------------------------------------------------------
- ------------------------------------
7/31/94 15.97 13.28 0.87
0.50 0.00 (8.78)
- ----------------------------------------------------------
- ------------------------------------
Inception*
- 7/31/93 14.36 15.97 0.66
0.14 0.00 17.21
==========================================================
== ===================================
Total $2.40
$0.72 $0.02
==========================================================
== ===================================
</TABLE>
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS MONTHLY
AND CAPITAL GAINS, IF
ANY, ANNUALLY.
<TABLE>
<CAPTION> ------------------------------------------------
- -------------------------------
Average Annual Total Return ------------------------------
- -------------------------------------------------
Without Sales
Charge/(1)/
---------------------
- ---------------------
Class A Class B
Class C Class Z
==========================================================
== ====================
<S> <C> <C>
<C> <C>
Year Ended 7/31/95 13.24% 12.62%
12.62% 13.55%
- ----------------------------------------------------------
- ---------------------
Five Years Ended 7/31/95 N/A 9.21
N/A N/A ------------------------------------------
- -------------------------------------
Inception* through 7/31/95 7.09 9.79
3.95 7.35 -----------------------------------------
- --------------------------------------
<CAPTION>
With Sales
Charge/(2)/
---------------------
- ---------------------
Class A Class B
Class C Class Z
==========================================================
== ====================
<S> <C> <C>
<C> <C>
Year Ended 7/31/95 7.57% 7.62%
11.62% 13.55% ---------------------------------------
- ----------------------------------------
Five Years Ended 7/31/95 N/A 9.07
N/A N/A ------------------------------------------
- -------------------------------------
Inception* through 7/31/95 5.08 9.79
3.95 7.35 -----------------------------------------
- --------------------------------------
</TABLE>
6
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Cumulative Total Return ----------------------------------
- ---------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge/(1)/
---
- ---------------------
<S>
<C>
Class A (Inception* through 7/31/95)
20.57% ---------------------------------------------------
- ----------------------------
Class B (Inception* through 7/31/95)
98.62 ----------------------------------------------------
- ---------------------------
Class C (Inception* through 7/31/95)
10.11 ----------------------------------------------------
- ---------------------------
Class Z (Inception* through 7/31/95)
21.38 ----------------------------------------------------
- ---------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital
gain distributions at net
asset value and does not reflect deduction of the
applicable sales charge
with respect to Class A shares or the applicable
contingent deferred sales
charges ("CDSC") with respect to Class B and Class C
shares.
(2) Assumes reinvestment of all dividends and capital
gain distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 5.00%, and Class B
shares reflect the
deduction of a 5.00% CDSC which applies if shares
are redeemed less than
one year from initial purchase. This CDSC declines
by 1.00% thereafter
until no CDSC charge is incurred. Class C shares
reflect the deduction of a
1.00% CDSC which applies if shares are redeemed
within the first year of
purchase.
+ For the period from March 1, 1992 to July 31, 1992
which reflects a change
in the fiscal year end of the Fund.
* Inception dates for Class A, B, C and Z shares are
November 6, 1992, March
28, 1988, February 4, 1993 and November 6, 1992,
respectively.
7
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Historical Performance -----------------------------------
- --------------------------------------------
Growth of $10,000 Invested in Class B
Shares of
the Smith Barney Utilities Fund
vs. the Standard & Poor's 500 Index and Lipper
Utilities Average/+/
(unaudited) ------------
- ----------------------------------------------------------
- ---------
March 1988 - July 1995
[CHART APPEARS HERE]
<TABLE>
<CAPTION>
Smith Barney Utilities S&P 500
Lipper Utilities Average
<S> <C> <C>
<C>
3/28/88 10,000 10,000
10,000
7/89 12,210 14,019
13,152
7/90 12,785 14,931
13,654
7/91 14,362 16,837
15,089
7/92 16,997 18,990
18,063
7/93 19,494 20,649
21,096
7/94 17,636 21,714
19,855
7/95 19,861 27,383
21,853
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class
B
shares at inception
on March 28, 1988, assuming reinvestment of dividends
and capital gains, if
any, at net asset value through July 31, 1995. The
Standard & Poor's 500
Stock Index ("S&P 500 Index") is an index composed of
widely held common
stocks listed on the New York Stock Exchange, American
Stock Exchange and
over-the-counter market. Figures for the S&P 500 Index
include reinvestment
of dividends. The index is unmanaged and it is not
subject to the same
management and trading expenses of a mutual fund. The
Lipper Analytical
Services, Inc. Utilities Fund Average ("Lipper
Utilities Average") is
composed of the Fund's peer group of mutual funds (13
funds as of July 31,
1995) investing in utilities securities. The
performance of the Fund's other
classes may be greater or less than the Class B shares'
performance
indicated on this chart, depending on whether greater
or lesser sales
charges and fees were incurred by shareholders
investing in other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and
redemption value may be more or less than the original
cost. No adjustment
has been made for shareholder tax liability on
dividends or capital gains.
8
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Portfolio Highlights (unaudited)
July 31, 1995 --------------------------------------------
- -----------------------------------
Portfolio Breakdown
[PIE CHART APPEARS HERE]
<TABLE>
<CAPTION>
Percentage of
Total Investments ----------------------------------------
- ---------------------------------------
<S>
<C>
Top Five Equity Holdings
Southern Co.
3.8%
Houston Industries
3.1
American Electric Power
2.9
Texas Utilities Co.
2.4
Bellsouth Corp.
2.3
Top Five Bond Holdings
Pacific Gas & Electric
2.7%
Commonwealth Edison
2.2
Utilicorp. United Inc.
1.4
Philadelphia Electric
1.6
Hydro-Quebec
1.2
</TABLE>
9
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Schedule of Investments
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ---------------------------
<S> <C>
<C>
COMMON STOCKS -- 51.7%
Electric & Gas -- 41.9%
1,500,000 American Electric Power Inc.
$ 51,750,000
200,000 Baltimore Gas & Electric Co.
4,975,000
250,000 Boston Edison Co.
6,250,000
1,000,000 Central & Southwest Corp.
25,500,000
1,200,000 Cinergy Corp.
31,200,000
600,000 Consolidated Edison Company of New York
Inc.
17,400,000
1,200,000 DPL Inc.
26,700,000
1,000,000 Detroit Edison Co.
29,500,000
750,000 Entergy Corp.
17,812,500
1,000,000 FPL Group Inc.
38,250,000
800,000 General Public Utilities Corp.
23,100,000
1,250,000 Houston Industries Inc.
54,687,500
350,000 MCN Corp.
6,650,000
1,000,000 NIPSCO Industry Inc.
32,625,000
700,000 New England Electric Systems
23,537,500
359,500 New York State Electric & Gas Corp.
8,403,313
250,000 Northeast Utilities
5,625,000
300,000 Oklahoma Gas & Electric Co.
10,200,000
1,100,000 Peco Energy Co.
31,487,500
500,000 Pacificorp
9,187,500
750,000 Panhandle Eastern Corp.
18,281,250
550,000 Pinnacle West Capital Corp.
13,406,250
100,000 Portland General Corp.
2,300,000
800,000 Public Service Company of Colorado
25,300,000
1,000,000 Public Service Enterprise Group
27,750,000
275,000 San Diego Gas & Electric Co.
5,878,125
800,000 SCANA Corp.
17,300,000
1,000,000 SCE Corp.
17,125,000
3,000,000 Southern Co.
66,000,000
650,000 Tenneco Inc.
32,175,000
1,250,000 Texas Utilities Co.
42,343,750
500,000 Westcoast Energy Co.
7,562,500 ------------------------------------------------
- -------------------------------
730,262,688 ----------------------------------------------
- ---------------------------------
Telephone -- 9.8%
500,000 American Telephone & Telegraph Corp.
26,375,000
600,000 Bellsouth Corp.
40,650,000
550,000 GTE Corp.
19,525,000
750,000 NYNEX Corp.
30,937,500
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY
VALUE ----------------------------------------------------
- ---------------------------
<S> <C>
<C>
Telephone -- 9.8% (continued)
1,100,000 Unicom Corp.
$ 30,525,000
550,000 U.S. West Inc.
23,581,250 -----------------------------------------------
- --------------------------------
171,593,750 ----------------------------------------------
- ---------------------------------
TOTAL COMMON STOCKS
(Cost -- $855,059,093)
901,856,438 ----------------------------------------------
- ---------------------------------
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ---------------------------
<S> <C>
<C>
CORPORATE BONDS AND NOTES -- 43.0%
Electric & Gas -- 42.2%
Arizona Public Service Co.:
$ 8,800,000 7.250% due 8/01/23
8,008,000
2,000,000 8.000% due 2/01/25
1,980,000
5,000,000 Arkansas Power & Light Co., 8.700% due
11/01/22 5,425,000
Atlantic City Electric Co.:
16,000,000 7.000% due 9/01/23
14,460,000
15,000,000 7.000% due 8/01/28
13,500,000
Boston Edison Co.:
8,000,000 7.800% due 3/15/23
7,430,000
7,000,000 8.250% due 9/15/22
6,676,250
5,000,000 9.875% due 6/01/23
5,543,750
Carolina Power & Light Co.:
10,000,000 8.200% due 7/01/22
10,387,500
11,950,000 8.625% due 9/15/21
13,249,562
2,000,000 Central Illinois Light Co., 8.200% due
1/15/22
2,082,500
4,000,000 Central Power & Light Co., 7.500% due
4/01/23
3,890,000
Cincinnati Gas & Electric Co.:
2,700,000 7.200% due 10/01/23
2,460,375
2,800,000 8.500% due 9/01/22
2,859,500
3,000,000 Cleveland Electric Illuminating Co., 9.000%
due 7/01/23 2,745,000
3,500,000 Columbus Southern Power Co., 8.700% due
7/01/22 3,688,125
10,000,000 Consolidated Edison Co., 7.500% due 6/15/23
9,612,500
Commonwealth Edison Co.:
2,000,000 7.500% due 7/01/13
1,910,000
3,100,000 7.625% due 4/15/13
2,999,250
10,850,000 7.750% due 7/15/23
10,416,000
14,250,000 8.375% due 9/15/22
14,499,375
7,000,000 9.875% due 6/15/20
7,892,500
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ====================
<S> <C>
<C>
Electric & Gas -- 42.2% (continued)
Duquesne Light Co.:
$12,000,000 7.550% due 6/15/25
$11,430,000
3,000,000 7.625% due 4/15/23
2,868,750
2,500,000 8.750% due 5/15/22
2,615,625
10,000,000 Florida Power Corp., 8.625% due 11/01/21
10,987,500
15,100,000 Houston Lighting & Power Co., 9.150% due
3/15/21 17,553,750
Hydro-Quebec:
20,000,000 8.250% due 1/15/27
20,700,000
5,000,000 8.625% due 6/15/29
5,375,000
11,800,000 Idaho Power Co., 8.750% due 3/15/27
12,788,250
8,000,000 Illinois Power Co., 7.500% due 7/15/25
7,630,000
10,500,000 Interstate Power Co., 8.625% due 9/15/21
11,313,750
12,400,000 Iowa Electric Light & Power Co., 7.000% due
10/01/23 11,392,500
Iowa Illinois Gas & Electric Co.:
8,500,000 6.950% due 10/15/25
7,841,250
3,500,000 7.450% due 3/15/23
3,434,375
20,000,000 Jersey Central Power & Light Co., 6.750% due
11/01/25 17,375,000
15,500,000 Kentucky Utilities Co., 8.550% due 5/15/27
16,546,250
Long Island Lighting Co.:
11,000,000 9.000% due 11/01/22
10,230,000
8,000,000 9.625% due 7/01/24
7,980,000
10,000,000 Madison Gas & Electric Co., 7.700% due
2/15/22
9,812,500
2,000,000 Midwest Power System Inc., 8.000% due
2/15/22
2,070,000
13,000,000 Mississippi Power & Light Co., 8.650% due
1/15/23 13,747,500
Monongahela Power Co.:
14,000,000 7.625% due 5/01/25
13,807,500
5,500,000 8.625% due 11/01/21
5,795,625
3,000,000 Montana Power Co., 8.950% due 2/01/22
3,258,750
2,000,000 Narragansett Power Co., 9.125% due 5/01/21
2,257,500
3,000,000 Nevada Power & Light Co., 8.500% due 1/01/23
3,082,500
18,450,000 New Orleans Public Service Inc., 8.000% due
3/01/23 18,403,875
New York State Electric & Gas Co.:
2,250,000 7.450% due 7/15/23
2,120,625
11,750,000 8.300% due 12/15/22
12,073,125
Niagara Mohawk Power Corp.:
6,275,000 7.785% due 4/01/24
5,851,438
5,000,000 8.500% due 7/01/23
4,956,250
5,000,000 8.750% due 4/01/22
5,062,500
1,920,000 Northern States Power Co., 9.125% due
4/01/21
2,040,000
14,000,000 Oklahoma Gas & Electric Co., 8.875% due
12/01/20 15,557,500
10,000,000 Old Dominion Electric Co., 7.780% due
12/01/23
10,050,000
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ---------------------------
<S> <C>
<C>
Electric & Gas -- 42.2% (continued)
Pacific Gas & Electric Co.:
$14,250,000 6.750% due 10/01/23
$ 12,468,750
13,500,000 7.050% due 3/01/24
12,285,000
19,000,000 7.250% due 3/01/26
17,527,500
4,000,000 8.800% due 5/01/24
4,455,000
7,500,000 Pennsylvania Power & Light Co., 8.500% due
5/01/22 7,809,375
Philadelphia Electric Co.:
13,000,000 7.750% due 5/01/23
12,252,500
14,300,000 8.750% due 4/01/22
14,907,750
6,000,000 Portland General Electric Co., 7.750% due
4/15/23 5,880,000
5,000,000 Potomac Edison Co., 7.750% due 2/01/23
5,018,750
5,000,000 Potomac Electric Power Co., 8.500% due
5/15/27
5,243,750
10,000,000 Public Service Co. of Colorado, 8.750% due
3/01/22 10,462,500
6,700,000 Public Service Co. of Oklahoma, 7.375% due
4/01/23 6,457,125
7,000,000 Public Service Electric & Gas Co., 9.250%
due
6/01/21 7,945,000
2,000,000 Rochester Gas & Electric Co., 9.375% due
4/01/21 2,155,000
12,500,000 San Diego Gas & Electric Co., 8.500% due
4/01/22 13,421,875
9,000,000 South Carolina Electric & Gas Co., 7.625%
due
6/01/23 8,865,000
5,000,000 Southern California Edison Co., 7.125% due
7/15/25 4,568,750
15,000,000 Southwestern Electric Power Co., 6.875% due
10/01/25 13,650,000
10,500,000 Tampa Electric Co., 7.750% due 11/01/22
10,539,375
Texas Utilities Electric Co.:
12,000,000 7.875% due 3/01/23
11,760,000
5,000,000 7.875% due 4/01/24
4,900,000
7,000,000 9.750% due 5/01/21
7,927,500
Utilicorp United Inc.:
13,000,000 8.000% due 3/01/23
12,545,000
23,000,000 9.000% due 11/15/21
24,523,750
5,000,000 Virginia Electric Power Co., 8.250% due
3/01/25 5,168,750
11,500,000 Western Pennsylvania Power Co., 8.875% due
2/01/21 12,204,375
4,500,000 Western Resources Inc., 8.500% due 7/01/22
4,719,375
5,000,000 Wisconsin Electric Power, 7.700% due
12/15/27
4,806,250
3,700,000 Wisconsin Power & Light Co., 8.600% due
3/15/27 3,935,875
6,900,000 Wisconsin Public Service Corp., 8.800% due
9/01/21 7,417,500
- ----------------------------------------------------------
- ---------------------
735,545,750 ----------------------------------------------
- ---------------------------------
Miscellaneous -- 0.2%
3,000,000 Selkirk Cogen Funding Corp., 8.980% due
6/26/12 3,187,500
- ----------------------------------------------------------
- ---------------------
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE ----------------------------------------------------
- ---------------------------
<S> <C>
<C>
Telephone -- 0.6%
GTE Corp.:
$ 5,000,000 7.830% due 5/01/23
$ 4,856,250
5,000,000 8.750% due 11/01/21
5,387,500 ------------------------------------------------
- -------------------------------
10,243,750 -----------------------------------------------
- --------------------------------
TOTAL CORPORATE BONDS & NOTES
(Cost -- $742,561,705)
748,977,000
==========================================================
== ====================
REPURCHASE AGREEMENTS -- 5.3%
50,000,000 First Boston Inc., 5.730% due 8/01/95;
Proceeds at
maturity--$50,007,959; (Fully collateralized
by
U.S. Treasury Note, 8.500% due 7/15/97;
Market value -- $51,022,125)
50,000,000
42,548,000 Chemical Securities Inc., 5.769% due 8/01/95;
Proceeds at maturity--$42,554,818; (Fully
collateralized by U.S. Treasury Note, 7.375%
due
11/15/97; Market value -- $43,402,877)
42,548,000 -----------------------------------------------
- --------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $92,548,000)
92,548,000
==========================================================
== ====================
TOTAL INVESTMENTS -- 100%
(Cost -- $1,690,168,798*)
$1,743,381,438
==========================================================
== ====================
</TABLE>
* Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
14
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Statement of Assets and Liabilities
July 31, 1995 --------------------------------------------
- -----------------------------------
<TABLE>
<S>
<C>
ASSETS:
Investments, at value (Cost -- $1,690,168,798)
$1,743,381,438
Cash
905
Receivable for Fund shares sold
990,250
Receivable for securities sold
454,735
Dividends and interest receivable
21,400,512 -----------------------------------------------
- -------------------------------
Total Assets
1,766,227,840 --------------------------------------------
- ----------------------------------
LIABILITIES:
Payable for Fund shares purchased
1,241,677
Investment advisory fees payable
1,355,629
Administration fees payable
599,298
Distribution costs payable
1,843,951
Payable for securities purchased
179,487
Accrued expenses
866,297 --------------------------------------------------
- ----------------------------
Total Liabilities
6,086,339 ------------------------------------------------
- ------------------------------
Total Net Assets
$1,760,141,501
==========================================================
== ===================
NET ASSETS:
Par value of shares of beneficial interest
$ 125,549
Capital paid in excess of par value
1,740,317,555
Accumulated net realized loss on investments
(33,514,243)
Net unrealized appreciation of investments
53,212,640 -----------------------------------------------
- -------------------------------
Total Net Assets
$1,760,141,501
==========================================================
== ===================
Shares Outstanding:
Class A
12,046,494 -----------------------------------------------
-----------
- -------------------
Class B
112,179,525 ----------------------------------------------
------------
- -------------------
Class C
279,981 --------------------------------------------------
--------
- -------------------
Class Z
1,043,265 ------------------------------------------------
----------
- -------------------
Net Asset Value:
Class A (and redemption price)
$14.03 ---------------------------------------------------
-------
- -------------------
Class B*
$14.02 ---------------------------------------------------
-------
- -------------------
Class C**
$14.02 ---------------------------------------------------
-------
- -------------------
Class Z (and redemption price)
$14.02 ---------------------------------------------------
-------
- -------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share)
$14.77
==========================================================
== ===================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a
5.00% CDSC if shares
are redeemed less than one year from initial purchase
(See Note 2).
** Redemption price is NAV of Class C shares reduced by a
1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
15
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Statement of Operations For the
Year Ended July 31, 1995 ---------------------------------
- ----------------------------------------------
<TABLE>
<S>
<C>
INVESTMENT INCOME:
Dividends
$ 66,683,372
Interest
62,581,725 -----------------------------------------------
- -------------------------------
Total Investment Income
129,265,097 ----------------------------------------------
- --------------------------------
EXPENSES:
Distribution fees (Note 2)
12,305,595
Investment advisory fees (Note 2)
7,885,332
Administration fees (Note 2)
3,542,538
Shareholder and system servicing fees
1,957,000
Shareholder communications
330,000
Custody
165,000
Registration fees
80,000
Audit and legal
40,500
Trustees' fees
40,000
Other
97,643 ---------------------------------------------------
- ---------------------------
Total Expenses
26,443,608 -----------------------------------------------
- -------------------------------
Net Investment Income
102,821,489 ----------------------------------------------
- --------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales
901,901,130
Cost of securities sold
935,415,373 ----------------------------------------------
- --------------------------------
Net Realized Loss
(33,514,243) ---------------------------------------------
- ---------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year
(81,900,040)
End of year
53,212,640 -----------------------------------------------
- -------------------------------
Increase in Net Unrealized Appreciation
135,112,680 ----------------------------------------------
- --------------------------------
Net Gain on Investments
101,598,437 ----------------------------------------------
- --------------------------------
Increase in Net Assets From Operations
$204,419,926
==========================================================
== ===================
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Statements of Changes in Net Assets For
the Years Ended July 31, ---------------------------------
- ----------------------------------------------
<TABLE>
<CAPTION>
1995 1994 ----------------------------------
- ----------------------------------------------------
<S> <C>
<C>
OPERATIONS:
Net investment income $
102,821,489 $ 123,112,775
Net realized gain (loss)
(33,514,243) 51,444,413
Increase (decrease) in net unrealized
appreciation of investments
135,112,680 (410,755,069) --------------------------
- ----------------------------------------------------------
- --
Increase (Decrease) in Net
Assets From Operations
204,419,926 (236,197,881) --------------------------
- ----------------------------------------------------------
- --
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
(100,155,893) (120,473,042)
Overdistribution of net income
- -- (4,592,716)
Net realized gains
- -- (82,734,637)
Overdistribution of realized gain
(10,931,878) --
Capital
(2,430,498) -------------------------------
- --------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders
(113,518,269) (207,800,395) -------------------------
- ----------------------------------------------------------
- ---
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sales
281,385,409 317,051,744
Net value of shares issued
to shareholders for
reinvestment of dividends
91,060,017 168,684,429
Cost of shares reacquired
(580,475,140) (1,006,685,681) -------------------------
- ----------------------------------------------------------
- ---
Decrease in Net Assets
From Fund Share Transactions
(208,029,714) (520,949,508) -------------------------
- ----------------------------------------------------------
- ---
Decrease in Net Assets
(117,128,057) (964,947,784)
NET ASSETS:
Beginning of year
1,877,269,558 2,842,217,342
- ----------------------------------------------------------
- ----------------------------
End of year*
$1,760,141,501 $1,877,269,558
==========================================================
== ===========================
* Includes overdistributed net investment income of:
- -- $(2,665,596)
==========================================================
== ===========================
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Notes to Financial Statements ----------------------------
- ---------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Utilities Fund ("Fund"), a separate
investment fund of the
Smith Barney Income Funds ("Trust"), a Massachusetts
business trust, is
registered under the Investment Company Act of 1940, as
amended, as a
diversified, open-end management investment company. The
Trust consists of the
Fund and six other separate investment funds: Smith Barney
Exchange Reserve
Fund, Smith Barney Premium Total Return Fund, Smith Barney
High Income Fund,
Smith Barney Tax-Exempt Income Fund, Smith Barney
Diversified Strategic Income
Fund and Smith Barney Convertible Fund. The financial
statements and financial
highlights for the other funds are presented in separate
annual reports.
The significant accounting policies consistently
followed by the Trust are:
(a) securities transactions are accounted for on trade
date; (b) securities
traded on national securities markets are valued at the
closing price on such
markets; securities traded in the over-the-counter market
and listed securities
for which no sales price were reported and U.S. Government
and Government Agency
obligations are valued at bid price, or in the absence of
a recent bid price, at
the bid equivalent obtained from one or more of the major
market makers; (c)
short-term securities that have a maturity of more than 60
days are valued at
prices based on market quotations for securities of
similar type, yield and
maturity; (d) short-term investments that have a maturity
of 60 days or less are
valued at cost plus accreted discount, or minus amortized
premium, as
applicable; (e) dividend income is recorded on ex-dividend
date and interest
income is recorded on the accrual basis; (f) gains or
losses on the sale of
securities are recorded on the identified cost basis; (g)
dividends and
distributions to shareholders are recorded on the ex
dividend date; (h) direct
expenses are charged to each fund and each class;
management fees and general
fund expenses are allocated on the basis of relative net
assets of each class;
(i) the Fund intends to comply with the applicable
provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated
investment companies
and to make distributions of taxable income sufficient to
relieve it from
substantially all Federal income and excise taxes and (i)
in accordance with
Statement of Position 93-2 Determination, Disclosure, and
Financial Statement --------------------------------------
- --------------------------------------
Presentation of Income, Capital Gain, and Return of
Capital Distributions by ---------------------------------
- ------------------------------------------
Investment Companies. Accordingly, the net investment loss
of $2,427,225 and a
- ---------------------
18
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
portion of the net realized loss on investments amounting
to $3,273 at July 31,
1995 has been reclassified to paid-in capital. Net
investment income, net
realized gains, and net assets were not affected by this
change.
2. Investment Advisory Agreement, Administration
Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment advisor
to the Fund. The Funds
pays SBMFM an advisory fee calculated at an annual rate of
0.45% of the average
daily net assets; this fee is calculated daily and paid
monthly.
SBMFM also acts as the Fund's administrator for which
the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily
net assets; this fee
is calculated daily and paid monthly.
In addition, The Boston Company Advisors, Inc.
("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank
Corporation, had entered into a
sub-administration agreement with the Fund and SBMFM.
SBMFM paid Boston Advisors
a portion of its administration fee at a rate agreed upon
from time to time
between SBMFM and Boston Advisors. As of March 27, 1995
this relationship was
terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
year ended July 31, 1995, SB received brokerage
commissions of $162,924 and
sales charges of approximately $150,600 of sales for the
Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC")
of 5.00% on certain
Class B shares if redemption occurs less than one year
from initial purchase and
thereafter declines by 1.00% per year until no CDSC is
incurred. Class C shares
have a 1.00% CDSC if redemption occurs within the first
year from the date such
investment was made. For the year ended July 31, 1995,
CDSC's of approximately
$4,738,800 were paid to SB.
Pursuant to a Distribution Plan, the Fund pays a
distribution fee with
19
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
respect to Class B and C shares calculated at the annual
rate of 0.50% and
0.45%, respectively, of the average daily net assets for
each class. The Fund
also pays a service fee with respect to Class A, B and C
shares calculated at
the annual rate of 0.25% of the average daily net assets
of each class,
respectively.
All officers and one trustee of the Fund are
employees of SB.
3. Investments
During the year ended July 31, 1995, the aggregate
cost of purchases and
proceeds from sales of investments (including maturities,
but excluding short-
term securities) was $614,533,492 and $901,901,130,
respectively.
At July 31, 1995, the net unrealized appreciation of
investments for
Federal income tax purposes consisted of the following:
<TABLE>
==========================================================
== ===================
<S>
<C>
Gross unrealized appreciation
$98,737,521
Gross unrealized depreciation
(45,524,881) ---------------------------------------------
- ---------------------------------
Net unrealized appreciation
$53,212,640
==========================================================
== ===================
</TABLE>
4. Capital Loss Carryforward
At July 31, 1995, the Fund had approximately
$18,779,651 of capital loss
carryforwards available to offset future capital gains
expiring on July 31,
2003. To the extent that these carryforward losses are
used to offset capital
gains, it is probable that the gains so offset will not be
distributed.
5. Repurchase Agreements
The Fund purchases (and its custodian takes
possession of) U.S. Government
securities from banks and securities dealers subject to
agreements to resell the
securities to the sellers at a future date (generally, the
next business day),
at an agreed-upon higher repurchase price. The Fund
requires continual
maintenance of the market value of the collateral in
amounts at least equal to
the repurchase price.
6. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of
beneficial interest of
each class in each separate series with a $0.001 par
value. The Fund has the
ability to issue multiple classes of shares. Each share of
a
class represents an
identical interest and has the same rights, except that
each class bears certain
direct expenses, including those specifically related
20
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
to the distribution of its shares. Effective November 7,
1994, the Fund adopted
a new class structure, renaming the former Class D and C
shares as C shares and
Z shares, respectively. At July 31, 1995, total paid-in
capital amounted to the
following for each class:
<TABLE>
<CAPTION>
Class A Class B
Class C Class Z
==========================================================
== ============================
<S> <C> <C>
<C> <C>
Total Paid-in Capital $160,909,905 $1,559,678,508
$3,931,044 $15,923,647
==========================================================
== ============================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
July 31, 1995
July 31, 1994
----------------------------------
- -------------------------
Shares Amount
Shares Amount ---------------------------------
- --------------------------------------------------------
<S> <C> <C>
<C> <C>
CLASS A
Shares sold 12,200,129 $ 155,398,366
1,190,478 $ 18,086,455
Shares issued on
reinvestment 635,849 8,481,967
263,745 3,899,160
Shares redeemed (3,912,440) (51,670,012)
(1,703,880) (25,063,608) ---------------------------
- ----------------------------------------------------------
- ----
Net Increase (Decrease) 8,923,538 $ 112,210,321
(249,657) $ (3,077,993)
==========================================================
==
==============================
CLASS B
Shares sold 8,946,045 $ 116,256,568
18,848,373 $ 289,406,819
Shares issued on
reinvestment 5,975,380 81,512,249
10,988,064 162,852,087
Shares redeemed (40,024,691) (522,321,582)
(65,768,788) (965,045,931) --------------------------
- ----------------------------------------------------------
- -----
Net Decrease (25,103,266) $(324,552,765)
(35,932,351) $(512,787,025)
==========================================================
== ==============================
CLASS C+
Shares sold 304,315 $ 4,058,795
142,046 $ 2,066,406
Shares issued on
reinvestment 12,479 167,141
6,211 88,581
Shares redeemed (179,428) (2,396,381)
(21,427) (291,646) ------------------------------
- ----------------------------------------------------------
- -
Net Increase 137,366 $ 1,829,555
126,830 $ 1,863,341
==========================================================
== ==============================
CLASS Z++
Shares sold 428,912 $ 5,671,680
493,082 $ 7,492,064
Shares issued on
reinvestment 67,336 898,660
123,974 1,844,601
Shares redeemed (309,629) (4,087,165)
(1,153,635) (16,284,496) ---------------------------
- ----------------------------------------------------------
- ----
Net Increase (Decrease) 186,619 $ 2,483,175
(536,579) $ (6,947,831)
==========================================================
== ==============================
</TABLE>
+ On November 7, 1994, the former Class D shares were
renamed Class C shares.
++ On November 7, 1994, the former Class C shares were
renamed Class Z shares.
21
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
7. Concentration of Credit
Because the Fund concentrates its investments in the
utilities 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.
22
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Financial Highlights -------------------------------------
- ------------------------------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class A Shares
1995 1994 1993(1) ---------------------------
- ----------------------------------------------------------
- ----
<S>
<C> <C> <C>
Net Asset Value, Beginning of Year
$13.28 $15.97 $14.36 ----------------------------
- ----------------------------------------------------------
- ---
Income (Loss) From Operations:
Net investment income
0.85 0.56 0.66
Net realized and unrealized gain (loss) on investments
0.82 (1.92) 1.72 ------------------------------
- ----------------------------------------------------------
- -
Total Income (Loss) From Operations
1.67 (1.36) 2.38 ------------------------------
- ----------------------------------------------------------
- -
Less Distributions From:
Net investment income
(0.82) (0.80) (0.63)
Overdistribution of net income
- -- (0.03) (0.01)
Net realized gains
- -- (0.50) (0.13)
Overdistribution of net realized
gains
(0.08) -- --
Capital
(0.02) -- --------------------------------
- ----------------------------------------------------------
Total Distributions
(0.92) (1.33) (0.77) ----------------------------
- ----------------------------------------------------------
- ---
Net Asset Value, End of Year
$14.03 $13.28 $15.97 ---------------------------
- ----------------------------------------------------------
- ----
Total Return
13.24% (8.99)% 17.01%++ -------------------------
- ----------------------------------------------------------
- ------
Net Assets, End of Year (000s)
$168,963 $41,458 $53,856 -------------------------
- ----------------------------------------------------------
- ------
Ratios to Average Net Assets:
Expenses
1.07% 1.07% 1.07%+
Net investment income
6.36 5.54 5.67+ ----------------------------
- ----------------------------------------------------------
- ---
Portfolio Turnover Rate
36% 28% 37%
==========================================================
== ==============================
</TABLE>
(1) For the period from November 6, 1992 (inception date)
to July 31, 1993.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
23
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class B Shares 1995
1994 1993 1992(1) 1992(2)
==========================================================
== =====================================
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Year $13.28
$15.97 $14.83 $13.95 $13.21 ------------------
- ----------------------------------------------------------
- --------------------
Income (Loss) From Operations:
Net investment income 0.78
0.75 0.79 0.35 0.82
Net realized and unrealized
gain (loss) on investments 0.82
(2.19) 1.30 0.89 0.94 -------------------
- ----------------------------------------------------------
- -------------------
Total Income (Loss) From Operations 1.60
(1.44) 2.09 1.24 1.76
- ----------------------------------------------------------
- --------------------------------------
Less Distributions From:
Net investment income (0.76)
(0.72) (0.79) (0.35) (0.84)
Overdistribution of net income
- --
(0.03) (0.01) -- --
Net realized gains --
(0.50) (0.15) -- (0.15)
Overdistribution of net realized gains (0.08) -
- - -- -- --
Capital (0.02) -
- - -- (0.01) (0.03)
- ----------------------------------------------------------
- --------------------------------------
Total Distributions (0.86)
(1.25) (0.95) (0.36) (1.02)
- ----------------------------------------------------------
- --------------------------------------
Net Asset Value, End of Year $14.02
$13.28 $15.97 $14.83 $13.95
- ----------------------------------------------------------
- --------------------------------------
Total Return 12.62%
(9.52)% 14.69% 8.98%++ 13.63%
- ----------------------------------------------------------
- --------------------------------------
Net Assets, End of Year (millions) $1,573
$1,823 $2,766 $1,721 $1,275
- ----------------------------------------------------------
- --------------------------------------
Ratios to Average Net Assets:
Expenses 1.56%
1.54% 1.56% 1.57%+ 1.58%
Net investment income 5.82
5.07 5.17 5.78+ 6.04
- ----------------------------------------------------------
- --------------------------------------
Portfolio Turnover Rate 36%
28% 37% 10% 33%
==========================================================
== =====================================
</TABLE>
(1) For the period from March 1, 1992 to July 31, 1992.
(2) For the period from March 1, 1991 to February 28,
1992.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
24
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class C Shares(1)
1995 1994 1993(2)
==========================================================
== ===========================
<S>
<C> <C> <C>
Net Asset Value, Beginning of Year
$13.28 $15.97 $15.17
- ----------------------------------------------------------
- ----------------------------
Income (Loss) From Operations:
Net investment income
0.78 0.73 0.35
Net realized and unrealized gain (loss) on investments
0.82 (2.17) 0.86 --------------------------------
- ------------------------------------------------------
Total Income (Loss) From Operations
1.60 (1.44) 1.21 --------------------------------
- ------------------------------------------------------
Less Distributions From:
Net investment income
(0.76) (0.72) (0.38)
Overdistribution of net income
- -- (0.03) (0.01)
Net realized gains
- -- (0.50) (0.02)
Overdistribution of net realized
gains
(0.08) -- --
Capital
(0.02) -- --
- ----------------------------------------------------------
- ----------------------------
Total Distributions
(0.86) (1.25) (0.41) ------------------------------
- --------------------------------------------------------
Net Asset Value, End of Year
$14.02 $13.28 $15.97
- ----------------------------------------------------------
- ----------------------------
Total Return
12.62% (9.52)% 8.08%++
- ----------------------------------------------------------
- ----------------------------
Net Assets, End of Year (000s)
$3,925 $1,894 $252
- ----------------------------------------------------------
- ----------------------------
Ratios to Average Net Assets:
Expenses
1.51% 1.48% 1.49%+
Net investment income
5.77 5.13 5.25+
- ----------------------------------------------------------
- ----------------------------
Portfolio Turnover Rate
36% 28% 37%
==========================================================
== ===========================
</TABLE>
(1) On November 7, 1994, the former Class D shares were
renamed Class C shares.
(2) For the period from February 4, 1993 (inception
date) to July 31, 1993.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
25
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class Z Shares(1) 1995
1994 1993(2)
==========================================================
== ==============
<S> <C>
<C>
<C>
Net Asset Value, Beginning of Year $13.28
$15.97 $14.36
- ----------------------------------------------------------
- ---------------
Income (Loss) From Operations:
Net investment income 0.89
0.89 0.69
Net realized and unrealized
gain (loss) on investments 0.82
(2.21) 1.72
- ----------------------------------------------------------
- ---------------
Total Income (Loss) From Operations 1.71
(1.32) 2.41
- ----------------------------------------------------------
- ---------------
Less Distributions From:
Net investment income (0.87)
(0.84) (0.65)
Overdistribution of net income --
(0.03) (0.01)
Net realized gains --
(0.50) (0.14)
Overdistribution of net realized gains (0.08)
- -- --
Capital (0.02)
- -- --
- ----------------------------------------------------------
- ---------------
Total Distributions (0.97)
(1.37) (0.80)
- ----------------------------------------------------------
- ---------------
Net Asset Value, End of Year $14.02
$13.28 $15.97 ----------------------------------------
- ---------------------------------
Total Return 13.55%
(8.78)% 17.21%++ --------------------------------------
- -----------------------------------
Net Assets, End of Year (000s) $14,631
$11,372 $22,251 ----------------------------------------
- ---------------------------------
Ratios to Average Net Assets:
Expenses 0.81%
0.69% 0.68%+
Net investment income 6.58
5.92 6.06+ ------------------------------------------
- -------------------------------
Portfolio Turnover Rate 36%
28% 37%
==========================================================
== ==============
</TABLE>
(1) On November 7, 1994, the former Class C shares were
renamed Class Z shares.
(2) For the period from November 6, 1992 (inception date)
to July 31, 1993.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
26
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Additional Information -----------------------------------
- --------------------------------------------
Change in Independent Auditor: On October 20, 1994,
based upon the
recommendation of the Audit Committee of the Fund, the
Board of Trustees
determined not to retain Coopers & Lybrand L.L.P ("Coopers
& Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat
Marwick LLP. During
the Fund's two most recent fiscal years, Coopers &
Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor
were the reports
qualified or modified as to uncertainty, audit scope, or
accounting
principles. Further, during this same period there were no
disagreements with
Coopers & Lybrand on any matter of accounting principles
or practices,
financial statement disclosure, or auditing scope or
procedure, which
disagreements, if not resolved to the satisfaction of
Coopers & Lybrand,
would have caused it to make reference to the subject
matter
of such
disagreements in connection with its audit reports. The
Fund has requested
Coopers & Lybrand to provide a letter to the Securities
and Exchange
Commission stating whether Coopers & Lybrand agrees with
the foregoing
statements, and to provide the Fund with a copy of such
letter. A
copy of this letter is available upon request by calling
the Fund at
(212) 723-9218.
27
<PAGE>
Smith Barney Utilities Fund ------------------------------
- -------------------------------------------------
Independent Auditors' Report -----------------------------
- --------------------------------------------------
The Shareholders and Board of Trustees of
Smith Barney Utilities Fund of
Smith Barney Income Funds:
We have audited the accompanying statement of assets
and liabilities,
including the schedule of investments, of Smith Barney
Utilities Fund of
Smith Barney Income Funds as of July 31, 1995, and the
related statement of
operations, statement of changes in net assets, and
financial highlights for
the year then ended. These financial statements and
financial highlights are
the responsibility of the Fund's management. Our
responsibility is to express
an opinion on these financial statements and financial
highlights based on
our audit. The statement of changes in net assets for the
year ended July 31,
1994 and the financial highlights for each of the years or
periods in the
four-year period then ended, were audited by other
auditors whose report
thereon, dated September 9, 1994, expressed an unqualified
opinion on that
statement of changes in net assets and those financial
highlights.
We conducted our audit in accordance with generally
accepted auditing
standards. Those standards require that we plan and
perform the audit to
obtain reasonable assurance about whether the financial
statements and
financial highlights are free of material misstatement. An
audit includes
examining, on a test basis, evidence supporting the
amounts and disclosures
in the financial statements. Our procedures included
confirmation of
securities owned as of July 31, 1995, by correspondence
with
the custodian.
An audit also includes assessing the accounting
principles used and
significant estimates made by management, as well as
evaluating the overall
financial statement presentation. We believe that our
audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly,
in all material respects, the financial position of Smith
Barney Utilities Fund
of Smith Barney Income Funds as of July 31, 1995, and the
results of its
operations, changes in its net assets and financial
highlights for the year then
ended, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
New York, New York
September 22, 1995
28
<PAGE>
Smith Barney
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 and Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
Jack S. Levande
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ------------
[LOGO OF TRAVELERS GROUP APPEARS HERE]
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of
the shareholders of
Smith Barney Utilities Fund. It is not authorized for
distribution to
prospective investors unless accompanied or preceded by a
current Prospectus for
the Fund, which contains information concerning the Fund's
investment policies
and expenses as well as other pertinent information.
Smith Barney
Utilities Fund
388 Greenwich Street
New York, New York 10013
FD 0426 9/95
- ----------------------------------------------------------
- ---------------------
A N N U A L R E P O R T -----
- ----------------------------------------------------------
- ----------------
1995
1995
1995
1995
1995
Smith Barney
High Income
Fund
--------------------------
- ---------------------
July 31, 1995
[LOGO APPEARS HERE] Smith Barney Mutual Funds
Investing for your future.
Every day.
- -----------------------------
Smith Barney High Income Fund --------------------------
- ---
Dear Shareholder:
We are pleased to provide the annual report for the
Smith Barney High Income
Fund. Over the past year, the Fund paid dividends
totaling $1.12 per share for
Class A shares. For the 12 months ended July 31, 1995,
the Fund generated a
total return of 10.28% for Class A shares. This surpassed
a return of 9.23% for
the 5-year Treasury note.
The Fund's performance was in line with the 10.34% average
total return for all
high yield mutual funds, as reported by Lipper Analytical
Services for the same
period. Considering the extreme swings in interest rates
and bond prices over
the past year, we have maintained the Fund's average
maturity in the five- to
six-year range. We believe that this relatively
conservative intermediate
average maturity, along with the conservative credit
quality of the Fund's
holdings, will generate superior, more consistent and less
volatile returns over
a full market cycle.
Our primary focus is to deliver a consistently high level
of current income with
total return as a secondary objective. To achieve these
goals, we employ a
disciplined strategy, which is to invest primarily in
better quality, high-
yielding corporate bonds which may receive a credit-rating
upgrade in the next
one to three years. On a selective basis, we have also
added what we consider to
be attractively valued convertible bonds and both
preferred and common stocks to
the portfolio with the objective of further enhancing the
total return. By
emphasizing the improving credits in the high-yield
market, we have the
potential to generate, not only competitive current
dividend yields, but also
capital appreciation. We are not attempting to maximize
yield regardless of
credit risk. Instead we are seeking to provide a
competitive dividend yield with
superior total return.
Market and Economic Overview
After a strong second half in 1994, the economy slipped
into a significant
slowdown in the first half of 1995 with a pronounced
deterioration in
consumption expenditures. As a result, the overall bond
market rallied
significantly with 30-year U.S. Treasury bond yields
falling from 8.00% in
January to 6.50% by the end of June.
1
The retail sector of the economy experienced the greatest
deterioration with
little pricing power on the part of most retail chains.
Even the automobile
industry, which enjoyed a strong year in 1994, encountered
weaker sales trends
in 1995. As mentioned in our last semi-annual report,
during 1994 individuals
financed a large portion of their purchases with debt. As
a result, individuals'
debt climbed to onerous levels. This is now probably
acting as a drag on
consumption as consumer debt levels are brought down to
more manageable
percentages. The industrial side of the economy, which has
benefited from strong
overseas demand, also appears to be moderating based upon
recent industrial-
production statistics.
In response to the weak first-half economic results, the
Federal Reserve
modestly reduced short-term interest rates in early July,
signaling their
intention to prevent the overall economy from falling into
a recession. Recent
economic statistics indicate that the economy appears to
be regaining some of
its lost momentum with stronger housing activity and
industrial production. In
response, the bond market reversed direction with 30-year
Treasury yields rising
to roughly 7.00% from a low of 6.50% at the end of June.
Despite the Treasury
market correction, the high-yield market continued to
rally on reduced fears of
economic recession.
In summary, we would not expect a recession since the
latest economic trends
have been positive and the Federal Reserve's monetary
policy has been more
supportive. We do believe that the economy will remain on
a moderate growth
track which will present more of a challenge to corporate
profitability,
especially in the consumer-related areas of the economy.
Portfolio Strategy
During the past six months, as general economic conditions
deteriorated, we
moved the portfolio to an even more conservative credit
posture, increasing our
exposure to the stronger, better capitalized companies and
away from the weaker,
underperforming issues that have a higher risk of default
in a moderate-growth
environment. In addition, we have shifted our industry
orientation away from the
more vulnerable sectors, particularly in the consumer-
related areas and have
increased our exposure to companies whose industries
continue to experience
meaningful growth trends. These include
telecommunications, cable TV,
technology, and media. Given the increased uncertainty
over economic trends and
subsequent increased volatility in overall interest rates,
we will continue to
maintain a relatively conservative average maturity in the
five- to six-year
range. In addition, we would expect to be fully invested
by the fourth quarter,
having experienced a modest increase in our cash reserves
due to new
subscriptions into the Fund.
2
We appreciate your support during these challenging times
and look forward to
achieving improving results over the remainder of 1995.
While patience may still
be required as the financial markets continue to
experience volatility in 1995,
we believe that your patience will be rewarded as market
conditions strengthen.
Should you have any questions about your investment in the
Fund, please call
your Smith Barney Financial Consultant.
Sincerely,
/s/ Heath B. McLendon /s/ John C.
Bianchi, CFA
Heath B. McLendon John C.
Bianchi, CFA
Chairman and Vice
President
and
Investment Officer Investment
Officer
August 17, 1995
3
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
Historical Performance -- Class A Shares -----------------
- ----------------------------------------------------------
- --------------------------------
Net Asset Value ------------
----------
Beginning End
Income Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
==
================================================
<S> <C> <C> <C>
<C> <C> <C>
7/31/95 $11.16 $11.10
$1.05
$0.00 $0.07 10.28%
- ----------------------------------------------------------
- -------------------------------------------------
7/31/94 12.01 11.16
1.12
0.00 0.00 2.11
- ----------------------------------------------------------
- ------------------------------------------------Inception*
- 7/31/93 11.03 12.01
0.86
0.00 0.00 17.29
==========================================================
== ================================================
Total
$3.03
$0.00 $0.07
==========================================================
== ================================================
</TABLE>
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
Historical Performance -- Class B Shares -----------------
- ----------------------------------------------------------
- --------------------------------
Net Asset Value ------------
----------
Beginning End
Income Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
== ================================================
<S> <C> <C> <C>
<C> <C> <C>
7/31/95 $11.16 $11.11
$0.99
$0.00 $0.07 9.77%
- ----------------------------------------------------------
- -------------------------------------------------
7/31/94 12.01 11.16
1.06
0.00 0.00 1.60
- ----------------------------------------------------------
- -------------------------------------------------
7/31/93 11.15 12.01
1.10
0.00 0.00 18.55
- ----------------------------------------------------------
- -------------------------------------------------
7/31/92 10.05 11.15
1.11
0.00 0.06 23.86
- ----------------------------------------------------------
- -------------------------------------------------
7/31/91 10.59 10.05
1.27
0.00 0.02 8.82
- ----------------------------------------------------------
- -------------------------------------------------
7/31/90 13.36 10.59
1.61
0.00 0.01 (8.66)
- ----------------------------------------------------------
- -------------------------------------------------
7/31/89 14.01 13.36
1.53
0.00 0.00 6.60
- ----------------------------------------------------------
- --
- ------------------------------------------------
7/31/88 14.26 14.01
1.54
0.04 0.00 10.06
- ----------------------------------------------------------
- ------------------------------------------------Inception*
- 7/31/87 14.00 14.26
1.03
0.03 0.00 9.55
==========================================================
== ================================================
Total
$11.24
$0.07 $0.16
==========================================================
== ================================================
</TABLE>
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
Historical Performance -- Class C Shares -----------------
- ----------------------------------------------------------
- --------------------------------
Net Asset Value ------------
----------
Beginning End
Income Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
== ================================================
<S> <C> <C> <C>
<C> <C> <C>
Inception*
- 7/31/95 $10.90 $11.11
$0.90
$0.00 $0.07 11.50%
==========================================================
== ================================================
</TABLE>
4
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
Historical Performance -- Class Y Shares -----------------
- ----------------------------------------------------------
- --------------------------------
Net Asset Value ------------
----------
Beginning End
Income Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
== ================================================
<S> <C> <C> <C>
<C> <C> <C>
Inception*
- 7/31/95 $10.84 $11.10
$0.03
$0.00 $0.07 2.91%
==========================================================
==
================================================
</TABLE>
<TABLE>
<CAPTION> ------------------------------------------------
- ----------------------------------------------------------
Historical Performance -- Class Z Shares -----------------
- ----------------------------------------------------------
- --------------------------------
Net Asset Value ------------
----------
Beginning End
Income
Capital Gain Return of Total
Year Ended of Year of Year
Dividends Distributions Capital Returns/(1)/
==========================================================
== ================================================
<S> <C> <C> <C>
<C> <C> <C>
7/31/95 $11.16 $11.09
$1.08
$0.00 $0.07 10.55%
- ----------------------------------------------------------
- -------------------------------------------------
7/31/94 12.01 11.16
1.15
0.00 0.00 2.37
- ----------------------------------------------------------
- ------------------------------------------------Inception*
- 7/31/87 11.03 12.01
0.88
0.00 0.00 17.47
==========================================================
== ================================================
Total
$3.11
$0.00 $0.07
==========================================================
== ================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly
and capital gains, if any, annually.
<TABLE>
<CAPTION> ------------------------------------------------
- -----------------------------------------------
Average Annual Total Return ------------------------------
- ----------------------------------------------------------
- -------
Without Sales Charge/(1)/
----------------------
- -------------------------------------
Class A Class B
Class C Class Y Class Z
==========================================================
== ====================================
<S> <C> <C>
<C> <C> <C>
Year Ended 7/31/95 10.28% 9.77%
N/A N/A 10.55%
- ----------------------------------------------------------
- -------------------------------------
Five Years Ended 7/31/95 N/A 12.25
N/A N/A N/A
- ----------------------------------------------------------
- --
- ------------------------------------
Inception* through 7/31/95 10.72 8.63
11.50% 2.91% 10.99 -------------------------
- ----------------------------------------------------------
- ------------
<CAPTION>
With Sales Charge/(2)/
----------------------
- -------------------------------------
Class A Class B
Class C Class Y Class Z
==========================================================
== ====================================
<S> <C> <C>
<C> <C> <C>
Year Ended 7/31/95 5.28% 5.29%
N/A N/A 10.55% -------------------------
- ----------------------------------------------------------
- ------------
Five Years Ended 7/31/95 N/A 12.12
N/A N/A N/A --------------------------
- ----------------------------------------------------------
- -----------
Inception* through 7/31/95 8.87 8.63
10.50% 2.91% 10.99 -------------------------
- ----------------------------------------------------------
- ------------
</TABLE>
5
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- -------------------------------
Cumulative Total Return ----------------------------------
- ---------------------------------------------
Without Sales Charge/(1)/
---
- ---------------------
<S> <C>
Class A (Inception* through 7/31/95)
32.08% ---------------------------------------------------
- ----------------------------
Class B (Inception* through 7/31/95)
109.20 ---------------------------------------------------
- ----------------------------
Class C (Inception* through 7/31/95)
11.50 ----------------------------------------------------
- ---------------------------
Class Y (Inception* through 7/31/95)
2.91 -----------------------------------------------------
- --------------------------
Class Z (Inception* through 7/31/95)
32.94 ----------------------------------------------------
- ---------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value and does not reflect deduction of the
applicable sales charge
with respect to Class A shares or the applicable
contingent deferred sales
charges ("CDSC") with respect to Class B and Class C
shares.
(2) Assumes reinvestment of all dividends and capital gain
distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 4.50% and Class B
shares reflect the
deduction of a 4.50% CDSC which applies if shares are
redeemed less than one
year from initial purchase. This CDSC declines by 0.50%
the first year after
purchase and then by 1.00% per year thereafter until
no
CDSC is incurred.
Class C shares reflect the deduction of a 1.00% CDSC
which applies if shares
are redeemed within the first year of purchase.
* Inception dates for Class A, B, C, Y and Z shares are
November 6, 1992,
September 2, 1986, August 24, 1994, April 28, 1995 and
November 6, 1992,
respectively.
6
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Historical Performance -----------------------------------
- --------------------------------------------
Growth of $10,000 Invested in Class B
Shares of
the Smith Barney High Income Fund
vs. the Salomon Brothers Intermediate-Term High-
Yield Index
(unaudited) ------------
- ----------------------------------------------------------
- ---------
September 1986 - July 1995
[GRAPH APPEARS HERE]
+ Hypothetical illustration of $10,000 invested in Class B
shares at inception
on September 2, 1986, assuming reinvestment of dividends
and capital gains, if
any, at net asset value through July 31, 1995. The Salomon
Brothers
Intermediate-Term High-Yield Index includes cash-pay and
deferred-interest
bonds with a remaining maturity of at least seven years,
but less than ten
years. This index is unmanaged and is not subject to the
same management and
trading expenses as a mutual fund. The performance of the
Fund's other classes
may be greater or less than the Class B shares'
performance indicated on this
chart, depending on whether greater or lesser sales
charges and fees were
incurred by shareholders investing in other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and redemption
value may be more or less than the original cost. No
adjustment has been made
for shareholder tax liability on dividends or capital
gains.
7
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Portfolio Highlights (unaudited)
July 31, 1995 --------------------------------------------
- -----------------------------------
Portfolio Breakdown
[PIE CHART APPEARS HERE]
Top Ten Holdings
<TABLE>
<CAPTION>
Percentage of
Company
Total Investments ----------------------------------------
- ---------------------------------------
<S>
<C>
Revlon Worldwide Corp.
3.7%
Marcus Cable Capital Corp.
2.7
Ralph's Grocery
2.3
Domtar Inc. Notes
2.2
Ornda Healthcorp
2.2
Marvel Holdings Inc.
1.8
GNF Corp.
1.6
NL Industries
1.6
Aztar Corp.
1.6
Trump Taj Mahal
1.5
</TABLE>
8
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Schedule of Investments
July 31, 1995 --------------------------------------------
- -------------------------------------------------------
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
== ========================================
<C> <C> <S>
<C>
CORPORATE BONDS AND NOTES -- 85.0%
Aerospace/Defense -- 0.4%
$ 3,425,000 B Tracor Inc., Sr. Sub. Notes,
10.875% due 8/15/01 $ 3,540,594
- ----------------------------------------------------------
- -----------------------------------------
Automobile -- 2.1%
4,150,000 CCC+ Fairfield Manufacturing Inc.,
Sr. Sub. Notes, 11.375% due
7/1/01 3,958,062
Harvard Industries, Inc., Sr.
Notes:
3,550,000 B+ 12.000% due 7/15/04
3,727,500
5,275,000 B3* 11.125% due 8/1/05+
5,380,500
3,400,000 B Truck Components, Sr. Notes,
Series A,
12.250% due 6/30/01
3,706,000 ------------------------------------------------
- ---------------------------------------------------
16,772,062 -----------------------------------------------
- ----------------------------------------------------
Broadcasting -- 8.4%
9,550,000 CCC Australis Media Ltd., Sr.
Discount
Notes
step bond to yield 13.130%
due 5/15/03 5,492,625
14,050,000 B+ Bell Cablemedia, Sr. Discount
Notes,
step bond to yield 12.560%
due
7/15/04 9,466,187
Cablevision Systems Corp., Sr.
Sub. Debenture:
6,075,000 B 9.875% due 2/15/13
6,667,312
7,325,000 B 10.750% due 4/1/04
7,874,375
6,400,000 BB- Continental Cablevision Inc.,
Sr.
Sub. Notes,
11.000% due 6/1/07
7,072,000
Marcus Cable Capital Corp.:
4,750,000 B Sr. Debentures, 11.875% due
10/1/05 4,821,250
25,275,000 B Sr. Discount Notes, step bond
to yield 11.340%
due 8/1/04
16,997,438
Rogers Cablesystems:
5,350,000 BB+ Limited Sr. Secured Second
Priority Debentures,
10.125% due 9/1/12
3,274,556
3,400,000 BB+ Sr. Secured Second Priority
Debentures,
9.650% due 1/15/14
3,502,000
2,450,000 B Young Broadcasting Sr. Sub.
Notes,
11.750% due 11/15/04
2,701,125 ------------------------------------------------
- ---------------------------------------------------
67,868,868 -----------------------------------------------
- ----------------------------------------------------
Building and Construction -- 3.5%
10,100,000 B+ American Standard Inc., Sr. Sub.
Debentures,
11.375% due 5/15/04
11,110,000
6,655,000 B+ G-I Holdings, Sr. Notes, zero
coupon due 10/1/98 4,758,325
7,000,000 B Greystone Homes, Inc., Sr.
Notes,
10.750% due 3/1/04 6,282,500
2,400,000 B- Miles Homes Services Inc., Sr.
Notes, 12.000% due 4/1/01 1,806,000
4,150,000 B+ US Home Corp., Sr. Notes, 9.750%
due 6/15/03 4,067,000
- ----------------------------------------------------------
- -----------------------------------------
28,023,825 -----------------------------------------------
- ----------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Schedule of Investments
July 31, 1995 --------------------------------------------
- -------------------------------------------------------
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
== ========================================
<C> <C> <S>
<C>
Chemical -- 2.4%
$12,000,000 B NL Industries, Sr. Secured
Notes,
11.750% due 10/15/03
$12,900,000
6,150,000 B+ Terra Industries, Inc., Sr.
Notes,
10.500% due 6/15/05+
6,519,000 ------------------------------------------------
- ---------------------------------------------------
19,419,000 -----------------------------------------------
- ----------------------------------------------------
Communications -- 5.1%
Dial Call Communications, Inc.:
7,500,000 NR Sr. Discount Notes, step bond
to yield
10.100% due 12/15/05+
3,731,250
6,650,000 CCC- Sr. Discount Notes, step bond
to yield
13.280% due 4/15/04+
3,491,250
18,725,000 CCC- Nextel Communications, Sr.
Discount Notes,
step bond to yield 11.880%
due 8/15/04+ 9,924,250
8,150,000 NR Pagemart Inc., Sr. Disc. Notes,
step bond to yield
12.100% due 11/1/03
5,307,687
5,250,000 NR Pagemart Nationwide, Inc., Sr.
Discount Notes,
step bond to yield 14.140%
due 2/1/05+ 3,150,000
3,050,000 B Paging Network, Sr. Sub. Notes,
10.125% due 8/1/07 3,095,750
6,775,000 BB- Rogers Communications, Sr.
Debentures,
10.875% due 4/15/04
7,012,125
5,000,000 CCC+ USA Mobile Communication Inc.,
Sr.
Notes,
14.000% due 11/1/04
5,506,250 ------------------------------------------------
- ---------------------------------------------------
41,218,562 -----------------------------------------------
- -------------
- ----------------------------------------
Consumer Non-Durables -- 1.5%
23,350,000 B+ International Semi-Tech, Sr.
Secured Discount Notes,
step bond to yield 11.200%
due 8/15/03 12,317,125
- ----------------------------------------------------------
- ----------------------------------------
Diversified/Conglomerate Manufacturing -- 2.6%
Interlake Corp.:
2,725,000 B- Senior Notes, 12.000% due
11/15/01 2,834,000
11,500,000 CCC+ Sr. Sub. Debenture, 12.125%
due
3/1/02 11,672,500
7,100,000 B- Russel Metals Inc., 10.250% due
6/15/00 6,789,375
- ----------------------------------------------------------
- -----------------------------------------
21,295,875 -----------------------------------------------
- ----------------------------------------------------
Electric - Utilities -- 0.8%
6,314,101 BB- Midland Cogeneration Venture
Limited Partnership,
Midland Funding Sr. Secured
Lease Obligation
Bond Series C, 10.330% due
7/23/02 6,582,450
- ----------------------------------------------------------
- -----------------------------------------
</TABLE>
See Notes to Financial Statements.
10
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -------------------------------------------------------
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
== ========================================
<C> <C> <S>
<C>
Electronics - Computers -- 1.6%
$13,500,000 B Bell and Howell Holdings Co.,
Sr.
Discount Sub Notes,
step bond to yield 11.060%
due 3/1/05 $ 8,302,500
4,000,000 BB- Unisys Corp., Credit Sensitive
Notes,
13.500% due 7/1/97
4,475,000
- ----------------------------------------------------------
- -----------------------------------------
12,777,500 -----------------------------------------------
- ----------------------------------------------------
Finance -- 0.4%
3,550,000 CCC+ GPA Delaware Inc., Sr. Sub.
Debenture,
8.750% due 12/15/98
3,230,500 ------------------------------------------------
- --------------------------------------------------
Grocery/Convenience Stores -- 6.3%
9,600,000 B+ Farm Fresh Inc., Sr. Notes,
12.250% due 10/1/00 8,784,000
5,775,000 B- Kash-N-Karry, Sr. Notes, 11.500%
due 2/1/03 5,825,531
Pathmark Stores Inc.:
6,500,000 B Jr. Sub. Deferred Coupon
Notes,
step bond to
yield 11.430% due 11/1/99
4,095,000
5,650,000 B Sub. Notes, 11.625% due
6/15/02
6,045,500
7,050,000 B Sub. Debentures, 12.625% due
6/15/02 7,649,250
19,000,000 B- Ralphs Grocery, Sr. Sub. Notes,
11.000% due 6/15/05 18,287,500
- ----------------------------------------------------------
- -----------------------------------------
50,686,781 -----------------------------------------------
- ----------------------------------------------------
Healthcare -- 3.0%
6,100,000 B Charter Medical Corp., Sr. Sub.
Notes,
11.250% due 4/15/04
6,549,875
15,960,000 B- Ornda Healthcorp, Sr. Sub. Notes,
12.250% due 5/15/02
17,675,700 -----------------------------------------------
- ----------------------------------------------------
24,225,575 -----------------------------------------------
- ----------------------------------------------------
Hotel, Casinos and Gaming -- 9.4%
11,125,000 B Aztar Corp., Sr. Sub. Notes,
13.750% due 10/1/04
12,571,250
11,500,000 B+ Bally's Grand 1st Mortgage Notes,
10.375% due 12/15/03
11,500,000
8,475,000 BB- Boyd Gaming Corp., Sr. Sub.
Notes,
Series B, 10.750% due 9/1/03
8,771,625
4,325,000 BB Empress River Casino, Sr. Notes,
10.750% due 4/1/02
4,454,750
14,550,000 BB GNF Corporation 1st Mortgage
Notes,
10.625% due 4/1/03
12,949,500
Station Casinos Inc. Sr. Sub.
Notes:
7,150,000 B Series B, 9.625% due 6/1/03
6,828,250
6,425,000 B 9.625% due 6/1/03
6,135,875
14,450,311 NR Trump Taj Mahal Funding 1st
Mortgage,
11.350% due 11/15/99
12,355,016 -----------------------------------------------
- ----------------------------------------------------
75,566,266 -----------------------------------------------
- ----------------------------------------------------
</TABLE>
See Notes to Financial Statements.
11
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -------------------------------------------------------
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
== ========================================
<C> <C> <S>
<C>
Insurance Companies -- 2.1%
$ 6,570,000 BB+ Bankers Life Holdings, Sr. Sub.
Notes, Series B,
13.000% due 11/1/02
$ 7,522,650
8,250,000 BB+ Life Partners Group Inc., Sr.
Sub.
Notes,
12.750% due 7/15/02
9,229,688 ------------------------------------------------
- ---------------------------------------------------
16,752,338 -----------------------------------------------
- ----------------------------------------------------
Leisure -- 2.9%
9,475,000 B Coleman Holdings Inc., Sr.
Secured
Discount Notes,
due 5/27/98
7,343,125
5,100,000 NR Gillette Holdings, Inc., Sr.
Sub.
Notes,
12.250% due 6/30/02
5,335,875
8,125,000 B Remington Arms Company, Inc.,
Sr. Sub. Notes, 9.500% due
12/1/03
(current penalty coupon
10.000%) 7,525,781
3,175,000 B- Samsonite Corp., 11.125% due
7/15/05 3,254,375
- ----------------------------------------------------------
- -----------------------------------------
23,459,156 -----------------------------------------------
- ----------------------------------------------------
Machinery -- 0.3%
2,375,000 B- Day International Group, Sr.
Sub.
Notes,
11.125% due 6/1/05
2,475,937 ------------------------------------------------
- ---------------------------------------------------
Metals/Mining -- 4.4%
6,050,000 B Algoma Steel, First Mortgage
Notes,
12.375% due 7/15/05
5,747,500
2,700,000 B+ Inland Steel Co. Notes, 12.750%
due 12/15/02 3,024,000
7,950,000 B- Kaiser Aluminum, Sr. Sub. Notes,
12.750% due 2/1/03 8,834,437
Stelco Inc., Debentures:
11,665,000 NR 10.400% due 11/30/09
8,627,204
3,413,000 NR 13.500% due 10/1/00
2,499,319
6,100,000 NR UCAR Global Enterprises Inc.,
Sr.
Sub. Notes,
12.000% due 1/15/05
6,710,000 ------------------------------------------------
- ---------------------------------------------------
35,442,460 -----------------------------------------------
- ----------------------------------------------------
Miscellaneous -- 0.7%
5,305,000 NR MacAndrew Forbes Debentures,
12.250% due 7/1/96 5,311,631
- ----------------------------------------------------------
- -----------------------------------------
Oil and Natural Gas -- 1.2%
3,950,000 B+ Giant Industries, Inc., Sr. Sub.
Notes,
9.750% due 11/15/03
3,851,250
1,900,000 B+ Global Marine, Sr. Secured
Notes,
12.750% due 12/15/99 2,109,000
3,500,000 B Santa Fe Energy Resources, Sr.
Sub. Debenture,
11.000% due 5/15/04
3,766,875 ------------------------------------------------
- ---------------------------------------------------
9,727,125 ------------------------------------------------
- ------------
- ----------------------------------------
</TABLE>
See Notes to Financial Statements.
12
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -------------------------------------------------------
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
== ========================================
<C> <C> <S>
<C>
Other Utilities -- 0.3%
$ 2,300,000 BB- California Energy Sr. Sub Notes,
9.875% due 6/30/03 $ 2,331,625
- ----------------------------------------------------------
- -----------------------------------------
Packaging and Containers -- 5.6%
4,700,000 B+ Container Corp. of America, Sr.
Notes,
11.250% due 5/1/04
5,005,500
6,375,000 B Gaylord Container Corp., Sr.
Notes
11.500% due 5/15/01
6,877,031
8,650,000 B- Silgan Holdings, Sr. Discount
Notes,
zero coupon to yield 12.860%
due 12/15/02 7,958,000
7,875,000 BB Stone Consolidated Corp., Sr.
Secured Notes,
10.250% due 12/15/00
8,308,125
Stone Container Corp.:
9,075,000 B+ Sr. Notes, 11.500% due
10/1/04
9,801,000
5,000,000 B+ Sr. Notes, 11.875% due
12/1/98
5,437,500
1,425,000 B+ Sr. Notes, 12.625% due
7/15/98
1,565,719 ------------------------------------------------
- ---------------------------------------------------
44,952,875 -----------------------------------------------
- ----------------------------------------------------
Paper and Printing -- 8.6%
Domtar Inc.:
12,750,000 BB- Notes, 12.000% due 4/15/01
14,726,250
2,475,000 BB- Sr. Notes, 11.750% due
3/15/99
2,722,500
Indah Kiat International
Finance Co.:
5,075,000 BB Guaranteed Secured Notes,
11.375% due 6/15/99 5,176,500
10,150,000 BB Guaranteed Secured
Notes,
11.875% due 6/15/02 10,251,500
Repap New Brunswick:
3,800,000 BB- Frn. Sr. Notes, 9.875% due
7/15/00 3,828,500
8,000,000 B+ Sr. Notes, 10.625% due
4/15/05
8,280,000
3,375,000 B+ Repap Wisconsin, Inc., 2nd
Priority Sr. Secured Notes,
9.875% due 5/1/06
3,366,563
Riverwood International, Sr.
Sub. Notes:
2,798,000 B 11.250% due 6/15/02
3,046,323
7,180,000 B Series II, 11.25% due 6/15/02
7,844,150
5,400,000 B+ SD Warren Corp., Series B, Sr.
Sub. Notes,
12.000% due 12/15/04
6,007,500
3,700,000 BB Tjiwi Kimia International, Sr.
Notes,
13.250% due 8/1/01
3,977,500 ------------------------------------------------
- ---------------------------------------------------
69,227,286 -----------------------------------------------
- ----------------------------------------------------
Personal Care -- 4.8%
1,600,000 BB- American Safety Razor, Sr. Sub.
Notes,
9.875% due 8/1/05
1,616,000
7,650,000 B- Revlon Consumer Products Corp.,
Sr. Sub. Notes,
10.500% due 2/15/03
7,726,500
</TABLE>
See Notes to Financial Statements.
13
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -------------------------------------------------------
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
== ========================================
<C> <C> <S>
<C>
Personal Care -- 4.8% (continued)
$40,950,000 B- Revlon Worldwide Corp., Sr.
Secured Discount Notes
zero coupon to yield 16.440%
due 3/15/98 $ 29,484,000
- ----------------------------------------------------------
- -----------------------------------------
38,826,500 -----------------------------------------------
- ----------------------------------------------------
Publishing -- 2.4%
20,800,000 B- Marvel Holdings Inc., Sr. Secured
Discount Notes,
zero coupon to yield 13.140%
due 4/15/98 14,768,000
7,550,000 BBB- News America Holdings Inc., Sr.
Debentures,
8.625% due 2/7/14
4,437,466 ------------------------------------------------
- ---------------------------------------------------
19,205,466 -----------------------------------------------
- ----------------------------------------------------
Retail -- 1.6%
7,750,000 B+ Barnes and Noble, Sr. Sub.
Notes,
11.875% due 1/15/03 8,621,875
4,975,000 B- Wickes Lumber Co., Sr. Sub.
Notes,
11.625% due 12/15/03
4,253,625 ------------------------------------------------
- ---------------------------------------------------
12,875,500 -----------------------------------------------
- ----------------------------------------------------
Textiles and Apparel -- 1.5%
4,475,000 B+ CMI Industries, Inc., Sr. Sub.
Notes, 9.500% due 10/1/03 4,072,250
4,675,000 B Dan River Inc., Sr. Sub. Notes,
10.125% due 12/15/03 4,675,000
3,725,000 B Hartmarx Corp., Sr. Sub. Notes,
10.875% due 1/15/02 3,706,375
- ----------------------------------------------------------
- -----------------------------------------
12,453,625 -----------------------------------------------
- ----------------------------------------------------
Tobacco -- 0.6%
5,025,000 B Consolidated Cigar Corp., Sr.
Sub.
Notes,
10.500% due 3/1/03
5,018,719 ------------------------------------------------
- ---------------------------------------------------
Transportation -- 0.5%
3,850,000 BB- Sea Containers Ltd., Sub.
Debentures,
12.500% due 12/1/04
4,215,750 ------------------------------------------------
- ---------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $676,083,310)
685,800,976
==========================================================
== ========================================
<CAPTION>
SHARES SECURITY
VALUE
==========================================================
== ========================================
<C> <S>
<C>
PREFERRED STOCKS - 5.9%
Health Care and Pharmaceuticals -- 1.4%
293,211 Foxmeyer Health Corporation,
Series A, Payment-in-kind,
Exchange $4.20
10,922,112 -----------------------------------------------
- ----------------------------------------------------
Finance -- 0.9%
436,725 Algoma Finance Corporation,
Series
A, Exchange $5.50 7,517,945
- ----------------------------------------------------------
- -----------------------------------------
</TABLE>
See Notes to Financial Statements.
14
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -------------------------------------------------------
SHARES SECURITY
VALUE
==========================================================
== ========================================
<C> <S>
<C>
Paper & Printing -- 0.3%
8,025 SD Warren Corp., Series A,
Exchange 14.000%+ $ 2,170,763
- ----------------------------------------------------------
- -----------------------------------------
Publishing -- 0.9%
K-III Communications
Corporation: 40,289 Series A, Exchange $2.875
3,807,311
152,600 Series B, Exchange 11.625%
3,910,375
- ----------------------------------------------------------
- -----------------------------------------
7,717,686 ------------------------------------------------
- ---------------------------------------------------
Metals & Mining -- 0.6%
104,995 BCP/Essex Holding Series A,
Exchange 15.000% 2,703,621
31,450 Geneva Steel Corp., Series B,
Exchange 14.000% 2,327,300
- ----------------------------------------------------------
- -----------------------------------------
5,030,921 ------------------------------------------------
- ---------------------------------------------------
Oil & Gas -- 0.2%
605,100 Gulf Canada Resources, Series 1
1,739,663 ------------------------------------------------
- --------------------------------------------------
Telecommunications -- 1.6%
12,255 PanAmSat Corp., Series A,
Exchange
$31.875 12,806,475
- ----------------------------------------------------------
- -----------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $49,149,191)
47,905,565
==========================================================
== ========================================
CONVERTIBLE PREFERRED STOCKS -- 1.1%
Automobiles & Trucking -- 1.1%
166,100 Navistar International Corp.,
Series G, Convertible $6.00
(Cost -- $9,275,013)
8,678,725
==========================================================
== ========================================
COMMON STOCKS -- 0.3%
Diversified/Conglomerate Manufacturing -- 0.1%
14,043 Tyco International Ltd.
772,365
Packaging and Containers -- 0.2%
107,824 Gaylord Container Corp.
1,253,454 ------------------------------------------------
- ---------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $1,171,512)
2,025,819
==========================================================
== ========================================
WARRANTS -- 0.5%
11,572 Dial Call Communications, Inc.,
Expires 12/15/98+ 31,823
4,900 Dial Call Communications, Inc.,
Expires 4/25/99+ 13,475
289,476 Gaylord Container Corp., Expires
7/31/96 2,967,129
29,000 Miles Homes Inc., Expires 4/1/97
14,500
18,375 Pagemart Nationwide, Expires
12/31/03 147,000
213,479 Trump Castle Hotel & Casino,
Expires 9/15/00 0
</TABLE>
See Notes to Financial Statements.
15
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------------------
Schedule of Investments (continued)
July 31, 1995 --------------------------------------------
- -------------------------------------------------------
SHARES SECURITY
VALUE
==========================================================
== ========================================
<C> <S>
<C>
WARRANTS -- 0.5% (continued)
37,490 Pagemart Warrants, Expires
12/31/03 $ 187,450
198,000 SD Warren, Expires 12/15/06
1,287,000 ------------------------------------------------
- ---------------------------------------------------
TOTAL WARRANTS
(Cost -- $1,692,530)
4,648,377
==========================================================
== ========================================
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
==========================================================
== ========================================
<C> <S>
<C>
REPURCHASE AGREEMENTS -- 7.2%
$50,000,000 First Boston Inc., 5.730% due
8/1/95;
Proceeds at maturity -
$50,007,959;
(Fully collateralized by U.S.
Treasury Notes,
8.500% due 7/15/97; Market value
- - $51,022,125) 50,000,000
8,207,000 Chemical Securities Inc., 5.769%
due 8/1/95;
Proceeds at maturity -
$8,208,315;
(Fully collateralized by U.S.
Treasury Notes,
7.375% due 11/15/97; Market
value -- $8,371,896) 8,207,000
==========================================================
== ========================================
TOTAL REPURCHASE AGREEMENTS
(Cost -- $58,207,000)
58,207,000
==========================================================
== ========================================
TOTAL INVESTMENTS -- 100%
(Cost -- $795,578,556*)
$807,266,462
==========================================================
== ========================================
</TABLE>
+ Security exempt from registration under Rule 144A of the
Securities Act of
1933. These securities may be resold in transactions
exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
16
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Description of Ratings -----------------------------------
- --------------------------------------------
All ratings are by Standard & Poor's Corporation, except
that those
identified by an asterisk(*) are rated by Moody's
Investors Services. The
definitions of the applicable rating symbols are set forth
below:
S&P's letter ratings may be modified by the addition of a
plus or a minus
sign, which is used to show relative standing within the
major rating
categories, except in the AAA-Prime Grade category.
BBB -- Bonds rated "BBB" are regarded as
having an adequate
capacity to pay interest and repay
principal. Whereas they
normally exhibit adequate protection
parameters, adverse
economic conditions or changing
circumstances are more
likely to lead to a weakened
capacity to pay interest and
repay principal for bonds in this
category than for bonds
in higher rated categories.
BB, B and CCC -- Bonds rated "BB" and "B" are
regarded, on balance, as
predominantly speculative with
respect to capacity to pay
interest and repay principal in
accordance with the terms
of the obligation. BB represents a
lower degree of
speculation than B, and CCC the
highest degree of
speculation. While such bonds will
likely have some
quality and protective
characteristics, these are
outweighed by large uncertainties or
major risk exposures
to adverse conditions.
C -- The rating "C" is reserved for
income bonds on which no
interest is being paid.
Moody's applies the numerical modifiers 1, 2 and 3 in each
generic rating
classification from Aa through B. The modifier 1 indicates
that the security
ranks in the higher end of its generic rating category;
the modifier 2
indicates a mid-range ranking; and the modifier 3
indicates that the issue
ranks in the lower end of its generic category.
Baa -- Bonds rated "Baa" are considered to
be medium grade
obligations; that is they are
neither highly protected nor
poorly secured. Interest payment and
principal security
appear adequate for the present but
certain protective
elements may be lacking or may be
characteristically
unreliable over any great length of
time. These bonds lack
outstanding investment
characteristics and may have
speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged
to have speculative
elements; their future cannot be
considered as well
assured. Often the protection of
interest and principal
payments may be very moderate and
thereby may not well
characterize bonds in this class.
B -- Bonds that are rated "B" generally
lack characteristics
of desirable investments. Assurance
of interest and
principal payment or of maintenance
of other terms of the
contract over any long period of
time may be small.
Caa -- Bonds that are rated "Caa" are of
poor standing. These
issues may be in default, or present
elements of danger
may exist with respect to principal
or interest.
Ca -- Bonds that are rated "Ca" represent
obligations which are
speculative in a high degree. Such
issues are often in
default or have other marked
shortcomings.
C -- Bonds that are rated "C" are the
lowest rated class of
bonds, and issues so rated can be
regarded as having
extremely poor prospects of ever
attaining any real
investment standing.
NR -- Indicates that the bond is not rated
by Standard & Poor's
Corporation or Moody's Investor
Services.
17
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------
Statement of Assets and Liabilities
July 31, 1995 --------------------------------------------
- -------------------------------------------
<S>
<C>
ASSETS:
Investments, at value (Cost -- $795,578,556)
$ 807,266,462
Receivable for Fund shares sold
2,120,949
Receivable for securities sold
6,283,565
Dividends and interest receivable
13,648,636
Other assets
1,340 ----------------------------------------------------
- -----------------------------------
Total Assets
829,320,952 ----------------------------------------------
- -----------------------------------------
LIABILITIES:
Payable for Fund shares purchased
169,692
Investment advisory fees payable
668,393
Administration fees payable
267,357
Distribution costs payable
606,846
Payable for securities purchased
5,255,014
Accrued expenses
439,265
Other liabilities
289,757 --------------------------------------------------
- -------------------------------------
Total Liabilities
7,696,324 ------------------------------------------------
- ---------------------------------------
Total Net Assets
$ 821,624,628
==========================================================
== ============================
NET ASSETS:
Par value of shares of beneficial interest
$ 73,975
Capital paid in excess of par value
1,057,765,655
Overdistributed net investment income
(61,531)
Accumulated net realized loss
(247,843,285)
Net unrealized appreciation on investments
11,689,814 -----------------------------------------------
- ----------------------------------------
Total Net Assets
$ 821,624,628
==========================================================
== ============================
Shares Outstanding:
Class A
28,531,134 -----------------------------------------------
----------
- ----------------------------
Class B
43,080,844 -----------------------------------------------
----------
- ----------------------------
Class C
541,014 --------------------------------------------------
-------
- ----------------------------
Class Y
928,254 --------------------------------------------------
-------
- ----------------------------
Class Z
893,841 --------------------------------------------------
-------
- ----------------------------
Net Asset Value:
Class A (and redemption price)
$11.10 ---------------------------------------------------
------
- ----------------------------
Class B*
$11.11 ---------------------------------------------------
------
- ----------------------------
Class C**
$11.11 ---------------------------------------------------
------
- ----------------------------
Class Y (and redemption price)
$11.10 ---------------------------------------------------
------
- ----------------------------
Class Z (and redemption price)
$11.09 ---------------------------------------------------
------
- ----------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.71% of net asset value per share)
$11.62
==========================================================
== ============================
</TABLE>
* Redemption price is NAV of Class B shares reduced by
4.50% if shares are
redeemed less than one year from initial purchase (See
Note 2).
** Redemption price is NAV of Class C shares reduced by
1.00% if shares are
redeemed within the first year of purchase.
See Notes to Financial Statements.
18
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- ---------------------------------------
Statement of Operations
For the Year Ended July 31, 1995 -------------------------
- ----------------------------------------------------------
- ----
<S>
<C>
INVESTMENT INCOME:
Interest
$ 79,116,032
Dividends
3,236,607 ------------------------------------------------
- ---------------------------------------
TOTAL INVESTMENT INCOME
82,352,639 -----------------------------------------------
- ----------------------------------------
EXPENSES:
Distribution fees (Note 2)
4,029,911
Investment advisory fees (Note 2)
3,706,659
Administration fees (Note 2)
1,482,663
Shareholder and system servicing fees
636,000
Registration fees
150,000
Shareholder communications
114,000
Custody
50,000
Audit and legal
32,500
Trustees' fees
10,800
Other
183,054 --------------------------------------------------
- -------------------------------------
TOTAL EXPENSES
10,395,587 -----------------------------------------------
- ----------------------------------------
NET INVESTMENT INCOME
71,957,052 -----------------------------------------------
- ----------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
OPTIONS, FUTURES AND FOREIGN CURRENCIES (NOTE 3):
Realized Loss From:
Securities transactions (excluding short-term
securities) (40,233,021)
Option contracts
(937,314)
Futures contracts
(623,440)
Foreign currency transactions
(52,767) -------------------------------------------------
- --------------------------------------
NET REALIZED LOSS
(41,846,542) ---------------------------------------------
- ------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year
(30,902,239)
End of year
11,689,814 -----------------------------------------------
- ----------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION
42,592,053 -----------------------------------------------
- ----------------------------------------
NET GAIN ON INVESTMENTS, OPTIONS, FUTURES
AND FOREIGN CURRENCIES
745,511 --------------------------------------------------
- -------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS
$ 72,702,563
==========================================================
== ============================
</TABLE>
See Notes to Financial Statements.
19
Smith Barney High Income Fund
<TABLE>
<CAPTION> ------------------------------------------------
- -------------------------------------------
Statements of Changes in Net Assets
For the Years Ended July 31, -----------------------------
- ----------------------------------------------------------
- ----
1995 1994
==========================================================
== ================================
<S>
<C> <C>
OPERATIONS:
Net investment income
$ 71,957,052 $ 67,533,971
Net realized gain (loss)
(41,846,542) 23,115,966
Increase (decrease) in
net unrealized appreciation
42,592,053 (78,041,218) --------------------------
- ----------------------------------------------------------
- -------
INCREASE IN NET ASSETS FROM OPERATIONS
72,702,563 12,608,719
- ----------------------------------------------------------
- ---------------------------------
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
(69,255,332) (65,287,929)
Overdistribution of net income
- -- (3,486,012)
Capital
(5,002,147) --
- ----------------------------------------------------------
- ---------------------------------
DECREASE IN NET ASSETS FROM
DISTRIBUTIONS TO SHAREHOLDERS
(74,257,479) (68,773,941)
- ----------------------------------------------------------
- ---------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares
285,162,914 250,364,968
Net value of shares issued for
reinvestment of dividends
44,650,818 38,534,658
Cost of shares reacquired
(251,291,059) (205,199,119)
- ----------------------------------------------------------
- ---------------------------------
INCREASE IN NET ASSETS FROM FUND
SHARE TRANSACTIONS
78,522,673 83,700,507
- ----------------------------------------------------------
- ---------------------------------
INCREASE IN NET ASSETS
76,967,757 27,535,285
NET ASSETS:
Beginning of year
744,656,871 717,121,586
- ----------------------------------------------------------
- ---------------------------------
END OF YEAR*
$821,624,628 $744,656,871
==========================================================
== ================================
*Includes overdistributed net investment
income of:
$(61,531) $(2,710,484)
==========================================================
== ================================
</TABLE>
See Notes to Financial Statements.
20
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Notes to Financial Statements ----------------------------
- ---------------------------------------------------
1. Significant Accounting Policies
The Smith Barney High Income Fund ("Fund"), a
separate investment fund of
the Smith Barney Income Funds ("Trust"), a Massachusetts
business trust, is
registered under the Investment Company Act of 1940, as
amended, as a
diversified, open-end management investment company. The
Trust consists of the
Fund and six other separate investment funds: Smith Barney
Exchange Reserve
Fund, Smith Barney Premium Total Return Fund, Smith Barney
Convertible Fund,
Smith Barney Tax-Exempt Income Fund, Smith Barney
Diversified Strategic Income
Fund and Smith Barney Utilities Fund. The financial
statements and financial
highlights for the other funds are presented in separate
annual reports.
The significant accounting policies consistently
followed by the Trust are:
(a) securities transactions are accounted for on trade
date; (b) securities
traded on national securities markets are valued at the
closing price on such
markets; securities traded in the over-the-counter market
and listed securities
for which no sales price was reported and U.S. Government
and Government Agency
obligations are valued at bid price, or in the absence of
a recent bid price, at
the bid equivalent obtained from one or more of the major
market makers; (c)
short-term securities that have a maturity of more than 60
days are valued at
prices based on market quotations for securities of
similar type, yield and
maturity; (d) short-term investments that have a maturity
of 60 days or less are
valued at cost plus accreted discount, or minus amortized
premium, as
applicable; (e) the accounting records are maintained in
U.S. dollars. All
assets and liabilities denominated in foreign currencies
are translated into
U.S. dollars based on the rate of exchange of such
currencies against U.S.
dollars on the date of valuation. Purchases and sales of
securities, and income
and expenses are translated at the rate of exchange quoted
on the respective
date that such transactions are recorded. Differences
between income and expense
amounts recorded and collected or paid are adjusted when
reported by the
custodian bank; (f) dividend income is recorded on ex
dividend date and interest
income is recorded on the accrual basis; (g) gains or
losses on the sale of
securities are recorded on the identified cost basis; (h)
dividends and
distributions to shareholders are recorded on the ex
dividend date; (i) direct
expenses are charged to each fund and each class;
management
21
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
fees and general fund expenses are allocated on the basis
of the relative net
assets of each class; (j) in accordance with Statement of
Position 93-2
Determination, Disclosure, and Financial Statement
Presentation of Income, ----------------------------------
- ---------------------------------------
Capital Gain, and Return of Capital Distributions by
Investment Companies, book -------------------------------
- ------------------------------------------
and tax basis differences relating to shareholder
distributions and other
permanent book and tax difference are reclassified to paid
in capital. As of
July 31, 1995, the cumulative effect of such differences,
totaling $5,002,147,
were reclassified to paid-in capital from accumulated net
investment loss. Net
investment income, net realized gains, and net assets were
not affected by this
change; and (k) the Fund intends to comply with the
applicable provisions of the
Internal Revenue Code of 1986, as amended, pertaining to
regulated investment
companies and to make distributions of taxable income
sufficient to relieve it
from substantially all Federal income and excise taxes.
In addition, the Fund from time to time may enter
into
options and/or
futures contracts to hedge market risk.
2. Investment Advisory Agreement,
Administration Agreement and Other
Transactions
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment advisor
to the Fund. The Fund
pays SBMFM an advisory fee calculated at an annual rate of
0.50% of the average
daily net assets; this fee is calculated daily and paid
monthly.
SBMFM acts as the Fund's administrator for which the
Fund pays a fee
calculated at an annual rate of 0.20% of the average daily
net assets; this fee
is calculated daily and paid monthly.
In addition, The Boston Company Advisors, Inc.
("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank
Corporation, acted as
administrator to the Fund. The Fund paid Boston Advisors a
portion of its
administration fee at a rate agreed upon from time to time
between SBMFM and
Boston Advisors. As of March 27, 1995 this relationship
was terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as
22
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
distributor of Fund shares and primary broker for its
portfolio agency
transactions. For the year ended July 31, 1995, SB
received brokerage
commissions of $97,439 and sales charges of approximately
$457,100 of sales of
the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC")
of 4.50% on Class B
shares if redemption occurs less than one year from
initial purchase and
thereafter declines by 0.50% the first year after purchase
and by 1.00% per year
until no CDSC is incurred. Class C shares have a 1.00%
CDSC if redemption occurs
within the first year from the date such investment was
made. For the year ended
July 31, 1995, CDSC's of approximately $1.0 million were
paid to SB.
Pursuant to a Distribution Plan, the Fund pays a
distribution fee with
respect to Class B and C shares calculated at the annual
rate of 0.50% and
0.45%, respectively, of the average daily net assets for
each class. The Fund
also pays a service fee with respect to Class A, B and C
shares calculated at
the annual rate of 0.25% of the average daily net assets
of each class,
respectively.
All officers and one trustee of the Fund are
employees of SB.
3. Investments
During the year ended July 31, 1995, the aggregate
cost of purchases and
proceeds from sales of investments (including maturities,
but excluding short-
term securities) was $449,462,970 and $422,647,001,
respectively.
At July 31, 1995, the net unrealized appreciation of
investments for
Federal income tax purposes consisted of the following:
<TABLE>
<S>
<C>
==========================================================
== ====================
Gross unrealized appreciation
$ 26,010,005
Gross unrealized depreciation
(14,322,099) ---------------------------------------------
- ----------------------------------
Net unrealized appreciation
$ 11,687,906
==========================================================
== ====================
</TABLE>
4. Capital Loss Carryforward
At July 31, 1995 the Fund had for Federal tax
purposes unused capital loss
carryforwards of $219,440,875 available, subject to
certain limitations, to
offset future capital gains. To the extent that these
23
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
carryforward losses are used to offset capital gains, it
is
probable that the
gains so offset will not be distributed. The amount and
the year of expiration
for each loss carryforward is indicated below:
<TABLE>
<CAPTION>
Expiration Amount
==========================================================
== ====================
<S> <C>
<C>
Loss Carryforward 7/31/96
$ 3,088,904
7/31/97
39,893,232
7/31/98
68,549,898
7/31/99
84,656,140
7/31/00
9,861,336
7/31/03
13,391,365
==========================================================
== ====================
</TABLE>
5. Futures Contracts
Initial margin deposits made upon entering into
futures contracts are
recognized as assets due from the broker (the Fund's agent
in acquiring the
futures position). During the period the futures contract
is open, changes in
the value of the contract are recognized as unrealized
gains or losses by
"marking to market" on a daily basis to reflect the market
value of the contract
at the end of each day's trading. Variation margin
payments are made or received
and recognized as assets due from or liabilities due to
broker, depending upon
whether unrealized gains or losses are incurred. When the
contract is closed,
the Fund records a realized gain or loss equal to the
difference between the
proceeds from (or cost of) the closing transactions and
the Fund's basis in the
contract.
As of July 31, 1995, the Fund had no open futures
contracts.
6. Repurchase Agreements
The Fund purchases (and its custodian takes
possession of) U.S. Government
securities from banks and securities dealers subject to
agreements to resell the
securities to the sellers at a future date (generally, the
next business day) at
an agreed-upon higher repurchase price. The Fund requires
continual maintenance
of the market value of the collateral in amounts at least
equal to the
repurchase price.
24
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
7. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of
beneficial interest of
each class in each separate series with a par value of
$0.001 per share. The
Fund has the ability to issue multiple classes of shares.
Each share of a class
represents an identical interest and has the same rights,
except that each class
bears certain direct expenses, including those
specifically related to the
distribution of its shares. Effective November 7, 1994,
the Fund adopted a new
class structure, renaming the former Class C and D shares
as Class Z and C
shares, respectively. At July 31, 1995, total paid-in
capital amounted to the
following for each class:
<TABLE>
<CAPTION>
Class A Class B
Class C Class Y Class Z
==========================================================
== =====================================================
<S> <C> <C>
<C> <C> <C>
Total Paid-in Capital $341,737,991
$687,681,219 $5,863,317 $10,151,137
$12,405,966
==========================================================
== =====================================================
</TABLE>
Transactions in shares of each class were as
follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
July 31, 1995
July 31, 1994
----------------------------
- --- -----------------------------
Shares Amount
Shares Amount
==========================================================
== ====================================
<S> <C> <C>
<C> <C>
Class A
Shares sold 12,886,749
$
139,781,741 4,325,503 $ 50,678,736
Shares issued on
reinvestment 1,614,753
17,374,914 1,107,951 13,065,031
Shares redeemed (6,015,698)
(64,660,153) (5,572,672) (65,666,067)
- ----------------------------------------------------------
- -------------------------------------
Net Increase (Decrease) 8,485,804 $
92,496,502 (139,218) $ (1,922,300)
==========================================================
== ====================================
Class B
Shares sold 11,842,820 $
128,268,988 16,441,359 $195,368,628
Shares issued on
reinvestment 1,944,542
20,943,077 1,985,753 23,392,959
Shares redeemed (16,367,117)
(177,858,172) (10,131,679)
(119,660,386)
- ----------------------------------------------------------
- -------------------------------------
Net Increase (Decrease) (2,579,755) $
(28,646,107) 8,295,433 $ 99,101,201
==========================================================
== ====================================
</TABLE>
25
Smith Barney High Income Fund
- ----------------------------------------------------------
- ---------------------
Notes to Financial Statements (continued) ----------------
- ----------------------------------------------------------
- -----
<TABLE>
<CAPTION>
Year Ended
Year Ended
July 31, 1995*
July 31, 1994
--------------------------
- --- ------------------------------
Shares
Amount Shares Amount
==========================================================
== ======================================
<S> <C> <C>
<C> <C>
Class C+
Shares sold 619,375 $
6,712,636 -- --
Shares issued on
reinvestment 10,332
112,382 -- -
- -
Shares redeemed (88,693)
(954,980) --
- --
- ----------------------------------------------------------
- ---------------------------------------
Net Increase 541,014 $
5,870,038 -- -
==========================================================
== ======================================
Class Y
Shares sold 1,388,740
$10,167,461 -- -Shares
issued on
reinvestment 7,966
5,132,628 -- -Shares
redeemed (468,452) (5,148,953)
- -- -
- ----------------------------------------------------------
- ---------------------------------------
Net Increase 928,254
$10,151,136 -- -
==========================================================
== ======================================
Class Z++
Shares sold 21,215 $
232,088 358,636 $ 4,317,604
Shares issued on
reinvestment 101,127
1,087,817 174,500 2,076,668
Shares redeemed (247,365)
(2,668,801) (1,688,775) (19,872,666) ---------
- ----------------------------------------------------------
- ------------------------------
Net Decrease (125,023)
$(1,348,896) (1,155,639) $(13,478,394)
==========================================================
== ======================================
</TABLE>
* For Class C and Y shares, transactions are for the
periods from August 24,
1994 (inception date) to July 31, 1995 and from November
7, 1994 (inception
date) to July 31, 1995, respectively.
+ On November 7, 1994 the former Class D shares were
renamed Class C shares.
++ On November 7, 1994 the former Class C shares were
renamed Class Z shares.
26
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Financial Highlights -------------------------------------
- ------------------------------------------
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS A SHARES
1995 1994 1993(1)
==========================================================
== =====================================================
<S>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
$11.16 $12.01 $11.03
- ----------------------------------------------------------
- -----------------------------------------------------
INCOME FROM OPERATIONS:
Net investment income
1.08 1.08 0.75
Net realized and unrealized gain (loss)
on investments
(0.02) (0.81) 1.09
- ----------------------------------------------------------
- -----------------------------------------------------Total
Income From Operations
1.06 0.27 1.84
- ----------------------------------------------------------
- ------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income
(1.05) (1.06) (0.82)
Overdistribution of net income
- -- (0.06) (0.04)
Capital
(0.07) -- --
- ----------------------------------------------------------
- -----------------------------------------------------Total
Distributions
(1.12) (1.12) (0.86)
- ----------------------------------------------------------
- ------------------------------------------------------
NET ASSET VALUE, END OF YEAR
$11.10 $11.16 $12.01
- ----------------------------------------------------------
- -----------------------------------------------------TOTAL
RETURN
10.28% 2.11% 17.29%++
- ----------------------------------------------------------
- ------------------------------------------------------
NET ASSETS, END OF YEAR (000S)
$316,716 $233,678 $242,371
- ----------------------------------------------------------
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
1.11% 1.11% 1.16%+
Net investment income
10.03 9.27 9.52+
- ----------------------------------------------------------
- -----------------------------------------------------
PORTFOLIO TURNOVER RATE
60% 98% 95%
==========================================================
== =====================================================
</TABLE>
<TABLE>
<CAPTION>
CLASS B SHARES 1995
1994 1993 1992 1991
==========================================================
== =====================================================
<S> <C>
<C>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.16
$12.01 $11.15 $10.05 $10.59 -----
- -------------------------------------------------------
- ---------------------------------------------------
- -INCOME FROM OPERATIONS:
Net investment income 1.03
1.02 1.08 1.11 1.27
Net realized and unrealized
gain (loss) on investments (0.02)
(0.81) 0.88 1.16
(0.52)
- ----------------------------------------------------------
- -----------------------------------------------------Total
Income From Operations 1.01
0.21 1.96 2.27 0.75
- ----------------------------------------------------------
- ------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income (0.99)
(1.00) (1.05) (1.11)
(1.27)
Overdistribution of net income --
(0.06) (0.05) -- -
- -
Capital
(0.07)
- -- -- (0.06) (0.02)
- ----------------------------------------------------------
- -----------------------------------------------------Total
Distributions (1.06)
(1.06) (1.10) (1.17) (1.29)
- ----------------------------------------------------------
- ------------------------------------------------------
NET ASSET VALUE, END OF YEAR $11.11
$11.16 $12.01 $11.15 $10.05
- ----------------------------------------------------------
- -----------------------------------------------------TOTAL
RETURN 9.77%
1.60% 18.55% 23.86% 8.82%
- ----------------------------------------------------------
- ------------------------------------------------------
NET ASSETS, END OF YEAR (000S) $478,499
$509,608 $448,639 $304,035 $238,588
- ----------------------------------------------------------
- -----------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.61%
1.60% 1.66% 1.65% 1.75%
Net investment income 9.52
8.77 9.02 10.52 13.30
- ----------------------------------------------------------
- -----------------------------------------------------
PORTFOLIO TURNOVER RATE 60%
98% 95% 137% 112%
==========================================================
== =====================================================
</TABLE>
(1) For the period from November 6, 1992 (inception date)
to July 31, 1993.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
27
Smith Barney High Income Fund ----------------------------
- --------------------------------
- --------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS C SHARES (1)
1995(2)
==========================================================
== ====================
<S>
<C>
NET ASSET VALUE, BEGINNING OF YEAR
$10.90 ---------------------------------------------------
- ----------------------------
INCOME FROM OPERATIONS:
Net investment income
0.95
Net realized and unrealized gain on investments
0.23 -----------------------------------------------------
- --------------------------
Total Income From Operations
1.18 -----------------------------------------------------
- --------------------------
LESS DISTRIBUTIONS FROM:
Net investment income
(0.90)
Overdistribution of net income
- --
Capital
(0.07) ---------------------------------------------------
- ----------------------------
Total Distributions
(0.97) ---------------------------------------------------
- ----------------------------
NET ASSET VALUE, END OF YEAR
$11.11 ---------------------------------------------------
- ----------------------------
TOTAL RETURN
11.50%++ -------------------------------------------------
- ------------------------------
NET ASSETS, END OF YEAR (000S)
$6,011 ---------------------------------------------------
- ----------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
1.56%+
Net investment income
9.58+ ----------------------------------------------------
- ---------------------------
PORTFOLIO TURNOVER RATE
60%
==========================================================
== ====================
</TABLE>
(1) On November 7, 1994, the former Class D shares were
renamed Class C shares.
(2) For the period from August 24, 1994 (inception date)
to July 31, 1995.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
28
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS Y SHARES
1995(1)
==========================================================
== ====================
<S>
<C>
NET ASSET VALUE, BEGINNING OF YEAR
$10.88 ---------------------------------------------------
- ----------------------------
INCOME FROM OPERATIONS:
Net investment income
0.09
Net realized and unrealized gain on investments
0.23 -----------------------------------------------------
- --------------------------
Total Income From Operations
0.32 -----------------------------------------------------
- --------------------------
LESS DISTRIBUTIONS FROM:
Net investment income
(0.03)
Overdistribution of net income
- --
Capital
(0.07) ---------------------------------------------------
- ----------------------------
Total Distributions
(0.10) ---------------------------------------------------
- ----------------------------
NET ASSET VALUE, END OF YEAR
$11.10 ---------------------------------------------------
- ----------------------------
TOTAL RETURN
2.91%++ --------------------------------------------------
- -----------------------------
NET ASSETS, END OF YEAR (000S)
$10,306 --------------------------------------------------
- -----------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
0.86%+
Net investment income
10.28+ ---------------------------------------------------
- ----------------------------
PORTFOLIO TURNOVER RATE
60%
==========================================================
== ====================
</TABLE>
(1) For the period from April 28, 1995 (inception date) to
July 31, 1995.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
29
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Financial Highlights (continued) -------------------------
- ------------------------------------------------------
FOR A SHARE OF EACH CLASS OF BENEFICIAL INTEREST
OUTSTANDING THROUGHOUT EACH
YEAR:
<TABLE>
<CAPTION>
CLASS Z SHARES(1)
1995 1994 1993(2)
==========================================================
== =======================================
<S>
<C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR
$11.16 $12.01 $11.03 ------------------
- ----------------------------------------------------------
- ----------------------
INCOME FROM OPERATIONS:
Net investment income
1.11 1.10 0.79
Net realized and unrealized gain (loss)
on investments
(0.03) (0.80) 1.07 -------------------
- ----------------------------------------------------------
- ---------------------
Total Income From Operations
1.08 0.30 1.86 --------------------
- ----------------------------------------------------------
- --------------------
LESS DISTRIBUTIONS FROM:
Net investment income
(1.08) (1.09) (0.84)
Overdistribution of net income
- -- (0.06) (0.04)
Capital
(0.07) -- ----------------------
- ----------------------------------------------------------
- -------------------
Total Distributions
(1.15) (1.15) (0.88) ------------------
- ----------------------------------------------------------
- ----------------------
NET ASSET VALUE, END OF YEAR
$11.09 $11.16 $12.01 ------------------
- ----------------------------------------------------------
- ----------------------
TOTAL RETURN
10.55% 2.37% 17.47%++ ----------------
- ----------------------------------------------------------
- ------------------------
NET ASSETS, END OF YEAR (000S)
$9,917 $11,370 $26,112 ------------------
- ----------------------------------------------------------
- ----------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses
0.86% 0.77% 0.81%+
Net investment income
10.28 9.61 9.88+ ------------------
- ----------------------------------------------------------
- ----------------------
PORTFOLIO TURNOVER RATE
60% 98% 95%
==========================================================
== =======================================
</TABLE>
(1) On November 7, 1994, the former Class C shares were
renamed Class Z shares.
(2) For the period from November 6, 1992 (inception date)
to July 31, 1993.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
30
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Additional Information -----------------------------------
- -------------------------
- --------------------
Change in Independent Auditor: On October 20, 1994,
based upon the
recommendation of the Audit Committee of the Fund, the
Board of Trustees
determined not to retain Coopers & Lybrand L.L.P.
("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat
Marwick LLP. During
the Fund's two most recent fiscal years, Coopers &
Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor
were the reports
qualified or modified as to uncertainty, audit scope, or
accounting principles.
Further, during this same period there were no
disagreements with Coopers &
Lybrand on any matter of accounting principles or
practices, financial statement
disclosure, or auditing scope or procedure, which
disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have
caused it to make reference
to the subject matter of such disagreements in connection
with its audit
reports. The Fund has requested Coopers & Lybrand to
provide a letter to the
Securities and Exchange Commission stating whether Coopers
& Lybrand agrees with
the foregoing statements, and to provide the Fund with a
copy of such letter. A
copy of this letter is available upon request by calling
the Fund at
(212) 723-9218.
31
Smith Barney High Income Fund ----------------------------
- ---------------------------------------------------
Independent Auditors' Report -----------------------------
- --------------------------------------------------
The Shareholders and Board of Trustees of
Smith Barney High Income Fund of
Smith Barney Income Funds:
We have audited the accompanying statement of assets
and liabilities,
including the schedule of investments, of Smith Barney
High Income Fund of Smith
Barney Income Funds as of July 31, 1995, and the related
statement of
operations, statement of changes in net assets, and
financial highlights for the
year then ended. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our
responsibility is to express an
opinion on these financial statements and financial
highlights based on our
audit. The statement of changes in net assets for the year
ended July 31, 1994
and the financial highlights for each of the years in the
four-year period then
ended, were audited by other auditors whose report
thereon, dated September 19,
1994, expressed an unqualified opinion on that statement
of changes in net
assets and those financial highlights.
We conducted our audit in accordance with generally
accepted auditing
standards. Those standards require that we plan and
perform the audit to obtain
reasonable assurance about whether the financial
statements and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of July
31, 1995, by correspondence with the custodian. An audit
also includes assessing
the accounting principles used and significant estimates
made by management, as
well as evaluating the overall financial statement
presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly,
in all material respects, the financial position of Smith
Barney High Income
Fund of Smith Barney Income Funds as of July 31, 1995,
and the results of its
operations, changes in its net assets and financial
highlights for the year then
ended, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
New York, New York
September 22, 1995
32
Smith Barney
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 and Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
John C. Bianchi
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Smith Barney -----------
-
A Member of
TravelersGroup [LOGO APPEARS HERE]
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of
the shareholders of
Smith Barney 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 and expenses as well as other pertinent
information.
Smith Barney
High Income Fund
388 Greenwich Street
New York, New York 10013
FD 0429 9/95
- ----------------------------------------------------------
- ----------------------
ANNUAL REPORT
- ----------------------------------------------------------
- ----------------------
1995
1995
1995
1995
1995
Smith Barney
Tax-Exempt
Income Fund
--------------------------
July 31, 1995
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- ----------------------------------------------------------
- ----------------------
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Dear Shareholder:
We are pleased to provide you with the annual report for
the Smith Barney
Tax-Exempt Income Fund for the year ended July 31, 1995.
After declining
precipitously during most of 1994, bond prices rebounded
during the first half
of 1995. For the year ended July 31, 1995, the Fund
produced a total return of
6.29% for Class A shares. Investors owning Class A shares
received tax-exempt
distributions of $1.00 per share and a capital gain
distribution of $0.02.
Market and Economic Overview
After a volatile 1994, both the fixed-income and equity
markets improved
dramatically in the first half of 1995. The rally in the
bond market started in
late November 1994 and was driven by a combination of
events. These included a
flight to U.S. Treasuries due to the Mexican peso crisis,
the huge Republican
victory, and the purchase of $50 billion of U.S. Treasury
notes by a number of
central banks in an effort to support a falling U.S.
dollar. In addition,
starting early in 1995, signs began to appear that a
slowdown in economic growth
- -- or a "soft landing" -- was occurring. This curtailment
of growth was the goal
of the Federal Reserve Board's series of seven hikes in
short-term interest
rates, which began in February 1994 and continued over a
13-month period.
The tax-exempt sector of the fixed-income market, while
improving over its 1994
results, did not do as well as Treasuries or the stock
market. Several factors
contributed to this underperformance, but the primary
influence was the issue of
tax reform. Various proposals from members of Congress
would change the tax
system to a flat tax from the current graduated system.
Adoption of a flat tax
would diminish the advantages of tax exemption for
municipal bonds. While many
market participants believe that a flat tax has little
chance of enactment, the
topic will be with us for the foreseeable future, and we
cannot speculate what
might happen to the tax system in 1996 or later.
To a lesser extent, concerns about the safety of the
municipal bond market,
after the Orange County, California bankruptcy filing in
late 1994, dampened
tax-exempt bond performance. In addition, an extremely
vigorous equity market
provided effective competition for municipals.
1
<PAGE>
Investment Strategy
As we have said, the Federal Reserve, in its effort to
slow growth in an
overheating economy, had raised short-term rates during
most of 1994 and once in
early 1995. In July 1995, Federal Reserve Chairman, Alan
Greenspan, believing
that the economy had achieved a soft landing, reduced
short-term rates from
6.00% to 5.75%. We expect that the Federal Reserve will
probably reduce rates
again some time later this year. Accordingly, we have
maintained a defensive
approach to the market for the past six months with an
emphasis on higher
interest rate issues which protect the Fund's portfolio
from some of the price
fluctuations that we have seen. We are also maintaining
the Fund's average
maturity at approximately 22 years in an effort to
maximize the tax-exempt
income earned by the Fund.
Outlook
Looking forward to the remainder of 1995, we believe that
the market will
continue to trade in the range that we have seen since the
Federal Reserve's
last interest-rate reduction. In our opinion, the
municipal market is very
attractive right now, offering 85% to 90% of the yield of
bonds with comparable
maturities in the Treasury market. When adjusted for their
federally tax-exempt
status, municipal bonds provide investors with an even
more attractive yield.
We thank you for your confidence in our investment
management and encourage you
to contact us or your Smith Barney Financial Consultant if
you have any
questions about the Fund.
Sincerely,
/s/ Heath B. McLendon /s/ Lawrence
T. McDermott
Heath B. McLendon Lawrence T.
McDermott
Chairman and Vice President
and
Chief Executive Officer Investment
Officer
August 18, 1995
2
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Historical Performance -- Class A Shares
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital
Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns(1)
==========================================================
===========================
<S> <C> <C> <C> <C>
<C> <C>
7/31/95 $17.26 $17.25 $1.00 $0.02
$0.04 6.42%
- ----------------------------------------------------------
- ---------------------------
7/31/94 18.24 17.26 1.06 0.13
0.00 1.14
- ----------------------------------------------------------
- ---------------------------
Inception*
- 7/31/93 17.45 18.24 0.83 0.16
0.00 10.24
==========================================================
===========================
Total $2.89 $0.31
$0.04
==========================================================
===========================
</TABLE>
- ----------------------------------------------------------
- ----------------------
Historical Performance -- Class B Shares
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital
Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns(1)
==========================================================
===========================
<S> <C> <C> <C> <C>
<C> <C>
7/31/95 $17.26 $17.26 $ 0.91 $0.02
$0.04 5.91%
- ----------------------------------------------------------
- ---------------------------
7/31/94 18.24 17.26 0.96 0.13
0.00 0.60
- ----------------------------------------------------------
- ---------------------------
7/31/93 18.00 18.24 1.02 0.17
0.00 8.28
- ----------------------------------------------------------
- ---------------------------
7/31/92 16.97 18.00 1.04 0.14
0.00 13.50
- ----------------------------------------------------------
- ---------------------------
7/31/91 16.98 16.97 1.10 0.11
0.00 7.40
- ----------------------------------------------------------
- ---------------------------
7/31/90 17.31 16.98 1.12 0.03
0.00 4.95
- ----------------------------------------------------------
- ---------------------------
7/31/89 16.44 17.31 1.13 0.01
0.00 12.68
- ----------------------------------------------------------
- ---------------------------
7/31/88 16.48 16.44 1.13 0.06
0.00 7.32
- ----------------------------------------------------------
- ---------------------------
7/31/87 16.30 16.48 1.10 0.00
0.00 7.90
- ----------------------------------------------------------
- ---------------------------
Inception*
- 7/31/86 15.00 16.30 1.04 0.00
0.00 15.89
==========================================================
===========================
Total $10.55 $0.67
$0.04
==========================================================
===========================
</TABLE>
- ----------------------------------------------------------
- ----------------------
Historical Performance -- Class C Shares
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital
Gain Return of Total
Year Ended of Year of Year Dividends
Distributions Capital Returns(1)
==========================================================
===========================
<S> <C> <C> <C> <C>
<C> <C>
Inception*
- 7/31/95 $15.83 $17.25 $0.62 $0.02
$0.04 13.45%
==========================================================
===========================
</TABLE>
It is the Funds' policy to distribute dividends monthly
and capital gains, if
any, annually.
3
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Average Annual Total Return
- ----------------------------------------------------------
- ----------------------
Without
Sales Charge(1)
--------------
- --------------------
Class A
Class B Class C
==========================================================
======================
Year Ended 7/31/95 6.42%
5.91% N/A
- ----------------------------------------------------------
- ----------------------
Five Years Ended 7/31/95 N/A
7.05 N/A
- ----------------------------------------------------------
- ----------------------
Inception* through 7/31/95 6.46
8.47 13.45%
- ----------------------------------------------------------
- ----------------------
With
Sales Charge(2)
--------------
- --------------------
Class A
Class B Class C
==========================================================
======================
Year Ended 7/31/95 2.16%
1.41% N/A
- ----------------------------------------------------------
- ----------------------
Five Years Ended 7/31/95 N/A
6.90 N/A
- ----------------------------------------------------------
- ----------------------
Inception* through 7/31/95 4.87
8.47 12.45%
- ----------------------------------------------------------
- ----------------------
- ----------------------------------------------------------
- ----------------------
Cumulative Total Return
- ----------------------------------------------------------
- ----------------------
Without Sales Charge(1)
--------------
- -------------------
Class A (Inception* through 7/31/95)
18.64%
- ----------------------------------------------------------
- ----------------------
Class B (Inception* through 7/31/95)
123.18
- ----------------------------------------------------------
- ----------------------
Class C (Inception* through 7/31/95)
13.45
- ----------------------------------------------------------
- ----------------------
(1) Assumes reinvestment of all dividends and capital
gain distributions at net
asset value and does not reflect deduction of the
applicable sales charge
with respect to Class A shares or the applicable
contingent deferred sales
charges ("CDSC") with respect to Class B and Class C
shares.
(2) Assumes reinvestment of all dividends and capital
gain distributions at net
asset value. In addition, Class A shares reflect the
deduction of the
maximum initial sales charge of 4.00% and Class B
shares reflect the
deduction of a 4.50% CDSC which applies if shares are
redeemed less than
one year from initial purchase. This CDSC declines by
0.50% the first year
after purchase and by 1.00% per year thereafter until
no CDSC is incurred.
Class C shares reflect the deduction of a 1.00% CDSC
which applies if
shares are redeemed within the first year of
purchase.
* Inception dates for Class A, B and C shares are
November 6, 1992, September
16, 1985 and November 17, 1994, respectively.
4
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Historical Performance
- ----------------------------------------------------------
- ----------------------
Growth of $10,000 Invested in Class B
Shares of
the Smith Barney Tax-Exempt Income Fund
vs.
the Lehman Municipal Bond Index +
(unaudited)
- ----------------------------------------------------------
- ----------------------
September 1985 -- July 1995
[The table below was represented as a line graph in
the printed material]
Smith Barney Lehman Municipal
Tax-Exempt Fund Bond Index
--------------- ----------
9/16/85 10000 10000
7/86 11589 11699
7/87 12504 12760
7/88 13419 13657
7/89 15120 15319
7/90 15869 16381
7/91 17043 17811
7/92 19343 20259
7/93 20944 22050
7/94 21069 22461
7/95 22287 24231
+ Hypothetical illustration of $10,000 invested in
Class B shares at
inception on September 16, 1985, assuming
reinvestment of dividends and
capital gains, if any, at net asset value through
July 31, 1995. The Lehman
Municipal Bond Index is a broad-based index which
includes about 8,000
tax-free bonds and reflects approximately $300
billion of market
capitalization. The index is unmanaged and it is not
subject to the same
management and trading expenses as a mutual fund. The
performance of the
Fund's other classes may be greater or less than the
Class B shares'
performance indicated on this chart, depending on
whether greater or lesser
sales charges and fees were incurred by shareholders
investing in other
classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and
redemption value may be more or less than the
original cost. No adjustment
has been made for shareholder tax liability on
dividends or capital gains.
5
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Portfolio Highlights (unaudited)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
Portfolio Breakdown
[The table below was represented as a pie graph in the
printed material]
Education 4.0%
Water/Sewer 2.5%
General Obligation 10.4%
Utility 17.2%
Hospital 12.4%
Transportation 8.4%
Housing 9.4%
Pollution Control 17.2%
Industrial Development 10.1%
Miscellaneous 7.6%
Life Care Systems 0.8%
Top Five States Represented
Percentage of
State
Total Investments
==========================================================
======================
Texas
10.7%
Pennsylvania
9.8
Georgia
5.8
New Jersey
5.7
New York
5.3
Summary of Municipal Bonds and Short-Term
Tax-Exempt Investments by Combined Ratings
Standard &
Percentage of
Moody's or Poor's
Total Investments
==========================================================
======================
Aaa AAA
40.2%
Aa AA
8.5
A A
19.5
Baa BBB
19.8
Ba BB
4.5
B B
0.8
NR NR
6.7
6
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
MUNICIPAL BONDS AND NOTES -- 100.0%
Alabama -- 0.6%
<C> <C> <S>
<C>
$ 500,000 Aa* Alabama Special Care
Facilities Finance Authority,
(Daughters of Charity
Health Systems), Hospital Revenue,
10.125% due 11/1/15
$ 516,250
3,000,000 AAA Huntsville, AL Health Care
Facilities Authority, Series A,
MBIA-Insured, 6.375%
due 6/1/12 3,086,250
2,500,000 AAA Morgan County-Decatur, AL
Healthcare Facilities,
Decatur General
Hospital, CO LEE-Insured,
6.250% due 3/1/13
2,562,500
- ----------------------------------------------------------
- -------------------------------------------------------
6,165,000
- ----------------------------------------------------------
- -------------------------------------------------------
Alaska -- 0.6%
Alaska State Housing
Finance Corporation:
2,250,000 A+ Series A, 6.600% due
12/1/23 2,435,625
840,000 AAA Series B, Veteran's
Mortgage Purchase,
5.875% due 12/1/35
772,800
3,000,000 AA- Valdez, AK Marine Terminal
Revenue, (Pipelines Inc. Project),
Series A, 5.800% due
8/1/25 2,805,000
- ----------------------------------------------------------
- -------------------------------------------------------
6,013,425
- ----------------------------------------------------------
- -------------------------------------------------------
Arizona -- 2.1%
1,000,000 Aa* Arizona Educational Loan
Marketing Corporation,
6.375% due 9/1/05
1,022,500
850,000 Aaa* Arizona Health Facilities
Authority, Hospital Revenue,
(St. Luke's Hospital),
Series A, 10.125% due 11/1/15 879,750
1,170,000 AAA Arizona State, COP, FSA-
Insured, 6.625% due 9/1/08 1,251,900
1,000,000 AAA Arizona State, COP,
Refunding Revenue Bonds,
FSA-Insured, 6.500% due
3/1/08 1,065,000
70,000 AAA Arizona State Municipal
Financing, COP, Series 10,
BIG-Insured, (Pre-
refunded -- Escrowed with U.S.
Government Securities
to 8/1/97 Call @ 101),
7.900% due 8/1/17(b)
75,863
1,000,000 BBB Gila County, AZ IDA, PCR,
Series 1987, (ASARCO Inc.
Project), 8.900% due
7/1/06 1,093,750
1,850,000 AAA Maricopa County, AZ IDA,
Mortgage Loan, Multi-Family
Housing Revenue, Series
A, FHA-Insured,
5.900% due 7/1/24
1,757,500
5,000,000 BB Maricopa County, AZ PCR,
Public Service
Company, Palo Verde,
Series A, 6.375% due 8/15/23 4,756,250
1,300,000 AAA Maricopa County, AZ School
District, Fountain Hills,
No. 98, FGIC-Insured,
6.625% due 7/1/10 1,379,625
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Arizona -- 2.1% (continued)
<C> <C> <S>
<C>
$6,500,000 BBB Navajo County, AZ PCR,
Arizona Public Service
Company, Series A,
5.875% due 8/15/28 $ 6,053,125
364,000 NR Peoria, AZ IDA, (Sierra
Winds Life Care Inc.),
5.000% due 11/1/17
309,400
655,000 NR Pinal County, AZ IDR,
(Casa Grande Regional
Medical Center),
9.000% due 12/1/13
677,925
- ----------------------------------------------------------
- -------------------------------------------------------
20,322,588
- ----------------------------------------------------------
- -------------------------------------------------------
Arkansas -- 0.1%
1,000,000 AAA Arkansas State Development
Authority, Single-
Family Mortgage
Revenue, Series A, 6.200% due 7/1/15
998,750
- ----------------------------------------------------------
- -------------------------------------------------------
California -- 4.2%
4,000,000 A- Burbank, CA Redevelopment
Agency, Series A,
(Golden State
Redevelopment Project), 6.250% due 12/1/24
3,750,000
5,000,000 AA California Health
Facilities Finance Authority, Kaiser
Permanente, 5.550% due
8/15/25 4,493,750
1,500,000 A+ California Housing Finance
Agency Revenue, Multi-Unit
Rental Housing, Series
B-II, 6.700% due 8/1/15 1,530,000
2,250,000 A California State Public
Works Board, Lease Revenue,
(University of
California Project), 5.500% due 6/1/21
2,036,250
2,500,000 AAA California Statewide
Community Development Authority
Revenue, COP, Sutter
Health, AMBAC-Insured,
6.125% due 8/15/22
2,459,375
2,000,000 AAA Central Coast Water
Project, (California State Water Project),
AMBAC-Insured, 6.600%
due 10/1/22 2,100,000
2,600,000 BBB- Central Valley Finance
Authority, CA (Cogeneration/Carson
Ice Project), 6.200%
due 7/1/20 2,479,750
3,000,000 Baa1* Duarte, CA Hope Medical
Center, 6.250% due 4/1/23 2,778,750
4,000,000 A- Los Angeles, CA Corporate
Lease Revenue,
(Los Angeles
International Airport), 6.800% due 1/1/27
4,085,000
1,000,000 NR Norwalk, CA Redevelopment
Agency, Tax Allocation,
Area 1, 9.100% due
12/1/15 1,033,750
5,000,000 AAA San Diego, CA Water Stars
and Cars, MBIA-Insured,
6.300% due 4/8/21(a)
5,000,000
9,150,000 NR San Joaquin Hills, CA
Transportation Authority,
(Transcorridor Agency
Project), Toll Road, Sr. Lien,
6.750% due 1/1/32
9,150,000
- ----------------------------------------------------------
- -------------------------------------------------------
40,896,625
- ----------------------------------------------------------
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Colorado -- 1.9%
<C> <C> <S>
<C>
$1,500,000 B2* Arvada, CO Urban Renewal
Authority, (Arvada City Center),
Series R, 8.750% due
3/1/06 $ 1,125,000
4,750,000 BBB Colorado Springs, CO
Airport Revenue, Series A, 7.000%
due 1/1/22
4,898,437
1,000,000 BB Denver, CO City and County
Airport Revenue, 8.000%
due 11/15/17
1,056,250
2,170,000 BB Denver, CO City and County
Airport Revenue, Series C,
6.750% due 11/15/22
2,170,000
250,000 BB Denver, CO City and County
Revenue, Series A, 7.500%
due 11/15/23
267,188
1,000,000 Baa* Dove Valley, Arapahoe
County, CO Metropolitan District,
Improvement Authority,
9.500% due 12/1/08 1,038,750
2,250,000 AAA Jefferson County, CO COP,
MBIA-Insured, 6.650%
due 12/1/08
2,438,436
370,000 AAA Jefferson County, CO
Single-Family Mortgage, Series A,
MBIA-Insured, 8.875%
due 10/1/13 400,062
1,500,000 A* Larimer County, CO School
District No. R-1
(Poudre-Ft. Collins),
Colorado School Board Lease,
COP, 6.700% due 12/1/13
1,578,750
500,000 A3* Meridian, CO Metropolitian
District, 7.000% due 12/1/98 519,375
2,340,000 AA- Pueblo County, CO Single-
Family Housing Authority, Series A,
FNMA/GNMA Mortgage
Backed, 6.850% due 12/1/25 2,418,975
- ----------------------------------------------------------
- -------------------------------------------------------
17,911,223
- ----------------------------------------------------------
- -------------------------------------------------------
Connecticut -- 1.3%
495,000 NR Connecticut Development
Authority, Industrial Development,
(Nutmeg Partnership
Project), Series B, 12.750% due 5/15/15 500,568
1,930,000 A Connecticut Development
Authority, Resource Recovery
Authority, (Bridgeport
Project), Series B, 8.500% due 1/1/00 1,992,725
2,000,000 AAA Connecticut State, Airport
Revenue, (Bradley International
Airport), FGIC-Insured,
7.650% due 10/1/12 2,272,500
Connecticut State Health
and Educational Facilities:
1,200,000 BBB- Quinipiac College,
Series D, 6.000% due 7/1/23
1,068,000
University of Hartford,
Series D:
1,655,000 BBB 6.750% due 7/1/12
1,613,625
1,450,000 BBB 6.800% due 7/1/22
1,397,438
3,260,000 AA Connecticut State, HFA,
Series A,
6.750% due 11/15/23
3,308,900
- ----------------------------------------------------------
- -------------------------------------------------------
12,153,756
- ----------------------------------------------------------
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Delaware -- 0.6%
<C> <C> <S>
<C>
$2,500,000 AAA Delaware State EDA, PCR,
Series B, AMBAC-Insured,
6.750% due 5/1/19
$ 2,650,000
3,000,000 AAA Delaware State EDA, Water
& Sewer Revenue,
AMBAC-Insured, 6.200%
due 6/1/25 2,940,000
- ----------------------------------------------------------
- -------------------------------------------------------
5,590,000
- ----------------------------------------------------------
- -------------------------------------------------------
District of Columbia -- 1.2%
6,500,000 B- District of Columbia, COP,
7.300% due 1/1/13 6,516,250
1,000,000 A+ District of Columbia,
Revenue, (Georgetown University),
5.375% due 4/1/23
906,250
4,350,000 B District of Columbia,
Series A, GO, 6.000% due 6/1/07 4,203,188
- ----------------------------------------------------------
- -------------------------------------------------------
11,625,688
- ----------------------------------------------------------
- -------------------------------------------------------
Florida -- 3.9%
Alachua County, FL Health
Facilities Authority, Health Facilities
Revenue, (Santa Fe
Healthcare Facilities Project):
425,000 BBB+ 6.875% due 11/15/02
450,500
500,000 BBB+ 7.600% due 11/15/13
531,250
1,100,000 AAA Brevard County, FL School
Board, COP, Series A,
AMBAC-Insured, 6.500%
due 7/1/12 1,168,750
Broward County, FL
Resource Recovery:
590,000 A Waste Energy, (North),
7.950% due 12/1/08 654,900
2,705,000 A Waste Energy, (South),
7.950% due 12/1/08 3,009,313
825,000 AAA Dade County, FL Aviation
Revenue, Series B, MBIA-Insured,
6.600% due 10/1/22
871,406
500,000 BBB Escambia, FL PCR,
(Champion International Corporation
Project), 6.950% due
11/1/07 529,375
500,000 AAA Florida State HFA, General
Mortgage,
Series A, FHA-Insured,
6.400% due 6/1/24 506,250
3,000,000 AAA Florida State HFA, Single-
Family
Mortgage, Series A,
GNMA/FNMA, 6.650% due 1/1/24. 3,071,250
1,455,000 D Hialeah, FL Hospital
Revenue Refunding, (Hialeah Hospital),
8.000% due 2/1/14
851,175
390,000 B- Hillsborough County, FL
Aviation Authority, Revenue,
(U.S. Airlines Project),
8.600% due 1/15/22 402,675
Hillsborough County, FL
Utility Revenue, Series A:
2,800,000 BBB+ 7.000% due 8/1/14
2,975,000
580,000 BBB+ 7.000% due 8/1/14, (Pre-
refunded -- Escrowed with
U.S. Government
Securities to 8/1/01 Call @ 102)(b)
664,100
Jacksonville, FL Health
Facilities Revenue:
2,000,000 AAA Children's Hospital --
Baptist Medical Center,
MBIA-Insured, 7.000%
due 6/1/11 2,185,000
</TABLE>
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Florida -- 3.9% (continued)
<C> <C> <S>
<C>
$3,440,000 AAA University Medical
Center, CO LEE-Insured, 6.600%
due 2/1/21
$ 3,590,500
1,000,000 AAA Orange County, FL Tourist
Development Tax Revenue,
Series B, AMBAC-
Insured, 6.500% due 10/1/19
1,058,750
2,960,000 AAA Orange County, FL Waste
and Water Revenue Refunding,
AMBAC-Insured, 6.250%
due 10/1/17 3,030,300
300,000 BBB Pace Property Finance
Authority, Florida Utility Revenue,
6.250% due 9/1/13
293,250
Palm Beach County, FL
Health Facilities Authority Revenue,
(J.F.K. Medical
Center):
100,000 AAA 8.875% due 12/1/18
116,125
1,020,000 AAA 8.875% due 12/1/18,
(Pre-refunded -- Escrowed with
U.S. Government
Securities to 12/1/98 Call @ 102)
1,111,800
3,000,000 BB+ Putnam County, FL
Development Authority, PCR,
(Georgia Pacific),
7.000% due 12/1/05 3,277,500
1,900,000 AAA Tampa, FL Utility Tax and
Special Revenue,
AMBAC-Insured, 6.900%
due 10/1/09 2,101,874
1,850,000 NR Tampa, FL Water System
Revenue, (Aquarium Project),
7.750% due 5/1/27
1,914,750
1,500,000 AAA Volusia County, FL
Educational Facilities Authority Revenue,
(Embry-Riddle
Aeronautical University), Co Lee-Insured,
6.625% due 10/15/22.
1,584,375
2,000,000 AAA Volusia County, FL School
Board, (Master Lease Program),
COP, FSA-Insured,
6.625% due 8/1/06
2,175,000
- ----------------------------------------------------------
- -------------------------------------------------------
38,125,168
- ----------------------------------------------------------
- -------------------------------------------------------
Georgia -- 5.8%
2,425,000 A Appling County, GA
Development Authority, PCR,
(Georgia Power
Company), (Hatch Project),
10.600% due 10/1/15
2,494,719
4,000,000 A Atlanta, GA Airport
Facilities Revenue, 7.250% due 1/1/17
4,320,000
Burke County, GA
Development Authority, PCR,
(Georgia Power
Company), (Vogtle Project):
3,495,000 A- 10.600% due 10/1/15
3,595,481
8,000,000 A1* 1st Series, 6.350% due
5/1/19 8,170,000
6,310,000 A 3rd Series, 10.500%
due 11/1/15 6,522,962
3,000,000 BB Fulton County, GA
Development Authority, Special Facilities
Revenue, (Delta
Airlines Inc. Project), 6.950% due 11/1/12
3,086,250
4,750,000 A+ George L. Smith, Georgia
World Congress Center Authority
Revenue, (Domed Stadium
Project), 7.875% due 7/1/20 5,195,312
7,000,000 AAA Georgia Municipal Electric
Authority Power Revenue,
Series EE, AMBAC-
Insured, 6.400% due 1/1/23
7,385,000
</TABLE>
See Notes to Financial Statements.
11
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Georgia -- 5.8% (continued)
<C> <C> <S>
<C>
$5,000,000 AAA Medical Center Hospital
Authority, GA Columbus Healthcare,
Series C, MBIA-Insured,
6.400% due 8/1/06 $ 5,381,250
5,000,000 A+ Metropolitan Atlanta, GA
Rapid Transit Authority,
Sales Tax Revenue,
Series O, 6.550% due 7/1/20 5,150,000
5,000,000 AAA Monroe County, GA
Development Authority, PCR,
(Georgia Power Company,
Scherer Project),
AMBAC-Insured, 6.000%
due 7/1/25 4,900,000
- ----------------------------------------------------------
- -------------------------------------------------------
56,200,974
- ----------------------------------------------------------
- -------------------------------------------------------
Guam -- 0.2%
1,500,000 A+ Government of Guam,
Limited Obligation Revenue,
Series A, 7.000% due
11/15/04 1,584,375
- ----------------------------------------------------------
- -------------------------------------------------------
Hawaii -- 0.2%
2,000,000 A Hawaii State Department of
Budget and Finance,
Special Purpose
Mortgage Revenue, (Kapiolani Health
Care Systems), 6.400%
due 7/1/13 2,015,000
- ----------------------------------------------------------
- -------------------------------------------------------
Idaho -- 0.2%
2,210,000 AA Idaho Housing Agency,
Single-Family Mortgage,
Series C, 7.875% due
1/1/21 2,320,500
- ----------------------------------------------------------
- -------------------------------------------------------
Illinois -- 3.8%
1,880,000 AA Chicago, IL HDC, (Section
8), Series A, FHA-Insured,
6.700% due 7/1/12
1,924,650
Chicago, IL O'Hare
International Airport, Special Facilities:
1,800,000 BB Delta Airlines, 6.450%
due 5/1/18 1,757,250
1,800,000 AAA Lufthansa Airlines,
7.125% due 5/1/18 1,876,500
2,490,000 BB United Airlines, 8.250%
due 5/1/99 2,704,763
3,295,000 BB United Airlines, Series
B, 8.950% due 5/1/18 3,735,706
3,905,000 BB United Airlines, Series
C, 8.200% due 5/1/18 4,236,925
4,000,000 AAA Cook County, IL Series A,
MBIA-Insured, 6.600%
due 11/15/22
4,150,000
East Chicago, IL
Industrial PCR, (Inland Steel Company):
3,000,000 BB- Project 10, 6.800% due
6/1/13 3,000,000
250,000 BBB- Series B, 10.750% due
12/1/12 258,750
Illinois Education
Facilities Authority Revenue:
1,500,000 BBB+ Chicago Osteopathic
College, 9.625% due 7/1/05 1,546,875
1,300,000 A- Northern Illinois
Medical Center, 6.000% due 9/1/19
1,184,625
1,500,000 A+ Illinois Health Facilities
Authority Revenue,
(OSF Healthcare),
6.000% due 11/15/23
1,413,750
1,500,000 A+ Illinois Housing and
Development Authority, Multi-Family
Housing, Series A,
6.125% due 7/1/25 1,434,375
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Illinois -- 3.8% (continued)
<C> <C> <S>
<C>
$2,750,000 AAA Illinois State Toll
Highway Authority, Series A,
FGIC-Insured, 6.200%
due 1/1/16 $ 2,736,250
3,600,000 A+ Metropolitan Pier and
Exposition Authority,
(McCormick Place
Expansion Project), Series A,
AMBAC-Insured, 6.500%
due 6/15/27 3,640,500
900,000 NR Sauget, IL Special Service
Area No. 1, 10.250% due 1/1/00 932,625
- ----------------------------------------------------------
- -------------------------------------------------------
36,533,544
- ----------------------------------------------------------
- -------------------------------------------------------
Indiana -- 1.3%
Hamilton County, IN
Hospital Building Revenue,
(Hospital Association):
275,000 Aa* 7.500% due 2/1/08
287,031
285,000 Aa* 7.500% due 8/1/08
297,469
110,000 Aa* 7.600% due 8/1/09
114,400
320,000 Aa* 7.600% due 2/1/10
332,800
5,245,000 BBB Indianapolis, IN Airport
Facilities Revenue, 7.100%
due 1/15/17
5,448,244
250,000 AA+ Indianapolis, IN Local
Public Improvement, Series A,
6.000% due 1/10/18
248,125
Indianapolis, IN Resource
Recovery Revenue,
(Ogden Martin Systems,
Incorporated):
500,000 A Series A, 7.900% due
12/1/08 526,875
1,240,000 A Series B, 7.900% due
12/1/08 1,306,650
2,500,000 BBB Lawrenceburg, IN PCR,
(Indiana Power Company),
Series E, 5.900% due
11/1/19 2,318,750
500,000 Aa* Marion County, IN
Daughters of Charity, Hospital Facility
Revenue, (St. Vincent's
Hospital), 10.125% due 11/1/15 516,250
745,000 AAA North Warrick County, IN
School Building Authority,
1st Mortgage, (Pre-
refunded -- Escrowed with
U.S. Government
Securities to 1/1/96 Call @ 102),
10.000% due 1/1/04(b)
778,525
- ----------------------------------------------------------
- -------------------------------------------------------
12,175,119
- ----------------------------------------------------------
- -------------------------------------------------------
Iowa -- 0.1%
1,000,000 AAA Dubuque County, IA
Hospital Revenue, (Sisters of Mercy
Hospital), Series L,
FSA-Insured, 7.000% due 8/15/21 1,058,750
- ----------------------------------------------------------
- -------------------------------------------------------
Kentucky -- 2.4%
5,000,000 AAA Jefferson County, KY
Hospital Revenue, MBIA-Insured,
6.520% due 10/23/14(a)
5,131,250
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Kentucky -- 2.4% (continued)
<C> <C> <S>
<C>
Kenton County, KY Airport
Board Revenue:
$ 270,000 A Greater Cinncinatti
International Airport (Pre-refunded
-- Escrowed with U.S.
Government Securities to
3/1/98 Call @ 102),
8.250% due 3/1/15(b) $ 300,038
Delta Airlines:
1,230,000 A 8.250% due 3/1/15
1,342,238
4,250,000 BB Project A, 7.500% due
2/1/20 4,435,938
590,000 Aaa* Kentucky Multi-County
Residential Mortgage, MBIA-Insured,
10.500% due 10/1/00
587,050
3,750,000 AAA Lexington-Lafayette Urban
County Project, University of
Kentucky Alumni Assoc.
Inc. Project, MBIA-Insured,
6.750% due 11/1/24
3,984,375
4,000,000 A Pendleton County, KY Multi-
County Lease Revenue,
Series A, 6.500% due
3/1/19 4,010,000
Trimble County, KY PCR:
2,605,000 AA Series B, 6.550% due
11/1/20 2,712,456
395,000 AA Series B,(Pre-refunded -
- - Escrowed with U.S. Government
Securities to 9/16/02
Call @ 102), 6.550% due 11/1/20(b) 438,944
- ----------------------------------------------------------
- -------------------------------------------------------
22,942,289
- ----------------------------------------------------------
- -------------------------------------------------------
Louisiana -- 2.9%
5,000,000 NR Hodge, LA Utility Revenue,
9.000% due 3/1/10 5,362,500
5,000,000 AAA Jefferson Parish, Drain
Sales Tax Revenue, AMBAC-Insured,
6.500% due 11/1/06
5,293,750
2,800,000 Baa3* Lake Charles, LA (Harbor
and Terminal Project), (Trunkline
Liquid Natural Gas
Company Project), 7.750% due 8/15/22 3,066,000
2,500,000 Baa1* Louisiana Public
Facilities, Association of Independent
Colleges and
Universities, 7.000% due 12/1/17
2,534,375
2,000,000 BB- Port of New Orleans, LA
IDR, (Continental Grain Company
7.500% due 7/1/13
2,040,000
St. Charles Parish, LA
Solid Waste Distribution Revenue,
(Louisiana Power and
Light Company Project):
3,250,000 BBB+ 7.050% due 4/1/22
3,347,500
1,750,000 BBB+ Series A, 7.000% due
12/1/22 1,804,688
1,210,000 AAA St. Tammany Parish, LA
Hospital Revenue, District 2,
CO LEE-Insured, 6.250%
due 10/1/14 1,226,638
3,000,000 BBB- West Feliciana Parish,
PCR, (Gulf State Utilities), 7.700%
due 12/1/14
3,180,000
- ----------------------------------------------------------
- -------------------------------------------------------
27,855,451
- ----------------------------------------------------------
- -------------------------------------------------------
Maryland -- 2.0%
3,000,000 AAA Baltimore County, MD
Mortgage Revenue, (Dunfield
Townhouses), Series A,
FHA-Insured, 6.900% due 8/1/28 3,082,500
</TABLE>
See Notes to Financial Statements.
14
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Maryland -- 2.0% (continued)
<C> <C> <S>
<C>
$2,000,000 AAA Baltimore County, MD
Mortgage Revenue, (Liberty Crossing
Project), Series A,
6.000% due 8/20/20 $ 1,890,000
2,000,000 AAA Howard County, MD Mortgage
Revenue, (Howard Hills
Townhouses), Series A,
MBIA-Insured, 6.400% due 7/1/24 2,010,000
Maryland State, Community
Development:
2,000,000 Aa* Multi-Family Housing,
6.625% due 5/15/23 2,030,000
610,000 Aa* Multi-Family Housing,
Series D, 6.050% due 5/15/24 584,075
1,000,000 Aa* Single-Family Housing,
6.450% due 4/1/14 1,012,500
Northeast Maryland Waste
Disposal Authority, Recovery
Revenue, MBIA-Insured,
(Southwest Resource Recovery):
3,000,000 AAA 7.200% due 1/1/06
3,431,250
3,000,000 AAA 7.200% due 1/1/07
3,408,750
1,600,000 Baa1* Prince Georges County, MD
(Greater Southeast Healthcare
System), 6.375% due
1/1/23 1,406,000
500,000 AAA Prince Georges County, MD
Housing Authority,
(Stevenson Apartments
Project), Series A,
6.350% due 7/20/20
500,625
- ----------------------------------------------------------
- -------------------------------------------------------
19,355,700
- ----------------------------------------------------------
- -------------------------------------------------------
Massachusetts -- 5.0%
Boston, MA Hospital
Revenue, (Boston City Hospital),
Series B, FHA-Insured:
2,000,000 AA- 5.750% due 2/15/13
1,932,500
5,850,000 AA- 5.750% due 2/15/23
5,542,875
530,000 AAA Haverhill, MA Revenue
Bonds, Series A, AMBAC-Insured,
6.700% due 9/1/10
561,800
2,575,000 AAA Lowell, MA Series B, FSA-
Insured, 5.600% due 11/1/12 2,488,094
Massachusetts Bay
Transportation Authority, General
Transportation System:
1,000,000 A+ Series B, 6.200% due
3/1/16 1,038,750
4,800,000 A+ Series C, 6.100% due
3/1/23 4,812,000
2,000,000 A+ Massachusetts State
Construction Loan, Series D,
GO Bonds, 7.000% due
7/1/07 2,212,500
1,500,000 NR Massachusetts State Health
and Educational Facilities
Authoriy Revenue (St.
Memorial Medical Center),
Series A, 6.000% due
10/1/23 1,130,625
Massachusetts State Health
and Educational Finance Authority:
735,000 AAA Series A, CO LEE-
Insured, 6.600% due 10/1/22
758,888
2,700,000 AAA Series B, CO LEE-
Insured, 6.250% due 7/1/12
2,733,750
775,000 AAA Series B, CO LEE-
Insured, 6.350% due 7/1/22
779,844
3,500,000 AAA New England Medical
Center, Series F,
FGIC-Insured, 6.625%
due 7/1/25 3,640,000
</TABLE>
See Notes to Financial Statements.
15
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Massachusetts -- 5.0% (continued)
<C> <C> <S>
<C>
$2,650,000 AAA University of
Massachusetts Medical Project,
CO LEE-Insured, 6.000%
due 7/1/23 $ 2,593,688
Massachusetts State HFA,
Residential Development Authority:
2,000,000 AAA Series C, FNMA, 6.875%
due 11/15/11 2,090,000
3,000,000 AAA Series D, FNMA, 6.800%
due 11/15/12 3,108,750
Massachusetts State HFA-
Housing Projects:
2,500,000 A+ Series A, 6.375% due
4/1/21 2,475,000
2,000,000 A+ Series 41, Single-Family
Housing Revenue
6.300% due 12/1/14
1,990,000
Massachusetts State
Industrial Financial Agency,
Resource Recovery,
(S.E. Mass. Project):
2,700,000 NR Series A, 9.000% due
7/1/15 2,983,500
4,335,000 NR Series B, 9.250% due
7/1/15 4,806,431
1,000,000 AAA Quincy, MA (Quincy
Hospital), FSA-Insured,
5.500% due 1/15/13
956,250
- ----------------------------------------------------------
- -------------------------------------------------------
48,635,245
- ----------------------------------------------------------
- -------------------------------------------------------
Michigan -- 5.0%
Detroit, MI Economic
Development, Resource Recovery,
Series A, FSA-Insured:
3,680,000 AAA 6.450% due 5/1/01
4,006,600
7,500,000 AAA 6.875% due 5/1/09
7,959,375
Detroit, MI Water Supply
System, FGIC-Insured:
3,500,000 AAA 6.500% due 7/1/15
3,797,500
3,000,000 AAA 6.375% due 7/1/22(a)
3,078,750
Greater Detroit, MI
(Resource Recovery Project):
6,350,000 BBB- Series B, 9.250% due
12/13/08 6,611,938
1,000,000 BBB- Series G, 9.250% due
12/13/08 1,041,250
1,815,000 BBB- Series H, 9.250% due
12/13/08 1,889,869
Michigan State Hospital
Finance Authority Revenue:
5,000,000 AAA FSA-Insured, 6.300% due
2/15/22(a) 5,075,000
490,000 NR Daughters of Charity-St.
Mary's Hospital,
10.000% due 11/1/15
506,537
3,500,000 BBB+ Michigan State Strategic
FD PCR, Adj. Ref General
Motors Corp., 6.200%
due 9/1/20 3,456,250
Monroe County, MI PCR,
(Detroit Edison Company):
4,500,000 AAA Series 1, MBIA-Insured,
6.875% due 9/1/22 4,730,625
2,360,000 BBB Series A, 10.500% due
12/1/16 2,472,100
3,750,000 AAA Western Townships, MI
Utilities Authority, Sewer Disposal
Systems, GIC-Insured,
6.750% due 1/1/15 3,900,000
- ----------------------------------------------------------
- -------------------------------------------------------
48,525,794
- ----------------------------------------------------------
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
16
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Minnesota -- 0.5%
<C> <C> <S>
<C>
$1,200,000 NR Minneapolis, MN Commercial
Development Revenue,
(Holiday Inn Metrodome
Project), 10.500% due 6/1/03 $ 1,219,500
4,000,000 BBB- St. Paul, MN Housing and
Redevelopment Authority,
(Health East Project),
Series A, 6.625% due 11/1/17 3,880,000
- ----------------------------------------------------------
- -------------------------------------------------------
5,099,500
- ----------------------------------------------------------
- -------------------------------------------------------
Mississippi -- 0.7%
2,250,000 AAA Gulfport, MS Hospital
Facilities Authority, MBIA-Insured,
6.200% due 7/1/18
2,278,125
2,000,000 Aaa* Mississippi Home Corp
Single-Family Mortgage Revenue,
GNMA Coll FHA/VA/FMHA,
6.550% due 4/1/21 1,975,000
3,000,000 AAA Mississippi Hospital
Equipment and Facilities,
(North Mississippi
Health Service), AMBAC-Insured,
5.750% due 5/15/16
2,883,750
- ----------------------------------------------------------
- -------------------------------------------------------
7,136,875
- ----------------------------------------------------------
- -------------------------------------------------------
Missouri -- 0.1%
St. Louis County, MO IDA,
Multi-Family Housing Revenue:
395,000 NR Series B 1989, (Pine
Tree Apartment Project),
4.000% due 6/15/09
197,500
Westbrook Village
Apartments:
135,000 NR Series E, 4.000% due
12/15/03 69,863
50,000 NR Series H, 4.000% due
12/15/15 24,750
- ----------------------------------------------------------
- -------------------------------------------------------
292,113
- ----------------------------------------------------------
- -------------------------------------------------------
Montana -- 0.4%
4,000,000 NR Montana State Board
Recovery Resource, (Yellowstone Energy
LP Project), 7.000% due
12/31/19 3,790,000
- ----------------------------------------------------------
- -------------------------------------------------------
Nevada -- 0.2%
2,000,000 AAA Humboldt County, NV PCR,
(Sierra Pacific Project),
AMBAC-Insured, 6.550%
due 10/1/13 2,117,500
- ----------------------------------------------------------
- -------------------------------------------------------
New Hampshire -- 0.7%
1,500,000 AAA New Hampshire Higher
Education and Health Facilities
Authority Revenue,
(Concord Hospital), FGIC-Insured,
7.000% due 10/1/12
1,616,250
2,500,000 BBB- State of New Hampshire,
Business Financing Authority,
PCR, (United
Illuminating Company), Series A,
MBIA-Insured, 5.875%
due 10/1/33 2,200,000
1,000,000 A State of New Hampshire,
IDA, Resource Recovery Revenue
Series, (Concord
Project), 8.500% due 1/1/09
1,073,750
2,000,000 A State of New Hampshire,
Turnpike System Revenue,
6.000% due 4/1/13
1,985,000
- ----------------------------------------------------------
- -------------------------------------------------------
6,875,000
- ----------------------------------------------------------
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
17
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
New Jersey -- 5.7%
<C> <C> <S>
<C>
$ 775,000 Baa* Atlantic County, NJ
Utilities Authority, Solid Waste Revenue,
7.125% due 3/1/16
$ 772,094
2,500,000 AAA Hoboken, Union
City,Weehawken, NJ Sewer Authority
Revenue, MBIA-Insured,
6.200% due 8/1/19 2,587,500
2,500,000 BBB- Hudson County, NJ
Improvement Authority, Solid Waste
Revenue, MBIA-Insured,
7.100% due 1/1/20 2,481,250
6,300,000 AAA Mercer County, NJ
Improvement Authority, (Solid Waste Site
Project), Series A,
FGIC-Insured, 6.700% due 4/1/12 6,670,125
New Jersey EDA:
2,500,000 AAA FSA-Insured, 6.500% due
7/1/24 2,593,750
1,000,000 AAA PCR, MBIA-Insured,
6.400% due 5/1/32
1,017,500
New Jersey EDA, First
Mortgage Gross Revenue:
495,000 NR Dayton Manor Residential
Health Care, 13.000%
due 9/1/15
336,600
760,000 Aa3* Series A, 6.250% due
12/1/01 779,950
New Jersey Health Care
Facilities Finance Authority:
2,500,000 AAA Irvington General
Hospital, FHA-Insured, 6.375%
due 8/1/15
2,606,250
2,950,000 A- Kennedy Memorial
University Medical Center, Series D,
7.875% due 7/1/09
3,145,438
1,000,000 NR Raritan Bay Medical
Center, 7.250% due 7/1/27 982,500
2,400,000 BBB- Zurbrugg Memorial
Hospital, Series C, 8.500% due 7/1/12
2,508,000
New Jersey State
Educational Facilities Authority:
(Fairleigh Dickinson
University), Series C:
1,680,000 NR 7.750% due 7/1/01
1,950,900
500,000 NR 6.625% due 7/1/23
472,500
3,700,000 AAA New Jersey State Housing &
Mortgage Finance Agency,
Multi-Family Housing
Revenue, (FHA-Insured),
7.000% due 5/1/30
3,834,125
2,150,000 AAA New Jersey State,
Transportation Corporation, COP,
FSA-Insured, 6.500% due
10/1/16 2,297,813
2,500,000 AAA New Jersey State,
Transportation Authority System,
MBIA-Insured, Series A,
5.500% due 6/15/13 2,434,375
2,500,000 AAA Perth Amboy, NJ Board of
Education, COP, FSA-Insured,
6.125% due 12/15/17
2,556,250
3,300,000 AA- Port Authority New York &
New Jersey, Seventy Seventh
Series, 6.250% due
1/15/27 3,300,000
Salem County, NJ PCR,
Fingauth Waste Revenue:
2,000,000 AA 6.500% due 11/15/21
2,065,000
2,500,000 AAA 6.250% due 6/1/31
2,534,375
</TABLE>
See Notes to Financial Statements.
18
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
New Jersey -- 5.7% (continued)
<C> <C> <S>
<C>
Union County, NJ Utility
Authority, Solid Waste Revenue:
$4,600,000 A- Series A, 7.200% due
6/15/14 $ 4,784,000
2,000,000 AA+ Series D, 6.850% due
6/15/14 2,095,000
- ----------------------------------------------------------
- -------------------------------------------------------
54,805,295
- ----------------------------------------------------------
- -------------------------------------------------------
New Mexico -- 0.1%
600,000 AAA Rio Rancho, NM Water &
Wastewater System Revenue,
FSA-Insured, Series A,
6.000% due 5/15/22 591,750
122,619 Aaa* Santa Fe, NM Single-Family
Mortgage Revenue,
8.450% due 12/1/11
130,743
- ----------------------------------------------------------
- -------------------------------------------------------
722,493
- ----------------------------------------------------------
- -------------------------------------------------------
New York -- 5.3%
930,000 D Babylon, NY IDA, Recycling
Facility Revenue, Babylon
Recycling Center,
Series A, 8.875% due 3/1/11
372,000
City of New York, GO
Bonds:
4,175,000 A- Series B, 7.000% due
10/1/12 4,310,687
3,190,000 A- Series C, 7.750% due
9/1/05 3,297,663
1,000,000 AAA Series C, AMBAC-Insured,
7.750% due 9/1/05 1,038,750
55,000 AAA Series C, Subseries C-1,
MBIA-Insured,
6.000% due 8/1/01
58,369
20,000 AAA AMBAC-Insured, 6.625%
due 8/1/15 21,525
Series D:
45,000 A- 8.500% due 8/1/13
47,306
10,000 A- (Pre-refunded--
Escrowed with U.S. Government
Securities to 8/1/16
Call @ 102), 8.500% due 8/1/13(b) 10,650
1,000,000 AAA FSA-Insured, 8.500% due
8/1/13 1,055,000
1,000,000 AAA Metropolitan
Transportation Authority, New York Transit
Facilities Revenue,
Series J, FGIC-Insured,
6.500% due 7/1/18
1,037,500
2,650,000 BBB+ Metropolitan
Transportation Authority, New York Commuter
Facilities Revenue,
Series A, 6.500% due 7/1/24 2,666,563
5,000,000 A- New York City GO, Series
C, 6.660% due 8/1/09 5,118,750
3,085,000 BBB New York State, COP,
(Hanson Redevelopment Project),
8.375% due 5/1/08
3,532,325
7,000,000 BBB New York State, Dormitory
Authority Revenue,
City University System,
6.000% due 7/1/14 6,755,000
New York State, Energy,
Research and Development
Authority, (Long Island
Lighting Company):
1,250,000 BB+ 7.150% due 6/1/20
1,257,813
1,150,000 BBB- 7.150% due 12/1/20
1,157,188
2,895,000 AAA New York State, Medical
Care Facilities, Finance Agency
Revenue, GIC-Insured,
6.400% due 11/1/14 2,978,231
</TABLE>
See Notes to Financial Statements.
19
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
New York -- 5.3% (continued)
<C> <C> <S>
<C>
New York State, Medical
Care Facilities Financing Authority:
$4,500,000 BBB+ 6.500% due 2/15/19
$ 4,550,625
1,540,000 BBB+ Mental Health Services,
7.750% due 2/15/20 1,699,775
5,500,000 AA- New York State Power
Authority Revenue, Series Z,
MBIA-Insured, 6.500%
due 1/1/19 5,692,500
1,850,000 A- New York State, Refunding
Bonds, 7.000% due 11/15/02 2,081,250
State of New York,
Municipal Bond Banking Agency,
Special Program, Series
A:
575,000 BBB+ 6.500% due 3/15/00
608,062
1,610,000 BBB+ 6.600% due 3/15/01
1,696,537
- ----------------------------------------------------------
- -------------------------------------------------------
51,044,069
- ----------------------------------------------------------
- -------------------------------------------------------
North Carolina -- 1.7%
3,000,000 B- Charlotte, NC Special
Facilities Revenue, (Piedmont Aviation
Inc. Project), 9.000%
due 7/1/17 3,097,500
North Carolina Eastern
Municipal Power Agency,
Power System Revenue:
8,700,000 A- Series B, 7.000% due
1/1/08 9,450,375
280,000 A- (Pre-refunded --
Escrowed with U.S.Government
Securities to 1/1/98
Call @ 102), 8.000% due 1/1/21(b) 309,750
2,300,000 A North Carolina Municipal
Power Agency Systems,
(Catawba Electric),
6.250% due 1/1/17 2,242,500
1,000,000 AAA Pitt County, COP, FGIC-
Insured, 6.900% due 4/1/08 1,082,500
- ----------------------------------------------------------
- -------------------------------------------------------
16,182,625
- ----------------------------------------------------------
- -------------------------------------------------------
North Dakota -- 0.8%
Mercer County, ND PCR,
(Basin Electric Power):
4,860,000 A- Series E, 7.000% due
1/1/19 5,103,000
2,795,000 A- Series 1984D, 8.125% due
1/1/19 2,903,306
- ----------------------------------------------------------
- -------------------------------------------------------
8,006,306
- ----------------------------------------------------------
- -------------------------------------------------------
Ohio -- 2.6%
4,000,000 NR Cleveland, OH Airport
Special Revenue, (Continental Airlines
Incorporated), 9.000%
due 12/1/19 4,065,000
2,900,000 Baa1* Cleveland, OH Public Power
System Revenue,
AMBAC-Insured, 7.000%
due 11/15/24 3,161,000
1,250,000 AAA Cuyahoga County, OH
Hospital Revenue, (Brentwood
Hospital Project)
9.625% due 11/1/14
1,292,187
1,500,000 AAA Dublin, OH City School
District, AMBAC-Insured,
6.200% due 12/1/19
1,526,250
1,000,000 BBB- Lorain, OH Sewer System,
Mortgage Revenue, 8.750%
due 4/1/11
1,093,750
Ohio State Air Quality
Development Authority:
4,000,000 AAA Columbus and Southern
Ohio, Series A, FGIC-Insured,
6.375% due 12/1/20.
4,125,000
</TABLE>
See Notes to Financial Statements.
20
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Ohio -- 2.6% (continued)
<C> <C> <S>
<C>
$5,000,000 BB (Pollution Control-
Toledo Edison), 6.875% due 7/1/23 $
4,518,750
140,000 AAA Ohio State HFA, Single-
Family Mortgage,
6.000% due 2/1/16
141,750
Ohio State Water
Development Authority, PCR:
4,975,000 BB Series A, 8.000% due
10/1/23 5,211,313
210,000 BBB- Series B, (Pennsylvania
Power Project), 8.100% due 9/1/18 223,125
- ----------------------------------------------------------
- -------------------------------------------------------
25,358,125
- ----------------------------------------------------------
- -------------------------------------------------------
Oklahoma -- 1.5%
4,690,000 AAA Oklahoma HFA, Single-
Family Mortgage, Series B,
7.997% due 8/1/18
5,088,650
Tulsa, OK Municipal
Airport Revenue, (American Airlines):
2,895,000 BB+ 9.375% due 6/1/04
2,989,087
2,400,000 BB+ 7.350% due 12/1/11
2,535,000
3,480,000 BB+ 9.500% due 6/1/20
3,593,100
- ----------------------------------------------------------
- -------------------------------------------------------
14,205,837
- ----------------------------------------------------------
- -------------------------------------------------------
Pennsylvania -- 9.8%
4,000,000 AAA Allegheny County, PA
Airport Revenue, (Greater Pittsburg
International Airport),
Series B, FSA-Insured,
6.625% due 1/1/22
4,115,000
2,500,000 BB+ Allegheny County, PA
Series A, 6.700% due 12/1/20
2,518,750
4,500,000 BBB Allentown, PA Hospital
Authority Revenue, (Sacred Heart
Hospital of Allentown),
Series B, 6.750% due 11/15/15 4,280,625
1,250,000 AAA Beaver County, PA Hospital
Authority, (Beaver Medical
Center), Series A,
AMBAC-Insured, 6.250% due 7/1/22 1,267,188
Beaver County, PA IDA,
PCR:
4,500,000 BBB- Series A, (Ohio Edison
Co.), 10.500% due 10/1/15 4,680,000
Series B, (Toledo Edison
Co.), (Beaver Valley):
250,000 Ba1* 10.750% due 9/15/95
251,250
340,000 Ba1* 12.250% due 9/15/95
348,925
2,955,000 Ba1* Series C, (Toledo Edison
Co.), (Beaver Valley),
10.750% due 11/15/15
3,043,650
1,500,000 BB Series C, (Cleveland
Electric), 10.500% due 9/1/15 1,533,750
3,000,000 AAA Berks County, PA Solid
Waste Authority, FGIC-Insured,
6.000% due 4/1/11
3,052,500
2,000,000 AAA Delaware County, PA
Hospital Authority, (Crozer -- Chester
Medical Center), MBIA-
Insured, 5.300% due 12/15/20 1,797,500
2,000,000 AA Delaware County, PA IDA,
Resource Recovery, Series A,
8.100% due 12/1/13
2,102,500
95,000 AAA Falls Township, PA
Hospital Authority Revenue, (Delaware
Valley Medical Center),
FHA-Insured, 6.000% due 8/1/01 98,563
3,000,000 AAA Franklin, PA IDA,
(Chamberburgs Hospital Project),
FGIC-Insured, 6.250%
due 7/1/12 3,078,750
</TABLE>
See Notes to Financial Statements.
21
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Pennsylvania -- 9.8% (continued)
<C> <C> <S>
<C>
$1,425,000 BBB- Grove City, PA Area
Hospital Authority Revenue, (United
Community Hospital),
8.125% due 7/1/12 $ 1,444,594
5,000,000 AAA Harrisburg, PA Authority
Lease Revenue, GIC-Insured,
6.625% due 6/1/13
5,431,250
Lehigh County, PA IDA,
PCR, MBIA-Insured:
1,750,000 AAA Series A, 6.400% due
11/1/21 1,806,875
7,500,000 AAA 6.400% due 9/1/29
7,753,125
Luzerne County, PA IDA,
(Pennsylvania Gas and Water
Company), Series A:
2,500,000 BBB- 7.200% due 10/1/17
2,571,875
2,250,000 BBB- 6.050% due 1/1/19
2,112,187
1,350,000 BBB Montgomery County, PA IDA,
PCR, Series A, (Philadelphia
Electric Company),
8.875% due 6/1/16 1,417,500
3,380,000 AAA Montgomery County, PA IDA,
Series B, MBIA-Insured,
6.700% due 12/1/21
3,570,125
6,750,000 NR Montgomery County, PA
Redevelopment Authority,
Multi-Family Housing,
Series A, 6.500% due 7/1/25 6,252,187
Northampton County, PA
IDA, PCR:
500,000 BBB Commercial Development,
(Strawbridge Project),
7.200% due 12/15/01
545,625
500,000 A- Series A, (Metro Edison
Company), 10.500% due 9/1/95 502,500
350,000 AAA North Huntington Township,
PA Municipal Guaranteed
Sewer Revenue, MBIA-
Insured, 6.875% due 4/1/14 364,875
Pennsylvania EDA:
4,500,000 BBB- Colver Project, 7.125%
due 12/1/15 4,719,375
4,000,000 BBB+ Wastewater Treatment,
7.600% due 12/1/24 4,320,000
2,750,000 AAA Pennsylvania State, IDA
Revenue, AMBAC-Insured,
6.000% due 1/1/12
2,770,625
5,000,000 AAA Pennsylvania State, Higher
Education, Student Loan
Revenue Series D, AMBAC-
Insured, 6.050% due 1/1/19 4,881,250
Philadelphia, PA Municipal
Authority Gas Works
Lease Revenue:
2,500,000 BBB 7.625% due 5/1/14
2,671,875
2,750,000 BBB 14th Series, 6.375%
due 7/1/26 2,701,875
1,500,000 AAA Series A, (Justice
Lease), FGIC-Insured, 7.125%
due 11/15/18
1,730,625
995,000 BBB- Series B, 6.400% due
11/15/16 1,006,194
1,875,000 NR Schuykill County, PA IDR,
(Schuykill Energy Resources, Inc.),
6.500% due 1/1/10
1,863,281
2,500,000 BB+ Scranton-Lackawanna, PA
Health and Welfare Authority
Revenue, Series B,
(Moses Taylor Hospital),
8.500% due 7/1/20
2,600,000
- ----------------------------------------------------------
- -------------------------------------------------------
95,206,769
- ----------------------------------------------------------
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
22
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Puerto Rico -- 0.9%
<C> <C> <S>
<C>
$ 170,000 A- Commonwealth of Puerto
Rico, Electric Power Authority,
Series L, (Pre-refunded-
- - Escrowed with U.S. Government
Securities to 7/1/91 @
102), 8.375% due 7/1/07(b) $ 187,000
Commonwealth of Puerto
Rico, GO Bonds:
330,000 AAA 7.750% due 7/1/13, (Pre-
refunded-- Escrowed with U.S.
Government Securities to
7/1/98 @
102)(b)
369,600
455,000 A 8.000% due 7/1/08
501,069
1,100,000 A- Commonwealth of Puerto
Rico, Municipal Finance Agency,
Series A, 8.250% due
7/1/08 1,210,000
5,760,000 BBB Commonwealth of Puerto
Rico, Urban Renewal and
Housing Corporation,
7.875% due 10/1/04 6,422,400
- ----------------------------------------------------------
- -------------------------------------------------------
8,690,069
- ----------------------------------------------------------
- -------------------------------------------------------
Rhode Island -- 1.3%
2,650,000 AAA Rhode Island Depositors
Economic Protection Corporation,
Series B, MBIA-Insured,
6.000% due 8/1/17 2,626,812
9,500,000 AA+ Rhode Island Housing and
Mortgage Finance Authority,
7.100% due 4/1/24(a)
9,844,375
- ----------------------------------------------------------
- -------------------------------------------------------
12,471,187
- ----------------------------------------------------------
- -------------------------------------------------------
South Carolina -- 1.6%
3,000,000 A+ Darlington County, SC IDR,
Sonoco Products Co. Project,
6.125% due 6/1/25
2,955,000
2,400,000 A3* Fairfield County, SC IDR,
(Rite Aid Corporation),
7.900% due 12/1/16
2,505,000
1,500,000 A Greenville County, SC IDR,
(Lockheed Aeromod
Center Project), 7.200%
due 11/1/21 1,586,250
500,000 AAA Lexington County, SC
Health Services District, Hospital
Revenue, FSA-Insured,
6.750% due 10/1/18 526,250
4,000,000 A- Richland County, SC PCR,
(Union Camp Corporation
Project), 6.625% due
5/1/22 4,125,000
3,750,000 AAA South Carolina State,
Public Service Authority Revenue,
Series A, AMBAC-
Insured, 6.375% due 7/1/21
3,806,250
125,000 AAA Sumter County, SC Hospital
Facilities Revenue,
(Pre-refunded --
Escrowed with U.S. Government
Securities to 10/1/95
Call @ 100), 10.000% due 10/1/04(b) 128,750
- ----------------------------------------------------------
- -------------------------------------------------------
15,632,500
- ----------------------------------------------------------
- -------------------------------------------------------
South Dakota -- 0.2%
Ogalala Sioux, SD Tribal
Revenue Bond:
265,000 NR 7.000% due 7/1/99
267,319
1,865,000 NR 7.500% due 7/1/13
1,888,312
- ----------------------------------------------------------
- -------------------------------------------------------
2,155,631
- ----------------------------------------------------------
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
23
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Tennessee -- 2.3%
<C> <C> <S>
<C>
$7,000,000 AA Humphreys County, TN IDB,
6.700% due 5/1/24 $ 7,332,500
1,400,000 AAA Knoxville, TN Community
Development Corporation,
(GNMA Morningside
Gardens), 6.100% due 7/20/20
1,352,750
3,150,000 BBB Memphis-Shelby County, TN
Airport Authority
(Federal Express
Corporation), 6.750% due 9/1/12
3,256,312
1,000,000 NR Metropolitan Nashville &
Davidson County, TN IDB
Revenue, (Volunteer
Health Care), Series A, 10.750%
due 6/1/18
300,000
Metropolitan Nashville
Airport Authority, TN Airport
Revenue, Special
Facilities:
2,500,000 A- American Airlines
Project, 9.875% due 10/1/05 2,565,625
5,000,000 AAA Series C, FGIC-
Insured, 6.600% due 7/1/15
5,225,000
2,500,000 AAA Tennessee Housing
Development Agency, Mortgage
MBIA-Insured, Series B,
6.200% due 7/1/18 2,509,375
- ----------------------------------------------------------
- -------------------------------------------------------
22,541,562
- ----------------------------------------------------------
- -------------------------------------------------------
Texas -- 10.7%
2,325,000 AAA Austin, TX Utility System
Revenue, AMBAC-Insured,
7.000% due 5/15/16
2,481,938
955,000 NR Bell County, TX Health
Care Facilities, Series A,
(Living Tech Inc.
Project), 10.500% due 6/15/18
830,850
Brazos River Authority, TX
PCR, (Houston Lighting and
Power Company):
3,000,000 BBB+ 8.250% due 12/1/16
3,150,000
3,000,000 BBB+ 7.875% due 3/1/17
3,138,750
750,000 A Series A, 7.875% due
11/1/18 779,063
2,000,000 AAA Series A, AMBAC-
Insured: 6.700% due 3/1/17
2,092,500
1,900,000 AAA Series B, FGIC-
Insured, 7.200% due 12/1/18
2,033,000
4,000,000 AAA Dallas-Fort Worth, TX
International Airport Facilities,
(UPS Services, Inc.),
6.600% due 5/1/32 4,210,000
2,000,000 NR Denton County, TX
Reclamation and Road District,
8.500% due 6/1/16
2,000,000
Gulf Coast Waste Disposal
Authority, TX Waste Disposal
and Sewer System
Control, Revenue Refunding,
(Bay Port Area System),
Series A, FSA-Insured:
1,395,000 AAA 6.700% due 10/1/10
1,466,494
990,000 AAA 6.700% due 10/1/11
1,040,737
970,000 AAA Harris County, TX
Refunding Toll Road Authority,
Series A, AMBAC-
Insured, 6.500% due 8/15/17
1,001,525
165,000 BBB- Heart of Texas, HFA,
Single-Family Mortgage Revenue,
Series 1984, 11.000%
due 1/1/11 170,156
</TABLE>
See Notes to Financial Statements.
24
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Texas -- 10.7% (continued)
<C> <C> <S>
<C>
$5,125,000 AAA Houston, TX Water and
Sewer Systems, Series A, Jr. Lien,
MBIA-Insured, 6.375%
due 12/1/22 $ 5,265,937
Matagorda County, TX PCR,
Navajo District No. 1:
Central Power and Light
Company Project:
3,250,000 BBB+ 7.875% due 12/1/16
3,416,563
1,475,000 A 9.750% due 7/1/15
1,545,063
1,500,000 BBB+ 10.125% due 10/15/14
1,560,000
7,500,000 AAA MBIA-Insured, 6.100%
due 7/1/28 7,350,000
Houston Light and Power
Company Project:
1,300,000 A 7.875% due 11/1/16
1,363,375
7,200,000 AAA AMBAC-Insured, 6.700%
due 3/1/27 7,677,000
500,000 A Series B, 7.700% due
2/1/19 533,125
2,100,000 AAA Series E, FGIC-
Insured, 7.200% due 12/1/18
2,281,125
3,000,000 A* North Texas, Higher
Education Authority Inc.,
6.300% due 4/1/09
2,966,250
Port Corpus Christi, TX
IDR:
4,000,000 A+ Hoechst Celanese
Corporation Project 6.875% due 4/1/17
4,195,000
2,000,000 BBB- Valero Refining and
Manufacturing, Series A,
10.250% due 6/1/17
2,222,500
4,000,000 A+ Red River Authority, TX
PCR, (Hoechst Celanese
Corporation Project),
6.875% due 4/1/17 4,195,000
4,750,000 Aa3* Sabine River Authority, TX
PCR, (Southwestern Electric
Power Company Project),
8.200% due 7/1/14 4,993,437
Sam Rayburn, TX Municipal
Power Agency, Power Supply
System Revenue:
2,200,000 BB Series A, 6.750% due
10/1/14 1,960,750
2,500,000 BBB Series B, 6.125% due
10/1/13 2,087,500
San Antonio, TX Airport
System Revenue, AMBAC-Insured:
3,000,000 AAA 7.125% due 7/1/06
3,367,500
1,000,000 AAA 7.125% due 7/1/08
1,116,250
2,000,000 AAA 7.375% due 7/1/13
2,245,000
2,000,000 AAA Terrel Hills, TX Higher
Education, (Incarnate World College
Project), CO LEE-
Insured, 5.750% due 3/15/13
1,947,500
3,010,000 AAA Texas Municipal Power
Agency, Revenue Bonds,
Series A, AMBAC-
Insured, 6.750% due 9/1/12
3,258,325
2,150,000 AAA Texas State Department,
Housing and Community Affairs,
Home Mortgage Revenue,
Series A, 6.950% due 7/1/23 2,222,563
2,000,000 AAA Texas State Public
Property Finance Corporation Revenue,
(Mental Health and
Retardation), FGIC-Insured,
5.500% due 9/1/13
3,623,437
2,880,000 AA Texas State Veterans
Housing Assistance, Single-Family
Mortgage Revenue,
6.800% due 12/1/23
2,930,400
</TABLE>
See Notes to Financial Statements.
25
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Texas -- 10.7% (continued)
<C> <C> <S>
<C>
$ 500,000 Aa* Travis County, TX Hospital
Revenue, (Daughters of Charity
Health System), (Seton
Medical Center), 10.125%
due 11/1/15
$ 516,875
965,000 NR Tyler, TX Health
Facilities Revenue, (Park Place Limited
Project), 12.500% due
12/1/18 998,775
3,025,000 BBB Westside Calhoun County,
TX Tax District, Solid Waste
Disposal Revenue,
(Union Carbide Chemicals
Corporation), 6.400%
due 5/1/23 2,877,531
- ----------------------------------------------------------
- -------------------------------------------------------
103,111,794
- ----------------------------------------------------------
- -------------------------------------------------------
Utah -- 0.6%
Utah State HFA, Single-
Family Mortgage:
695,000 AA Series D, 8.625% due
1/1/19 719,325
420,000 Aa* Series D1, 6.200% due
7/1/16 414,225
4,000,000 AAA Utah Municipal Power
System Revenue, (San Juan Project),
MBIA-Insured, 6.375%
due 6/1/22 4,075,000
- ----------------------------------------------------------
- -------------------------------------------------------
5,208,550
- ----------------------------------------------------------
- -------------------------------------------------------
Virgin Islands -- 0.1%
1,160,000 NR Virgin Islands Port
Authority, Marine Division Revenue,
Series A, 10.125% due
11/1/05 1,191,900
Virgin Islands Public
Finance Authority, Series A:
15,000 AAA 7.300% due 10/1/18(b)
17,962
110,000 AAA 7.300% due 10/1/18, (Pre-
refunded--Escrowed with
U.S. Government
Securities to 10/1/00 Call @ 101)(b)
125,950
- ----------------------------------------------------------
- -------------------------------------------------------
1,335,812
- ----------------------------------------------------------
- -------------------------------------------------------
Virginia -- 2.0%
500,000 AAA Chesapeake Bay, Bridge and
Tunnel General Resolution,
MBIA-Insured, 6.375%
due 7/1/22 511,875
2,435,000 AAA Fairfax County, VA
Redevelopment and Housing Authority
Revenue, Multi-Family
Housing, Series A, (Kingsley),
FHA-Insured, 7.000% due
5/1/26 2,541,531
1,820,000 A+ Henrico County, VA IDA,
(Maryview Hospital), Series B,
7.500% due 9/1/11
2,090,725
8,000,000 A- Isle Wight County, VA IDA,
Solid Waste Disposal Revenue,
6.550% due 4/1/24
8,260,000
4,750,000 AAA Richmond, VA Metropolitan
Expressway Authority,
Series B, FGIC-Insured,
6.250% due 7/15/22 4,850,937
1,400,000 A- Southeastern Public
Service Authority, Solid Waste System
Revenue, 6.000% due
7/1/17 1,317,750
- ----------------------------------------------------------
- -------------------------------------------------------
19,572,818
- ----------------------------------------------------------
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
26
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Washington -- 2.5%
<C> <C> <S>
<C>
$1,500,000 AAA King County, WA Public
Hospital District 1, (Valley Medical
Center), AMBAC-Insured,
7.250% due 9/15/15 $ 1,644,375
500,000 AA Pierce County, WA Economic
Development Corporation
IDA, (Pioneer Business
Forms Inc. Project), 10.125%
due 10/1/00
503,750
2,000,000 BBB Port Moses Lake, WA PCR,
(Union Carbide),
7.875% due 8/1/06
2,107,500
2,000,000 AAA Port of Seattle, WA
Subordinated Lien, MBIA-Insured,
6.625% due 8/1/17
2,115,000
3,000,000 AAA Snohomish County, WA
Electric Revenue Generation
System, (Public Utility
District No. 1), FGIC-Insured,
6.000% due 1/1/18
3,000,000
3,500,000 AAA Tacoma, WA Electric
Systems Revenue, AMBAC-Insured,
Series B, 6.150% due
1/1/08 3,640,000
2,750,000 AAA Washington State Health
Care Facilities Authority Revenue,
(Franciscan Health, St.
Joseph), MBIA-Insured,
6.700% due 7/1/21
2,870,312
Washington State Public
Power Supply System,
Nuclear Project No. 1):
3,000,000 AA 7.500% due 7/1/07
3,266,250
500,000 AAA Series A, MBIA-
Insured, 6.250% due 7/1/17
503,125
4,000,000 AA Washington State, 14th
Series, 6.000% due 9/1/19 3,965,000
- ----------------------------------------------------------
- -------------------------------------------------------
23,615,312
- ----------------------------------------------------------
- -------------------------------------------------------
West Virginia -- 2.0%
2,000,000 A Beckley, WV IDR, (Water
Commission Project),
7.000% due 10/1/17
2,110,000
1,000,000 A+ Harrison County, WV Solid
Waste Disposal Revenue, (West
Virginia Power
Company), Series B, 6.300% due 5/1/23
1,000,000
Marion County, WV, Solid
Waste Disposal
Revenue, (American
Power, Paper Recycling):
2,500,000 NR 7.750% due 12/1/11
2,259,375
5,000,000 NR 9.000% due 12/1/11
4,987,500
3,000,000 AAA Mason County, WV PCR,
(Ohio Power Company),
Series B, AMBAC-
Insured, 5.450% due 12/1/16
2,816,250
3,500,000 A Pleasants County, WV, PCR,
(Potomac Ed Co-Pleasants
Sta-C), 6.150% due
5/1/15 3,460,625
2,300,000 AAA West Virginia School
Building Authority Revenue,
Series A, MBIA-Insured,
7.000% due 7/1/11 2,481,125
500,000 AAA West Virginia State Water
Development Authority,
Series A, 7.000% due
11/1/25 535,625
- ----------------------------------------------------------
- -------------------------------------------------------
19,650,500
- ----------------------------------------------------------
- -------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
27
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING SECURITY
VALUE
==========================================================
=======================================================
Wisconsin -- 0.2%
<C> <C> <S>
<C>
$2,000,000 Baa1* Racine County, WI Health
Center Revenue, 8.125%
due 8/1/21
$ 2,080,000
- ----------------------------------------------------------
- -------------------------------------------------------
Wyoming -- 0.1%
1,250,000 AA Wyoming Community
Development Authority, Housing
Revenue, 7.100% due
6/1/17 1,310,937
- ----------------------------------------------------------
- -------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $940,765,340*)
$967,224,143
==========================================================
=======================================================
</TABLE>
(a) Residual interest bonds -- coupon varies inversely
with level of short-term
tax-exempt interest rates.
(b) Pre-refunded bonds escrowed by U.S. Government
Securities and bonds
escrowed to maturity by U.S. Government Securities
are considered by
manager to be triple-A rated even if issuer has not
applied for new
ratings.
(c) Security is non-income producing and subject to
restructuring.
* Aggregate cost for Federal income tax purposes is
substantially the same.
See Pages 29 and 30 for definition of ratings and certain
security descriptions.
See Notes to Financial Statements.
28
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Bond Ratings
- ----------------------------------------------------------
- ----------------------
All ratings are by Standard & Poor's Corporation, except
that those identified
by an asterisk (*) are rated by Moody's Investors
Services. The definitions of
the applicable rating symbols are set forth below:
Standard & Poor's -- Rating from "AA" to "BB" may be
modified by the addition of
a plus (+) or a minus (-) sign to show relative
standings within the major
rating categories.
AAA --Debt rated "AAA"' has the highest rating assigned
by Standard & Poor's.
Capacity to pay interest and repay principal is
extremely strong.
AA --Debt rated "AA" has a very strong capacity to
pay interest and repay
principal and differs from the highest rated
issue only in a small
degree.
A --Debt rated "A" has a strong capacity to pay
interest and repay principal
although it is somewhat more susceptible to
the adverse effects of
changes in circumstances and economic
conditions than debt in higher
rated categories.
BBB --Debt rated "BBB" is regarded as having an
adequate capacity to pay
interest and repay principal. Whereas it
normally exhibits adequate
protection parameters, adverse economic
conditions or changing
circumstances are more likely to lead to a
weakened capacity to pay
interest and repay principal for debt in this
category than in higher
rated categories.
BB --Debt rated "BB" has less near-term vulnerability
to default than other
speculative issues. However, it faces major
ongoing uncertainties of
exposure to adverse business, financial, or
economic conditions which
could lead to inadequate capacity to meet timely
interest and principal
payments.
D --Bonds rated "D" are in default, and payment of
interest and/or repayment
of principal is in arrears.
Moody's -- Numerical modifiers 1, 2, and 3 may be applied
to each generic rating
from "Aa" to `Baa", where 1 is the highest
and 3 the lowest rating
within its generic category.
Aaa --Bonds that are rated "Aaa" are judged to be of
the best quality. They
carry the smallest degree of investment risk and
are generally referred
to as "gilt edge." Interest payments are
protected by a large or by an
exceptionally stable margin and principal is
secure. While the various
protective elements are likely to change,
such changes as can be
visualized are most unlikely to impair the
fundamentally strong position
of such issues.
Aa --Bonds that are rated "Aa" are judged to be of
high quality by all
standards. Together with the Aaa group they
comprise what are generally
known as high grade bonds. They are rated lower
than the best bonds
because margins of protection may not be as large
as in Aaa securities or
fluctuation of protective elements may be of
greater amplitude or there
may be other elements present which make the
long-term risks appear
somewhat larger than in Aaa securities.
A --Bonds that are rated "A" possess many favorable
investment attributes and
are to be considered as upper medium grade
obligations. Factors giving
security to principal and interest are considered
adequate but elements
may be present which suggest a susceptibility to
impairment some time in
the future. Baa -- Bonds that are rated "Baa" are
considered as medium
grade obligations, i.e., they are neither highly
protected nor poorly
secured. Interest payments and principal security
appear adequate for the
present but certain protective elements may
be lacking or may be
characteristically unreliable over any great
length of time. Such bonds
lack outstanding investment characteristics and in
fact have speculative
characteristics as well.
NR --Indicates that the bond is not rated by Standard &
Poor's Corporation or
Moody's Investor's Services.
29
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Security Descriptions
- ----------------------------------------------------------
- ----------------------
ABAG -- Association of Bay Area Governors
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan
Insurance
CO LEE -- College Construction Loan Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed to Maturity
FAIRS -- Floating Adjustable Interest Rate Securities
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Agency
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax-Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRWE -- Variable Rate Wednesday Demand
30
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Statement of Assets and Liabilities
July 31, 1995
- ----------------------------------------------------------
- ----------------------
ASSETS:
Investments, at value (Cost - $940,765,340)
$ 967,224,143
Receivable for securities sold
7,478,550
Receivable for Fund shares sold
431,803
Dividends and interest receivable
14,524,164
- ----------------------------------------------------------
- ----------------------
Total Assets
989,658,660
- ----------------------------------------------------------
- ----------------------
LIABILITIES:
Payable for Fund shares purchased
936,576
Investment advisory fees payable
342,569
Administration fees payable
171,285
Distribution costs payable
742,425
Payable for securities purchased
2,437,450
Payable to bank
10,296,217
Accrued expenses and other liabilities
240,762
- ----------------------------------------------------------
- ----------------------
Total Liabilities
15,167,284
- ----------------------------------------------------------
- ----------------------
Total Net Assets
$974,491,376
==========================================================
======================
NET ASSETS:
Par value of shares of beneficial interest
$ 56,474
Capital paid in excess of par value
955,774,706
Accumulated net realized loss on security transactions
(7,798,607)
Net unrealized appreciation of investments
26,458,803
- ----------------------------------------------------------
- ----------------------
Total Net Assets
$974,491,376
==========================================================
======================
Shares Outstanding:
Class A
13,777,081
-------------------------------------------------------
- ----------------------
Class B
42,684,958
-------------------------------------------------------
- ----------------------
Class C
12,232
-------------------------------------------------------
- ----------------------
Net Asset Value:
Class A (and redemption price)
$17.25
-------------------------------------------------------
- ----------------------
Class B*
$17.26
-------------------------------------------------------
- ----------------------
Class C**
$17.25
-------------------------------------------------------
- ----------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 4.17% of net asset value per share)
$17.97
==========================================================
======================
* Redemption price is NAV of Class B shares reduced by
a 4.50% CDSC if shares
are redeemed less than one year from initial purchase
(See Note 2).
** Redemption price is NAV of Class C shares reduced by
a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
31
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Statement of Operations For the
Year Ended July 31, 1995
- ----------------------------------------------------------
- ----------------------
INVESTMENT INCOME:
Interest
$ 69,997,436
- ----------------------------------------------------------
- ----------------------
EXPENSES:
Distribution fees (Note 2)
5,456,482
Investment advisory fees (Note 2)
4,033,479
Administration fees (Note 2)
2,016,740
Shareholder and system servicing fees
446,887
Custody
147,849
Shareholder communications
77,922
Registration fees
72,863
Audit and legal
51,105
Trustees' fees
12,618
Other
163,937
- ----------------------------------------------------------
- ----------------------
Total Expenses
12,479,882
- ----------------------------------------------------------
- ----------------------
Net Investment Income
57,517,554
- ----------------------------------------------------------
- ----------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales
279,639,750
Cost of securities sold
287,438,357
- ----------------------------------------------------------
- ----------------------
Net Realized Loss
(7,798,607)
- ----------------------------------------------------------
- ----------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year
21,337,131
End of year
26,458,803
- ----------------------------------------------------------
- ----------------------
Increase in Net Unrealized Appreciation
5,121,672
- ----------------------------------------------------------
- ----------------------
Net Loss on Investments
(2,676,935)
- ----------------------------------------------------------
- ----------------------
Increase in Net Assets From Operations
$54,840,619
==========================================================
======================
See Notes to Financial Statements.
32
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Statements of Changes in Net Assets For
the Years Ended July 31,
- ----------------------------------------------------------
- ----------------------
1995 1994
==========================================================
======================
OPERATIONS:
Net investment income $
57,517,554 $ 60,953,980
Net realized gain (loss)
(7,798,607) 1,179,561
Increase (decrease) in net unrealized
appreciation of investments
5,121,672 (56,414,234)
- ----------------------------------------------------------
- ----------------------
Increase in Net Assets
From Operations
54,840,619 5,719,307
- ----------------------------------------------------------
- ----------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income
(55,145,310) (58,765,103)
Overdistribution of net income
- -- (2,372,244)
Net realized gains
(1,179,561) (8,381,999)
Capital
(2,169,141) --
- ----------------------------------------------------------
- ----------------------
Decrease in Net Assets From
Distributions to Shareholders
(58,494,012) (69,519,346)
- ----------------------------------------------------------
- ----------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares
308,956,540 190,815,587
Net asset value of shares issued for
reinvestment of dividends
32,996,530 41,117,694
Cost of shares reacquired
(451,067,162) (202,475,512)
- ----------------------------------------------------------
- ----------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions
(109,114,092) 29,457,769
- ----------------------------------------------------------
- ----------------------
Decrease in Net Assets
(112,767,485) (34,342,270)
NET ASSETS:
Beginning of Year
1,087,258,861 1,121,601,131
- ----------------------------------------------------------
- ----------------------
End of Year*
$974,491,376 $1,087,258,861
==========================================================
======================
* Includes overdistributed net
investment income of:
- -- $(2,372,244)
==========================================================
======================
See Notes to Financial Statements.
33
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements
- ----------------------------------------------------------
- ----------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Tax-Exempt Income Fund ("Fund"), a
separate investment
fund of the Smith Barney Income Funds ("Trust"), a
Massachusetts business trust,
is registered under the Investment Company Act of 1940, as
amended, as a
diversified, open-end management investment company. The
Trust consists of the
Fund and six other separate investment funds: Smith Barney
Exchange Reserve
Fund, Smith Barney Premium Total Return Fund, Smith Barney
High Income Fund,
Smith Barney Convertible Fund, Smith Barney Diversified
Strategic Income Fund
and Smith Barney Utilities Fund. The financial statements
and financial
highlights for the other funds are presented in separate
annual reports.
The significant accounting policies consistently
followed by the Trust are:
(a) securities transactions are accounted for on trade
date; (b) securities are
valued at mean prices by an independent pricing service
that are based on
transactions in municipal obligations, quotations from
municipal bond dealers,
market transactions in comparable securities and various
relationships between
securities; (c) short-term securities that have a maturity
of more than 60 days
are valued at prices based on market quotations for
securities of similar type,
yield and maturity; (d) short-term investments that have a
maturity of 60 days
or less are valued at cost plus accreted discount, or
minus amortized premium,
as applicable; (e) interest income, adjusted for
amortization of premiums and
accretion of original issue discount, is recorded on the
accrual basis; (f)
gains or losses on the sale of securities are recorded on
the identified cost
basis; (g) dividends and distributions to shareholders are
recorded on the
ex-dividend date; (h) direct expenses are charged to each
fund and each class;
management fees and general fund expenses are allocated on
the basis of relative
net assets of each class; (i) in accordance with Statement
of Position 93-2
Determination, Disclosure, and Financial Statement
Presentation of Income,
Capital Gain, and Return of Capital Distributions by
Investment Companies, book
and tax differences relating to shareholder distributions
are other permanent
book and tax differences are reclassified to paid-in
capital. As of July 31,
1995, the cumulative effect of such differences, totaling
$2,169,141, were
reclassified to paid-in capital from accumulated net
investment loss. Net
investment income, net realized gains, and net assets were
not affected by this
change; (j) the Fund intends to comply with the applicable
provisions of the
Internal Revenue Code of 1986, as amended, pertaining to
regulated investment
companies and to make distributions of taxable income
sufficient to relieve it
from substantially all Federal income and excise taxes;
and (k) certain prior
year numbers have been restated to reflect current year's
presentation. Net
investment income, net realized gains, and net assets were
not affected by this
change.
34
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements (continued)
- ----------------------------------------------------------
- ----------------------
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION
AGREEMENT
AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment advisor
to the Fund. The Fund
pays SBMFM an advisory fee calculated at an annual rate of
0.40% of the average
daily net assets; this fee is calculated daily and paid
monthly.
SBMFM also acts as the Fund's administrator for which
the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily
net assets; this fee
is calculated daily and paid monthly.
In addition, The Boston Company Advisors, Inc.
("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank
Corporation, acted as
sub-administrator to the Fund. SBMFM paid Boston Advisors
a portion of its
administration fee at a rate agreed upon from time to time
between SBMFM and
Boston Advisors. As of July 14, 1995 this relationship was
terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares. For the year ended July 31, 1995, SB received
sales charges of
approximately $68,794 of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC")
of 4.50% on Class B
shares if redemption occurs less than one year from
initial purchase and
thereafter declines by 0.50% the first year after purchase
and by 1.00% per year
until no CDSC is incurred. Class C shares have a 1.00%
CDSC if redemption occurs
within the first year from the date such investment was
made. For the year ended
July 31, 1995, CDSC's of approximately $1,649,382 were
paid to SB.
Pursuant to a Distribution Plan, the Fund pays a
distribution fee with
respect to Class B and C shares calculated at the annual
rate of 0.50% and
0.55%, respectively, of the average daily net assets for
each class. The Fund
also pays a service fee with respect to Class A, B and C
shares calculated at
the annual rate of 0.15% of the average daily net assets
of each class,
respectively.
All officers and one trustee of the Fund are
employees of SB.
3. INVESTMENTS
During the year ended July 31, 1995, the aggregate
cost of purchases and
proceeds from sales of investments (including maturities,
but excluding
short-term securities) was $166,250,070 and $279,639,750,
respectively.
35
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements (continued)
- ----------------------------------------------------------
- ----------------------
At July 31, 1995, the net unrealized appreciation of
investments for
Federal income tax purposes consisted of the following:
==========================================================
======================
Gross unrealized appreciation
$37,140,855
Gross unrealized depreciation
(10,682,052)
- ----------------------------------------------------------
- ----------------------
Net unrealized appreciation
$26,458,803
==========================================================
======================
4. CAPITAL LOSS CARRYFORWARD
At July 31, 1995, the Fund had for Federal tax
purposes approximately
$2,037,477 of unused loss carryforwards available to
offset future capital gains
expiring July 31, 2003. To the extent that these
carryforward losses are used to
offset capital gains, it is probable that the gains so
offset will not be
distributed.
5. SHARES OF BENEFICIAL INTEREST
The Fund may issue an unlimited number of shares of
beneficial interest of
each class in each separate series with a $0.001 par
value. The Fund has the
ability to issue multiple classes of shares. Each share of
a class represents an
identical interest and has the same rights, except that
each class bears certain
direct expenses, including those specifically related to
the distribution of its
shares. Effective November 7, 1994, the Fund adopted a new
class structure. At
July 31, 1995, total paid-in capital amounted to the
following for each class:
Class A Class B
Class C
==========================================================
======================
Total Paid-in Capital $237,209,744
$718,415,672 $205,764
==========================================================
======================
Transactions in shares of each class were as follows:
Year Ended
Year Ended
July 31, 1995
July 31, 1994
--------------------- ---
- ------------------
Shares Amount
Shares Amount
==========================================================
======================
Class A
Shares sold 15,203,943 $260,143,513
2,396,372 $ 42,651,712
Shares issued on
reinvestment 485,637 8,176,630
46,307 833,218
Shares redeemed (2,943,568) (49,239,168)
(2,152,168) (38,156,421)
- ----------------------------------------------------------
- ----------------------
Net Increase 12,746,012 $219,080,975
290,511 $ 5,328,509
==========================================================
======================
Class B
Shares sold 2,897,328 $ 48,582,535
8,179,538 $148,163,875
Shares issued on
reinvestment 1,470,435 24,816,156
2,238,768 40,284,476
Shares redeemed (23,643,756) (401,799,664)
(9,208,861) (164,319,091)
- ----------------------------------------------------------
- ----------------------
Net Increase (Decrease)(19,275,993) $(328,400,973)
1,209,445 $ 24,129,260
==========================================================
======================
36
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements (continued)
- ----------------------------------------------------------
- ----------------------
Year Ended
Year Ended
July 31, 1995*
July 31, 1994
--------------------- ---
- ------------------
Shares Amount
Shares Amount
==========================================================
======================
Class C
Shares sold 13,738 $ 230,492
- -- --
Shares issued on
reinvestment 206 3,744
- -- --
Shares redeemed (1,712) (28,330)
- -- --
- ----------------------------------------------------------
- ----------------------
Net Increase 12,232 $ 205,906
- -- --
==========================================================
======================
* For Class C shares, transactions are for the period
from November 17, 1994
(inception date) to July 31, 1995.
37
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Financial Highlights
- ----------------------------------------------------------
- ----------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
Class A Shares 1995
1994 1993(1)
==========================================================
======================
Net Asset Value, Beginning of Year $17.26
$18.24 $17.45
- ----------------------------------------------------------
- ----------------------
Income From Operations:
Net investment income 1.04
1.06 0.78
Net realized and unrealized
gain (loss) on investments(2) 0.01
(0.85) 1.00
- ----------------------------------------------------------
- ----------------------
Total Income From Operations 1.05
0.21 1.78
- ----------------------------------------------------------
- ----------------------
Less Distributions From:
Net investment income (1.00)
(1.02) (0.80)
Overdistribution of net income --
(0.04) (0.03)
Net realized gains --
(0.13) (0.16)
Overdistribution of net realized gains (0.02)
- -- --
Capital (0.04)
- -- --
- ----------------------------------------------------------
- ----------------------
Total Distributions (1.06)
(1.19) (0.99)
- ----------------------------------------------------------
- ----------------------
Net Asset Value, End of Year $17.25
$17.26 $18.24
- ----------------------------------------------------------
- ----------------------
Total Return 6.42%
1.14% 10.24%++
- ----------------------------------------------------------
- ----------------------
Net Assets, End of Year (000s) $237,656
$17,792 $13,508
- ----------------------------------------------------------
- ----------------------
Ratios to Average Net Assets:
Expenses 0.84%
0.84% 0.86%+
Net investment income 6.04
5.83 6.03+
- ----------------------------------------------------------
- ----------------------
Portfolio Turnover Rate 38%
39% 34%
==========================================================
======================
(1) For the period from November 6, 1992 (inception date)
to July 31, 1993.
(2) Includes the net per share effect of shareholder
sales and redemption
activity during the period, most of which occurred at
net asset values less
than the beginning of the period.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
38
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Financial Highlights (continued)
- ----------------------------------------------------------
- ----------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
Class B Shares 1995 1994
1993 1992 1991
==========================================================
======================
Net Asset Value, Beginning of Year $17.26 $18.24
$18.00 $16.97 $16.98
- ----------------------------------------------------------
- ----------------------
Income From Operations:
Net investment income 0.95 0.96
0.98 1.04 1.10
Net realized and unrealized
gain (loss) on investments(1) 0.02 (0.85)
0.45 1.17 0.10
- ----------------------------------------------------------
- ----------------------
Total Income From Operations 0.97 0.11
1.43 2.21 1.20
- ----------------------------------------------------------
- ----------------------
Less Distributions From:
Net investment income (0.91) (0.92)
(0.98) (1.04) (1.10)
Overdistribution of net income -- (0.04)
(0.04) -- --
Net realized gains (0.02) (0.13)
(0.17) (0.14) (0.11)
Capital (0.04) --
- -- -- --
- ----------------------------------------------------------
- ----------------------
Total Distributions (0.97) (1.09)
(1.19) (1.18) (1.21)
- ----------------------------------------------------------
- ----------------------
Net Asset Value, End of Year $17.26 $17.26
$18.24 $18.00 $16.97
- ----------------------------------------------------------
- ----------------------
Total Return 5.91% 0.60%
8.28% 13.50% 7.40%
- ----------------------------------------------------------
- ----------------------
Net Assets, End of Year (millions) $737 $1,069
$1,108 $871 $639
- ----------------------------------------------------------
- ----------------------
Ratios to Average Net Assets:
Expenses 1.35% 1.33%
1.38% 1.45% 1.45%
Net investment income 5.61 5.34
5.52 5.96 6.48
- ----------------------------------------------------------
- ----------------------
Portfolio Turnover Rate 38% 39%
34% 61% 44%
==========================================================
======================
(1) Includes the net per share effect of shareholder
sales and redemption
activity during the period, most of which occurred at
net asset values less
than the beginning of the period.
39
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Financial Highlights (continued)
- ----------------------------------------------------------
- ----------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
Class C Shares
1995(1)
==========================================================
======================
Net Asset Value, Beginning of Year
$15.83
- ----------------------------------------------------------
- ----------------------
Income From Operations:
Net investment income
0.60
Net realized and unrealized
gain (loss) on investments(2)
1.50
- ----------------------------------------------------------
- ----------------------
Total Income From Operations
2.10
- ----------------------------------------------------------
- ----------------------
Less Distributions:
Net investment income
(0.62)
Overdistribution of net income
- --
Net realized gains .
(0.02)
Capital .
(0.04)
- ----------------------------------------------------------
- ----------------------
Total Distributions
(0.68)
- ----------------------------------------------------------
- ----------------------
Net Asset Value, End of Year
$17.25
- ----------------------------------------------------------
- ----------------------
Total Return
13.45%++
- ----------------------------------------------------------
- ----------------------
Net Assets, End of Year (000s)
$211
- ----------------------------------------------------------
- ----------------------
Ratios to Average Net Assets:
Expenses
1.18%+
Net investment income
5.56+
- ----------------------------------------------------------
- ----------------------
Portfolio Turnover Rate
38%
==========================================================
======================
(1) For the period from November 17, 1994 (inception
date) to July 31, 1995.
(2) Includes the net per share effect of shareholder
sales and redemption
activity during the period, most of which occurred at
net asset values less
than the beginning of the period.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
- ----------------------------------------------------------
- ----------------------
Additional Information
- ----------------------------------------------------------
- ----------------------
Change in Independent Auditor: On October 20, 1994,
based upon the
recommedation of the Audit Committee of the Fund, the
Board of Trustees
determined not to retain Coopers & Lybrand L.L.P.
("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat
Marwick LLP. During
the Fund's two most recent fiscal years, Coopers &
Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor
were the reports
qualified or modified as to uncertainty, audit scope, or
accounting principles.
Further, during this same period there were no
disagreements with Coopers &
Lybrand on any matter of accounting principles or
practices, financial statement
disclosure, or auditing scope or procedure, which
disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have
caused it to make reference
to the subject matter of such disagreements in connection
with its audit
reports. The Fund has requested Coopers & Lybrand to
provide a letter to the
Securities and Exchange Commission stating whether Coopers
& Lybrand agrees with
the foregoing statements, and to provide the Fund with a
copy of such letter. A
copy of this letter is available upon request by calling
the Fund at (212)
723-9218.
40
<PAGE>
Smith Barney Tax-Exempt Income Fund
- ----------------------------------------------------------
- ----------------------
Independent Auditors' Report
- ----------------------------------------------------------
- ----------------------
The Shareholders and Board of Trustees of
Smith Barney Tax-Exempt Income Fund of
Smith Barney Income Funds:
We have audited the accompanying statement of assets
and liabilities,
including the schedule of investments, of Smith Barney Tax-
Exempt Income Fund of
Smith Barney Income Funds as of July 31, 1995, and the
related statement of
operations, statement of changes in net assets, and
financial highlights for the
year then ended. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our
responsibility is to express an
opinion on these financial statements and financial
highlights based on our
audit. The statement of changes in net assets for the year
ended July 31, 1994
and the financial highlights for each of the years in the
four-year period then
ended, were audited by other auditors whose report
thereon, dated September 16,
1994, expressed an unqualified opinion on that statement
of changes in net
assets and those financial highlights.
We conducted our audit in accordance with generally
accepted auditing
standards. Those standards require that we plan and
perform the audit to obtain
reasonable assurance about whether the financial
statements and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of July
31, 1995, by correspondence with the custodian. An audit
also includes assessing
the accounting principles used and significant estimates
made by management, as
well as evaluating the overall financial statement
presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly,
in all material respects, the financial position of Smith
Barney Tax-Exempt
Income Fund of Smith Barney Income Funds as of July 31,
1995, and the results of
its operations, changes in its net assets and financial
highlights for the year
then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat
Marwick LLP
September 22, 1995
New York, New York
41
<PAGE>
Smith Barney
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 and Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Lawrence T. McDermott
Vice President and Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ------------
A Member of
Travelers Group [LOGO]
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services
Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of
the shareholders of
Smith Barney Tax-Exempt Income Fund. It is not authorized
for distribution to
prospective investors unless accompanied or preceded by a
current Prospectus for
the Fund, which contains information concerning the Fund's
investment policies
and expenses as well as other pertinent information.
Smith Barney Tax-Exempt
Income Fund
388 Greenwich Street
New York, New York 10013
FD 0427 9/95
-------------
ANNUAL REPORT
-------------
1995
1995
1995
1995
1995
Smith Barney
Convertible
Fund
------------------------
- ----------------------
July 31, 1995
[LOGO] Smith Barney Mutual
Funds
Investing for your
future.
Every day.
<PAGE>
-----------------------------
Smith Barney Convertible Fund
-----------------------------
Dear Shareholder:
The Smith Barney Convertible Fund performed well for the
year ended July 31,
1995, producing a total return of 10.35% for Class A
shares. The lion's share of
this positive performance was derived between January and
July of 1995. During
this period the financial markets responded favorably to
the Federal Reserve
Board's apparent success at slowing the domestic economy
and reducing
inflationary fears.
Economic and Financial Market Overview
During the past 12 months the U.S. economy has gone
through a significant
transition. Following a period of strong growth in the
second half of 1994 when
consumer spending surged, capital spending picked up, and
exports strengthened,
the domestic economy downshifted and began to moderate in
early 1995. The
slowdown in the economy, as evidenced by weaker retail and
auto sales and a
softer job market, was a result of the inflation-fighting
policies adopted by
the Federal Reserve Board in February 1994. The Fed, in an
effort to brake the
fast-growing economy and reduce inflation expectations,
raised short-term
interest rates seven times over a 13-month period. Since
the beginning of 1995,
economic statistics have been generally weak, suggesting
that the Fed has been
successful in its efforts. One side effect of the economic
slowdown is that
inflation expectations have eased, causing the producer
price index (PPI) and
consumer price index (CPI) to remain relatively stable
this year.
In response to the slowdown in the economy and improved
inflation outlook the
financial markets have turned in a strong performance so
far this year. This is
in sharp contrast to last year when rising interest rates
had a negative impact
on both the bond and equity markets. The bond market began
to discount the
possibility of an economic slowdown in early November
1994, at which time the
yield on the 30-year U.S. Treasury bond peaked to 8.16%.
Over the next seven
months, however, it declined approximately 1.5%. Bond
investors grew confident
that the Fed had succeeded in putting the brakes on the
economy.
The rally in bonds carried over to the equity market. The
Dow Jones Industrial
Average, the most widely reported market average, gained
strength in December
1994 after 11 months of flat performance and by July, had
climbed by over 800
points. The stock market not only benefited from the
decline in interest rates,
but also responded favorably to the continued growth in
corporate earnings. Over
the past year, corporations have announced solid earnings
growth due to
productivity gains, cost cutting, and increased business
overseas. The
acceleration in earnings, coupled with the decline in
interest rates, has
improved the valuation case for stocks relative to other
asset classes.
The dramatic improvement in the financial markets since
December 1994 has
1
<PAGE>
benefited convertible securities because these investments
have both
fixed-income and equity characteristics. After last year's
difficult environment
for convertibles, when conversion premiums contracted as a
result of the
precipitous rise in interest rates, convertible securities
are showing solid
returns so far this year.
A convertible security is essentially a combination of a
so-called "straight"
corporate bond and a call option on a company's common
stock. If interest rates
fall, the straight bond portion of the convertible
security increases in value.
Likewise, if the company's common stock appreciates, the
option on the common
stock becomes more valuable. These hybrid securities have
been direct
beneficiaries of the lower-rate environment and stronger
stock market this year.
Investors searching for yield are looking at convertibles
again. In addition,
the new-issue market for convertibles is active once more
as corporations take
advantage of higher equity prices and lower interest rates
to raise funds. All
this activity has also helped to refocus attention on the
convertible-securities
market.
Portfolio Strategy
The Convertible Fund is a well-diversified portfolio,
consisting primarily of
convertible bonds and convertible preferred stocks. The
objective of the Fund is
to provide investors with current income and an
opportunity to participate in
the long-term growth of the stock market with the
potential for reduced risk and
lower volatility. Our strategy is to select convertibles
that, in our view,
offer the best total return opportunities based on a
combination of fundamental
and security-pricing analysis. We place special emphasis
on quality with over
50% of the Fund's holdings rated investment grade (Baa or
higher by Moody's, or
BBB by Standard & Poor's). The Fund rarely purchases non-
rated securities,
seldom holds common stocks, and avoids investing in
illiquid private placements.
Lately, we have focused on convertible bonds rather than
on convertible
preferred stocks because bonds generally provide better
downside protection. The
Fund's portfolio is well diversified with over 20
industries represented. This
past year, several holdings in the interest-rate sensitive
sector, specifically
banks, helped performance considerably. Two of the larger
holdings, Bank America
and Barnett Bank, performed well as interest rates
declined. The Fund has also
benefited from appreciation in some of our natural-
resource holdings such as
Amoco, Chevron, and Newmont Mining. During the year,
several issues in the
Fund's portfolio were called for redemption including
Freeport McMoran,
International Paper, and American Stores.
Outlook
Our outlook for the financial markets over the next 12
months, and specifically
the convertible securities market, is positive. We believe
the U.S. economy will
grow modestly over the next year, keeping inflation
expectations relatively low.
The Fed has reversed course recently and lowered short-
term interest rates in
order to keep the economy from slowing any further. In our
opinion, this change
2
<PAGE>
in policy should keep interest rates relatively stable for
the foreseeable
future. Corporate earnings should continue to benefit from
the growing economy,
productivity gains, and cost cutting. Convertible
securities have historically
performed well in this type of environment. Given our
outlook for the economy
and financial markets over the next year, we believe the
Convertible Fund will
continue to provide investors with superior risk-adjusted
returns.
We thank you for your confidence in our investment
management and look forward
to serving your investment needs in the future.
Sincerely,
/S/ HEATH B. MCLENDON /S/
ROBERT E. SWAB
Heath B. McLendon Robert
E. Swab
Chairman and
Investment Officer
Investment Officer
August 11, 1995
3
<PAGE>
Smith Barney Convertible Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- --------------------------
Historical Performance -- Class A Shares
- ----------------------------------------------------------
- --------------------------
Net Asset Value
------------------
Beginning End of Income Capital
Gain Return of Total
Year Ended of Year Year Dividends
Distributions Capital Returns(1)
==========================================================
===========================
<S> <C> <C> <C> <C>
<C> <C>
7/31/95 $14.56 $15.27 $0.73 $0.00
$0.00 10.35%
- ----------------------------------------------------------
- ---------------------------
7/31/94 14.99 14.56 0.73 0.00
0.00 1.99
- ----------------------------------------------------------
- ---------------------------
Inception*
- 7/31/93 13.82 14.99 0.51 0.03
0.00 12.63
==========================================================
===========================
Total $1.97 $0.03
$0.00
==========================================================
===========================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- ---------------------------
Historical Performance -- Class B Shares
- ----------------------------------------------------------
- ---------------------------
Net Asset Value
------------------
Beginning End of Income Capital
Gain Return of Total
Year Ended of Year Year Dividends
Distributions Capital Returns(1)
==========================================================
===========================
<S> <C> <C> <C> <C>
<C> <C>
7/31/95 $14.56 $15.27 $0.66 $0.00
$0.00 9.80%
- ----------------------------------------------------------
- ---------------------------
7/31/94 14.99 14.56 0.66 0.00
0.00 1.50
- ----------------------------------------------------------
- ---------------------------
7/31/93 13.84 14.99 0.62 0.04
0.00 13.40
- ----------------------------------------------------------
- ---------------------------
7/31/92 12.51 13.84 0.64 0.00
0.02 16.25
- ----------------------------------------------------------
- ---------------------------
7/31/91 12.21 12.51 0.68 0.00
0.03 8.86
- ----------------------------------------------------------
- ---------------------------
7/31/90 13.80 12.21 0.83 0.11
0.04 (4.53)
- ----------------------------------------------------------
- ---------------------------
7/31/89 13.04 13.80 0.86 0.01
0.00 13.09
- ----------------------------------------------------------
- ---------------------------
7/31/88 13.93 13.04 0.85 0.27
0.00 2.22
- ----------------------------------------------------------
- ---------------------------
Inception*
- 7/31/87 13.00 13.93 0.62 0.03
0.00 12.34
==========================================================
===========================
Total $6.42 $0.46
$0.09
==========================================================
===========================
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- ---------------------------
Historical Performance -- Class C Shares
- ----------------------------------------------------------
- ---------------------------
Net Asset Value
------------------
Beginning End of Income Capital
Gain Return of Total
Year Ended of Year Year Dividends
Distributions Capital Returns(1)
==========================================================
===========================
<S> <C> <C> <C> <C>
<C> <C>
Inception*
- 7/31/95 $14.09 $15.27 $0.49 $0.00
$0.00 12.17%
==========================================================
===========================
</TABLE>
It is the Funds' policy to distribute dividends monthly
and capital gains, if
any, annually.
4
<PAGE>
Smith Barney Convertible Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- ---------------------------
Average Annual Total Return
- ----------------------------------------------------------
- ---------------------------
Without Sales Charge(1)
--------
- ---------------------------
Class A
Class B Class C
==========================================================
===========================
<S> <C>
<C>
Year Ended 7/31/95 10.35%
9.80% N/A
- ----------------------------------------------------------
- ---------------------------
Five Years Ended 7/31/95 N/A
9.85 N/A
- ----------------------------------------------------------
- ---------------------------
Inception* through 7/31/95 9.07
7.99 12.17%
- ----------------------------------------------------------
- ---------------------------
Without Sales Charge(2)
--------
- ---------------------------
Class A
Class B Class C
==========================================================
===========================
<S> <C>
<C>
Year Ended 7/31/95 4.81%
4.80% N/A
- ----------------------------------------------------------
- ---------------------------
Five Years Ended 7/31/95 N/A
9.71 N/A
- ----------------------------------------------------------
- ---------------------------
Inception* through 7/31/95 7.03
7.99 11.17%
- ----------------------------------------------------------
- ---------------------------
</TABLE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- ---------------------------
Cumulative Total Return
- ----------------------------------------------------------
- ---------------------------
Without Sales Charge(1)
------
- ---------------------------
<S>
<C>
Class A (Inception* through 7/31/95)
26.76%
- ----------------------------------------------------------
- ---------------------------
Class B (Inception* through 7/31/95)
98.39
- ----------------------------------------------------------
- ---------------------------
Class C (Inception* through 7/31/95)
12.17
- ----------------------------------------------------------
- ---------------------------
</TABLE>
(1) Assumes reinvestment of all dividends and capital
gain distributions at
net asset value and does not reflect deduction of
the applicable sales
charge with respect to Class A shares or the
applicable contingent
deferred sales charges ("CDSC") with respect to
Class B and Class C.
(2) Assumes reinvestment of all dividends and capital
gain distributions at
net asset value. In addition, Class A shares reflect
the deduction of the
maximum initial sales charge of 5.00%, and Class B
shares reflect the
deduction of a 5.00% CDSC which applies if shares
are redeemed less than
one year from initial purchase. This CDSC declines
1.00% per year
thereafter until no CDSC charge is incurred. Class C
shares reflect the
deduction of a 1.00% CDSC which applies if shares
are redeemed within the
first year of purchase.
* Inception dates for Class A, B and C shares are
November 6, 1992,
September 9, 1986 and November 7, 1994,
respectively.
5
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Historical Performance
- ----------------------------------------------------------
- ----------------------
Growth of $10,000 Invested in Class B
Shares of
Smith Barney Convertible Fund vs.
the
Standard & Poor's 500 and Lipper Convertible
Securities Indexes+
(unaudited)
- ----------------------------------------------------------
- ----------------------
September 1986 -- July 1995
[The following table was represented by a graph in the
printed material]
9/9/86
7/95
---------
- ---------
Smith Barney Convertible Fund $10,000
$19,839
Lipper Convertible Securities Index $10,000
$22,592
S&P 500 Index $10,000
$32,158
+ Hypothetical illustration of $10,000 invested in Class
B shares at inception
on September 9, 1986, assuming reinvestment of
dividends and capital gains,
if any, at net asset value through July 31, 1995. The
Standard & Poor's 500
Stock Index ("S&P 500 Index") is an index composed of
widely held common
stocks listed on the New York Stock Exchange, American
Stock Exchange and the
over-the-counter market. Figures for the S&P 500 Index
include reinvestment
of dividends. The Lipper Convertible Securities Index
is composed of the
Fund's peer group of mutual funds investing in
convertible securities. The
indexes are unmanaged and are not subject to the same
management and trading
expenses as a mutual fund. The performance of the
Fund's other classes may be
greater or less than the Class B shares' performance
indicated on this chart,
depending on whether greater or lesser sales charges
and fees were incurred
by shareholders investing in the other classes.
All figures represent past performance and are not a
guarantee of future
results. Investment returns and principal value will
fluctuate, and
redemption value may be more or less than the original
cost. No adjustment
has been made for shareholder tax liability on
dividends or capital gains.
6
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Portfolio Highlights (unaudited)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
Portfolio Breakdown
[The following data was represented by a pie chart in
the printed material]
Repurchase Agreement
17.3%
Common Stock
2.0%
Convertible Preferred Stocks
44.1%
Convertible Bonds and Notes
36.6%
Top Fund Holdings
Percentage of
Total Investments
==========================================================
======================
Top Five Equity Holdings
General Motors Corporation
3.1%
Great Western Financial Corp.
2.9
H.F. Ahmanson & Co.
2.6
SunAmerica Inc.
2.4
WHX Corp.
2.3
Top Five Bond Holdings
Time Warner Inc.
4.5%
Chubb Capital Corp.
3.9
Pennzoil Company
3.8
Amoco Canada Petroleum Co.
3.2
USX Marathon Group
2.9
==========================================================
======================
7
<PAGE>
Smith Barney Convertible Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- ---------------------------
Schedule of Investments
July 31, 1995
- ----------------------------------------------------------
- ---------------------------
SHARES SECURITY
VALUE
==========================================================
===========================
<S>
<C>
COMMON STOCKS -- 2.0%
Cable-Telecommunications -- 0.9%
30,000 Telecommunications Inc. Class A Shares +
$ 750,000
- ----------------------------------------------------------
- ---------------------------
Oil-Natural Gas -- 1.1%
20,000 Tenneco Corp.
990,000
- ----------------------------------------------------------
- ---------------------------
TOTAL COMMON STOCKS
(Cost-- $1,436,684)
1,740,000
==========================================================
===========================
CONVERTIBLE PREFERRED STOCKS -- 44.1%
Bank-Savings and Loans -- 5.1%
30,000 Banc One Corp., Exchange $3.50
1,717,500
20,000 First Fidelity Bank, Series B, Exchange $2.15
985,000
40,000 Union Planters Corp., Series E, Exchange
8.000% 1,420,000
- ----------------------------------------------------------
- ---------------------------
4,122,500
- ----------------------------------------------------------
- ---------------------------
Building-Construction -- 0.5%
25,000 Kaufman & Broad Series B, Exchange $1.52
396,875
- ----------------------------------------------------------
- ---------------------------
Electrical Equipment -- 1.7%
100,000 Westinghouse Electric Corp., Depository
Shares,
Series C, Exchange $1.30++
1,400,000
- ----------------------------------------------------------
- ---------------------------
Electronics-Computers -- 5.3%
40,000 General Motors Corporation, Depository Shares,
Series C, Exchange $3.25
2,520,000
40,000 Salomon Inc. Series Oracle, Exchange 7.250%
1,780,000
- ----------------------------------------------------------
- ---------------------------
4,300,000
- ----------------------------------------------------------
- ---------------------------
Finance Companies-Consumer Credit -- 6.3%
30,000 American General Series A, Exchange $3.00
1,627,500
40,000 SunAmerica Inc., Depository Shares, Series D,
Exchange $2.78 1,900,000
30,000 St. Paul Capital, Exchange 6.000%
1,575,000
- ----------------------------------------------------------
- ---------------------------
5,102,500
- ----------------------------------------------------------
- ---------------------------
Food -- 2.4%
50,000 Conagra Inc., Class E Shares, Exchange $1.6875
1,906,250
- ----------------------------------------------------------
- ---------------------------
Metals-Mining -- 10.8%
30,000 Bethlehem Steel Corp., Exchange $3.50++
1,376,250
32,000 Bethlehem Steel Corp., Exchange $5.00
1,748,000
30,000 Cyprus Amax Minerals Co. Series A, Exchange
$4.00 1,860,000
30,000 Newmont Mining, Depository Shares Series A,
Exchange $2.75++ 1,818,750
40,000 WHX Corp., Series A, Exchange 6.500%
1,890,000
- ----------------------------------------------------------
- ---------------------------
8,693,000
- ----------------------------------------------------------
- ---------------------------
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- ---------------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ---------------------------
SHARES SECURITY
VALUE
==========================================================
===========================
<S>
<C>
Packaging and Containers -- 2.5%
40,000 Corning Delaware L P, Exchange 6.000%
$ 2,025,000
- ----------------------------------------------------------
- ---------------------------
Paper and Forest Products -- 1.5%
25,000 International Paper, Exchange 5.250%++
1,200,000
- ----------------------------------------------------------
- ---------------------------
Real Estate -- 2.6%
50,000 Security Capital, Series A, Exchange $1.75
1,125,000
40,000 Tanger Factory Outlet Centers Inc., Depository
Shares,
Series A, Exchange $1.802
960,000
- ----------------------------------------------------------
- ---------------------------
2,085,000
- ----------------------------------------------------------
- ---------------------------
Savings and Loans -- 5.4%
40,000 Great Western Financial Corp., Depository
Shares,
Exchange 8.750%
2,330,00
40,000 H.F. Ahmanson & Co., Series D, Exchange 6.000%
2,060,000
- ----------------------------------------------------------
- ---------------------------
4,390,000
==========================================================
===========================
TOTAL CONVERTIBLE PREFERRED STOCKS
(Cost-- $34,387,677)
35,621,125
==========================================================
===========================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY
VALUE
==========================================================
===========================
<S>
<C>
CONVERTIBLE BONDS AND NOTES-- 36.6%
Airlines -- 1.3%
$1,000,000 Delta Airlines Inc., Sub. Note, 3.230% due
6/15/03 1,022,500
- ----------------------------------------------------------
- ---------------------------
Automobile Parts -- 1.9%
1,500,000 Arvin Industries Inc., Sub. Deb., 7.500% due
9/03/14 1,522,500
- ----------------------------------------------------------
- ---------------------------
Communications -- 0.2%
135,000 California Microwave Inc., Sub. Notes, 5.250%
due 12/15/03 143,100
- ----------------------------------------------------------
- ---------------------------
Conglomerate Manufacturing -- 1.2%
1,000,000 GenCorp Inc., Sub. Deb., 8.000% due 8/01/02
980,000
- ----------------------------------------------------------
- ---------------------------
Electrical Equipment -- 1.8%
1,000,000 Thermo Electron Corp., Senior Deb., 5.000% due
4/15/01++ 1,462,500
- ----------------------------------------------------------
- ---------------------------
Insurance Companies -- 5.8%
1,500,000 Alexander & Alexander Services, Deb., 11.000%
due 4/15/07 1,537,500
3,000,000 Chubb Capital Corp., 6.000% due 5/15/98
3,140,625
- ----------------------------------------------------------
- ---------------------------
4,678,125
- ----------------------------------------------------------
- ---------------------------
</TABLE>
See Notes to Financial Statements.
9
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- ---------------------------
Schedule of Investments(continued)
July 31, 1995
- ----------------------------------------------------------
- ---------------------------
FACE
AMOUNT SECURITY
VALUE
==========================================================
===========================
<S>
<C>
Leisure-Amusement and Motion Pictures -- 5.7%
$3,000,000 Coleman WorldWide Corp., zero coupon due
5/27/13 $ 907,500
3,500,000 Time Warner Inc., Sub. Deb., 8.750% due
1/01/15 3,666,250
- ----------------------------------------------------------
- ---------------------------
4,573,750
- ----------------------------------------------------------
- ---------------------------
Machine-Diversified -- 2.5%
2,000,000 Cooper Industries, 7.050% due 1/01/15
2,040,000
- ----------------------------------------------------------
- ---------------------------
Metals-Mining -- 1.6%
1,000,000 Inco Ltd., 5.750% due 7/01/04
1,283,750
- ----------------------------------------------------------
- ---------------------------
Miscellaneous -- 2.2%
2,000,000 Interpublic Group, 3.750% due 4/01/02++
1,812,500
- ----------------------------------------------------------
- ---------------------------
Office Equipment -- 1.5%
1,000,000 Danka, 6.750% due 4/01/02++
1,196,250
- ----------------------------------------------------------
- ---------------------------
Oil-Natural Gas -- 9.8%
2,000,000 Amoco Canada Petroleum Co., Sub. Deb., 7.375%
due 9/01/13 2,542,500
2,500,000 Pennzoil Company, Sub. Deb., 6.500% due
1/15/03 3,056,250
2,500,000 USX Marathon Group, Sub. Deb., 7.000% due
6/15/17 2,300,000
- ----------------------------------------------------------
- ---------------------------
7,898,750
- ----------------------------------------------------------
- ---------------------------
Restaurant -- 1.1%
Boston Chicken:
500,000 4.500% due 2/01/04
500,000
1,500,000 Zero coupon due 6/01/15
365,625
- ----------------------------------------------------------
- ---------------------------
865,625
==========================================================
===========================
TOTAL CONVERTIBLE BONDS AND NOTES
(Cost -- $28,592,665)
29,479,350
==========================================================
===========================
REPURCHASE AGREEMENT -- 17.3%
13,977,000 Citibank, 5.822% due 8/01/95; Proceeds at
maturity --
$13,979,260; (Fully collateralized by U.S.
Treasury Notes,
5.875% due 7/31/97; Market value --
$14,257,553)
(Cost -- $13,977,000)
13,977,000
==========================================================
===========================
TOTAL INVESTMENTS -- 100%
(Cost-- $78,394,026*)
$80,817,475
==========================================================
===========================
</TABLE>
+ 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, normally to qualified institutional
buyers.
* Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Statement of Assets and Liabilities
July 31, 1995
- ----------------------------------------------------------
- ----------------------
ASSETS:
Investments, at value (Cost - $78,394,026)
$ 80,817,475
Cash
776
Receivable for Fund shares sold
22,207
Dividends and interest receivable
469,305
- ----------------------------------------------------------
- ----------------------
Total Assets
81,309,763
- ----------------------------------------------------------
- ----------------------
LIABILITIES:
Payable for Fund shares purchased
117,609
Investment advisory fee payable
77,422
Administration fees payable
30,409
Distribution fees payable
73,813
Accrued expenses
165,819
- ----------------------------------------------------------
- ----------------------
Total Liabilities
465,072
- ----------------------------------------------------------
- ----------------------
Total Net Assets
$ 80,844,691
==========================================================
======================
NET ASSETS:
Par value of shares of beneficial interest
$ 5,293
Capital paid in excess of par value
83,529,853
Accumulated net realized loss on security transactions
(5,113,904)
Net unrealized appreciation of investments
2,423,449
- ----------------------------------------------------------
- ----------------------
Total Net Assets
$ 80,844,691
==========================================================
======================
Shares Outstanding:
Class A
2,307,449
- ----------------------------------------------------------
- ----------------------
Class B
2,980,473
- ----------------------------------------------------------
- ----------------------
Class C
5,401
- ----------------------------------------------------------
- ----------------------
Net Asset Value:
Class A (and redemption price)
$ 15.27
- ----------------------------------------------------------
- ----------------------
Class B *
$ 15.27
- ----------------------------------------------------------
- ----------------------
Class C **
$ 15.27
- ----------------------------------------------------------
- ----------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value)
$ 16.07
==========================================================
======================
* Redemption price is NAV of Class B shares reduced by a
5.00% CDSC if shares
are redeemed less than one year from initial purchase
(See Note 2).
** Redemption price is NAV of Class C shares reduced by a
1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
11
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Statement of Operations For the
Year Ended July 31, 1995
- ----------------------------------------------------------
- ----------------------
INVESTMENT INCOME:
Dividends
$ 2,687,447
Interest
2,611,765
- ----------------------------------------------------------
- ----------------------
Total Investment Income
5,299,212
- ----------------------------------------------------------
- ----------------------
EXPENSES:
Distribution fees (Note 2)
468,685
Investment advisory fees (Note 2)
415,666
Administration fees (Note 2)
166,266
Shareholder and system servicing fees
115,000
Shareholder communications
75,000
Audit and legal
40,500
Registration fees
33,000
Trustees' fees
30,000
Custody
25,000
Other
19,843
- ----------------------------------------------------------
- ----------------------
Total Expenses
1,388,960
- ----------------------------------------------------------
- ----------------------
Net Investment Income
3,910,252
- ----------------------------------------------------------
- ----------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales
58,980,226
Cost of securities sold
57,915,308
- ----------------------------------------------------------
- ----------------------
Net Realized Gain
1,064,918
- ----------------------------------------------------------
- ----------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year
(67,775)
End of year
2,423,449
- ----------------------------------------------------------
- ----------------------
Increase in Net Unrealized Appreciation
2,491,224
- ----------------------------------------------------------
- ----------------------
Net Gain on Investments
3,556,142
- ----------------------------------------------------------
- ----------------------
Increase in Net Assets From Operations
$ 7,466,394
==========================================================
======================
See Notes to Financial Statements.
12
<PAGE>
Smith Barney Convertible Fund
<TABLE>
<CAPTION>
- ----------------------------------------------------------
- ---------------------------
Statements of Changes in Net Assets
For the Years Ended July 31,
- ----------------------------------------------------------
- ---------------------------
1995 1994
==========================================================
===========================
<S> <C>
<C>
OPERATIONS:
Net investment income $
3,910,252 $ 3,684,983
Net realized gain
1,064,918 2,361,914
Increase (decrease) in net unrealized appreciation
of investments
2,491,224 (5,170,821)
- ----------------------------------------------------------
- ---------------------------
Increase in Net Assets From Operations
7,466,394 876,076
- ----------------------------------------------------------
- ---------------------------
DISTRIBUTION TO
SHAREHOLDERS FROM:
Net investment income
(3,879,601) (3,630,350)
Overdistribution of net income
- -- (145,746)
- ----------------------------------------------------------
- ---------------------------
Decrease in Net Assets From Distributions
To Shareholders
(3,879,601) (3,776,096)
- ----------------------------------------------------------
- ---------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sales
38,989,009 27,271,328
Net asset value of shares issued for reinvestment of
dividends
3,110,213 3,082,297
Cost of shares reacquired
(52,325,213) (16,481,591)
- ----------------------------------------------------------
- ---------------------------
Increase (Decrease) in Net Assets From Fund
Share Transactions
(10,225,991) 13,872,034
- ----------------------------------------------------------
- ---------------------------
Increase (Decrease) In Net Assets
(6,639,198) 10,972,014
NET ASSETS:
Beginning of year
87,483,889 76,511,875
- ----------------------------------------------------------
- ---------------------------
End of year*
$80,844,691 $87,483,889
==========================================================
===========================
* Includes overdistributed net investment income of:
- -- $ (65,206)
==========================================================
===========================
</TABLE>
See Notes to Financial Statements.
13
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements
- ----------------------------------------------------------
- ----------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Convertible Fund ("Fund"), a
separate investment fund of
the Smith Barney Income Funds ("Trust"), a Massachusetts
business trust, is
registered under the Investment Company Act of 1940, as
amended, as a
diversified, open-end management investment company. The
Trust consists of the
Fund and six other separate investment funds: Smith Barney
Exchange Reserve
Fund, Smith Barney Premium Total Return Fund, Smith Barney
High Income Fund,
Smith Barney Tax-Exempt Income Fund, Smith Barney
Diversified Strategic Income
Fund and Smith Barney Utilities Fund. The financial
statements and financial
highlights for the other funds are presented in separate
annual reports.
The significant accounting policies consistently
followed by the Trust are:
(a) securities transactions are accounted for on trade
date; (b) securities
traded on national securities markets are valued at the
closing price on such
markets; securities traded in the over-the-counter market
and listed securities
for which no sales price were reported and U.S. Government
and Government Agency
obligations are valued at bid price, or in the absence of
a recent bid price, at
the bid equivalent obtained from one or more of the major
market makers; (c)
short-term securities that have a maturity of more than 60
days are valued at
prices based on market quotations for securities of
similar type, yield and
maturity; (d) short-term investments that have a maturity
of 60 days or less are
valued at cost plus accreted discount, or minus amortized
premium, as
applicable; (e) dividend income is recorded on ex-dividend
date and interest
income is recorded on the accrual basis; (f) gains or
losses on the sale of
securities are recorded on the identified cost basis; (g)
dividends and
distributions to shareholders are recorded on the ex-
dividend date; (h) direct
expenses are charged to each fund and each class;
management fees and general
fund expenses are allocated on the basis of relative net
assets of each class;
(i) the Fund intends to comply with the applicable
provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated
investment companies
and to make distributions of taxable income sufficient to
relieve it from
substantially all Federal income and excise taxes and (j)
in accordance with
Statement of Position 93-2 Determination, Disclosure, and
Financial Statement
Presentation of Income, Capital Gain, and Return of
Capital Distributions by
Investment Companies, the net investment loss of $34,555
at July 31, 1995 has
been reclassified to paid-in-capital. Net investment
income, net realized gains,
and net assets were not affected by this change.
14
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements (continued)
- ----------------------------------------------------------
- ----------------------
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION
AGREEMENT
AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment advisor
to the Fund. The Fund
pays SBMFM an advisory fee calculated at an annual rate of
0.50% of the average
daily net assets; this fee is calculated daily and paid
monthly.
SBMFM also acts as the Fund's administrator for which
the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily
net assets; this fee
is calculated daily and paid monthly.
In addition, The Boston Company Advisors, Inc.
("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank
Corporation, had entered into a
sub-administration agreement with the Fund and SBMFM.
SBMFM paid Boston Advisors
a portion of its administration fee at a rate agreed upon
from time to time
between SBMFM and Boston Advisors. As of March 27, 1995
this relationship was
terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH,
acts as distributor of
Fund shares and primary broker for its portfolio agency
transactions. For the
year ended July 31, 1995, SB received brokerage
commissions of $39,798 and sales
charges of approximately $8,900 for sales of the Fund's
Class A shares.
There is a contingent deferred sales charge ("CDSC")
of 5.00% on certain
Class B shares if redemption occurs less than one year
from initial purchase and
thereafter declines by 1.00% per year until no CDSC is
incurred. Class C shares
have a 1.00% CDSC if redemption occurs within the first
year from the date such
investment was made. For the year ended July 31, 1995,
CDSC's of approximately
$126,500 were paid to SB.
Pursuant to a Distribution Plan, the Fund pays a
distribution fee with
respect to Class B and C shares calculated at the annual
rate of 0.50% and
0.45%, respectively, of the average daily net assets for
each class. The Fund
also pays a service fee with respect to Class A, B and C
shares calculated at
the annual rate of 0.25% of the average daily net assets
of each class,
respectively.
All officers and one trustee of the Fund are
employees of SB.
3. INVESTMENTS
During the year ended July 31, 1995, the aggregate
cost of purchases and
proceeds from sales of investments (including maturities,
but excluding
short-term securities) was $37,850,703 and $58,980,226,
respectively.
15
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements (continued)
- ----------------------------------------------------------
- ----------------------
At July 31, 1995, the net unrealized appreciation of
investments for
Federal income tax purposes consisted of the following:
==========================================================
======================
Gross unrealized appreciation
$ 4,237,277
Gross unrealized depreciation
(1,813,828)
- ----------------------------------------------------------
- ----------------------
Net unrealized appreciation
$ 2,423,449
==========================================================
======================
4. CAPITAL LOSS CARRYFORWARD
At July 31, 1995, the Fund had for Federal tax
purposes approximately
$5,113,904 of unused capital loss carryforwards available
to offset future
capital gains expiring July 31, 1999. To the extent that
these carryforward
losses are used to offset capital gains, it is probable
that the gains so offset
will not be distributed.
5. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes
possession of) U.S. Government
securities from banks and securities dealers subject to
agreements to resell the
securities to the sellers at a future date (generally, the
next business day),
at an agreed-upon higher repurchase price. The Fund
requires continual
maintenance of the market value of the collateral in
amounts at least equal to
the repurchase price.
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of
beneficial interest
with a par value of $0.001 per share. The Fund has the
ability to issue multiple
classes of shares. Each share of a class represents an
identical interest and
has the same rights, except that each class bears certain
direct expenses,
including those specifically related to the distribution
of its shares.
Effective November 7, 1994, the Fund adopted a new class
structure, renaming the
former Class D shares as Class C shares. At July 31, 1995,
total paid-in capital
amounted to the following for each class:
Class A
Class B Class C
==========================================================
======================
Total Paid-in Capital $33,673,687
$49,785,348 $76,111
==========================================================
======================
16
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements(continued)
- ----------------------------------------------------------
- ----------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended
Year Ended
July 31, 1995*
July 31, 1994
---------------------
- ----------------------
Shares Amount
Shares Amount
==========================================================
=================================
<S> <C> <C>
<C> <C>
Class A
Shares sold 2,416,840 $
35,169,487 84,040 $ 1,276,232
Shares issued on reinvestment 94,756
1,357,564 6,923 103,472
Shares redeemed (361,719)
(5,183,624) (43,742) (656,087)
- ----------------------------------------------------------
- ---------------------------------
Net Increase 2,149,877 $
31,343,427 47,221 $ 723,617
==========================================================
=================================
Class B
Shares sold 260,183 $
3,745,273 1,720,098 $ 25,995,096
Shares issued on reinvestment 121,846
1,750,785 199,238 2,978,825
Shares redeemed (3,252,464)
(47,141,589) (1,060,928) (15,825,504)
- ----------------------------------------------------------
- ---------------------------------
Net Increase (Decrease) (2,870,435)
$(41,645,531) 858,408 $ 13,148,417
==========================================================
=================================
Class C+
Shares sold 5,273 $
74,249 -- --
Shares issued on reinvestment 128
1,864 -- --
Shares redeemed -- -
- - -- --
- ----------------------------------------------------------
- ---------------------------------
Net Increase 5,401 $
76,113 -- --
==========================================================
=================================
</TABLE>
* For Class C shares, transactions are for the period from
November 7, 1994
(inception date) to July 31, 1995.
+ On November 7, 1994, the former Class D shares were
renamed Class C shares.
17
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Financial Highlights
- ----------------------------------------------------------
- ----------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
<TABLE>
<CAPTION>
Class A Shares
1995 1994 1993(1)
==========================================================
========================
<S> <C>
<C> <C>
Net Asset Value, Beginning of Year
$14.56 $14.99 $13.82
- ----------------------------------------------------------
- ------------------------
Income From Operations:
Net investment income
0.74 0.72 0.49
Net realized and unrealized gain (loss)
on investments
0.70 (0.42) 1.22
- ----------------------------------------------------------
- -------------------------
Total Income From Operations
1.44 0.30 1.71
- ----------------------------------------------------------
- -------------------------
Less Distributions From:
Net investment income
(0.73) (0.70) (0.50)
Overdistribution of net income
- -- (0.03) (0.01)
Overdistribution of net realized gains
- -- -- (0.03)
==========================================================
=========================
Total Distributions
(0.73) (0.73) (0.54)
- ----------------------------------------------------------
- -------------------------
Net Asset Value, End of Year
$15.27 $14.56 $14.99
- ----------------------------------------------------------
- -------------------------
Total Return
10.35% 1.99% 12.63%++
- ----------------------------------------------------------
- -------------------------
Net Assets, End of Year (000s)
$35,238 $2,294 $1,655
- ----------------------------------------------------------
- -------------------------
Ratios to Average Net Assets:
Expenses
1.40% 1.40% 1.37%+
Net investment income
5.13 4.80 4.86+
- ----------------------------------------------------------
- -------------------------
Portfolio Turnover Rate
48% 54% 95%
==========================================================
===========================
</TABLE>
<TABLE>
<CAPTION>
Class B Shares 1995
1994 1993 1992 1991
==========================================================
=======================================
<S> <C> <C>
<C> <C> <C>
Net Asset Value, Beginning of Year $14.56
$14.99 $13.84 $12.51 $12.21
- ----------------------------------------------------------
- ---------------------------------------
Income From Operations:
Net investment income 0.67
0.65 0.61 0.64 0.68
Net realized and unrealized
gain (loss) on investments 0.70
(0.42) 1.20 1.35 0.33
- ----------------------------------------------------------
- ---------------------------------------
Total Income From Operations 1.37
0.23 1.81 1.99 1.01
- ----------------------------------------------------------
- ---------------------------------------
Less Distributions From:
Net investment income (0.66)
(0.64) (0.60) (0.64) (0.68)
Overdistribution of net income --
(0.02) (0.02) -- --
Net realized gains --
- -- (0.04) -- --
Capital --
- -- -- 0.02 0.03
- ----------------------------------------------------------
- ---------------------------------------
Total Distributions (0.66)
(0.66) (1.26) (0.66) (0.71)
- ----------------------------------------------------------
- ---------------------------------------
Net Asset Value, End of Year $15.27
$14.56 $14.99 $13.84 $12.51
- ----------------------------------------------------------
- ---------------------------------------
Total Return 9.80%
1.50% 13.40% 16.25% 8.86%
- ----------------------------------------------------------
- ---------------------------------------
Net Assets, End of Year (000s) $45,524
$85,190 $74,857 $57,120 $65,523
- ----------------------------------------------------------
- ---------------------------------------
Ratios to Average Net Assets:
Expenses 1.90%
1.88% 2.00% 1.88% 1.92%
Net investment income 4.63
4.32 4.20 4.76 5.81
- ----------------------------------------------------------
- ---------------------------------------
Portfolio Turnover Rate 48%
54% 95% 77% 26%
==========================================================
=======================================
</TABLE>
(1) For the period from November 6, 1992 (inception date)
to July 31, 1993.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
18
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Financial Highlights (continued)
- ----------------------------------------------------------
- ----------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
Class C Shares(1)
1995(2)
==========================================================
======================
Net Asset Value, Beginning of Year
$14.09
- ----------------------------------------------------------
- ----------------------
Income From Operations:
Net investment income
0.50
Net realized and unrealized gain on investments
1.17
- ----------------------------------------------------------
- ----------------------
Total Income From Operations
1.67
- ----------------------------------------------------------
- ----------------------
Less Distributions From:
Net investment income
(0.49)
- ----------------------------------------------------------
- ----------------------
Total Distributions
(0.49)
- ----------------------------------------------------------
- ----------------------
Net Asset Value, End of Year
$15.27
- ----------------------------------------------------------
- ----------------------
Total Return
12.17%++
- ----------------------------------------------------------
- ----------------------
Net Assets, End of Year (000s)
$83
- ----------------------------------------------------------
- ----------------------
Ratios to Average Net Assets:
Expenses
1.87%+
Net investment income
4.77+
- ----------------------------------------------------------
- ----------------------
Portfolio Turnover Rate
48%
==========================================================
======================
(1) On November 7, 1994, the former Class D shares were
renamed Class C shares.
(2) For the period from November 7, 1994 (inception date)
to July 31, 1995.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
- ----------------------------------------------------------
- ----------------------
Additional Information
- ----------------------------------------------------------
- ----------------------
Change in Independent Auditor: On October 20, 1994,
based upon the
recommedation of the Audit Committee of the Fund, the
Board of Trustees
determined not to retain Coopers & Lybrand L.L.P.
("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat
Marwick LLP. During
the Fund's two most recent fiscal years, Coopers &
Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor
were the reports
qualified or modified as to uncertainty, audit scope, or
accounting principles.
Further, during this same period there were no
disagreements with Coopers &
Lybrand on any matter of accounting principles or
practices, financial statement
disclosure, or auditing scope or procedure, which
disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have
caused it to make reference
to the subject matter of such disagreements in connection
with its audit
reports. The Fund has requested Coopers & Lybrand to
provide a letter to the
Securities and Exchange Commission stating whether Coopers
& Lybrand agrees with
the foregoing statements, and to provide the Fund with a
copy of such letter. A
copy of this letter is available upon request by calling
the Fund at (212)
723-9218.
19
<PAGE>
Smith Barney Convertible Fund
- ----------------------------------------------------------
- ----------------------
Independent Auditors' Report
- ----------------------------------------------------------
- ----------------------
The Shareholders and Board of Trustees of
Smith Barney Convertible Fund of
Smith Barney Income Funds:
We have audited the accompanying statement of assets
and liabilities,
including the schedule of investments, of Smith Barney
Convertible Fund of Smith
Barney Income Funds as of July 31, 1995, and the related
statement of
operations, statement of changes in net assets, and
financial highlights for the
year then ended. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our
responsibility is to express an
opinion on these financial statements and financial
highlights based on our
audit. The statement of changes in net assets for the year
ended July 31, 1994
and the financial highlights for each of the years in the
four-year period then
ended, were audited by other auditors whose report
thereon, dated September 19,
1994, expressed an unqualified opinion on that statement
of changes in net
assets and those financial highlights.
We conducted our audit in accordance with generally
accepted auditing
standards. Those standards require that we plan and
perform the audit to obtain
reasonable assurance about whether the financial
statements and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of July
31, 1995, by correspondence with the custodian. An audit
also includes assessing
the accounting principles used and significant estimates
made by management, as
well as evaluating the overall financial statement
presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly,
in all material respects, the financial position of Smith
Barney Convertible
Fund of Smith Barney Income Funds as of July 31, 1995, and
the results of its
operations, changes in its net assets and financial
highlights for the year then
ended, in conformity with generally accepted accounting
principles.
/S/ KPMG PEAT
MARWICK LLP
New York, New York
September 22, 1995
20
<PAGE>
Smith Barney
Convertible
Fund
Trustees
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon De Voe Talley
Officers
Heath B. McLendon
Chairman and Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Robert E. Swab
Vice President and
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
SMITH BARNEY
- ----------------------
A Member of Travelers Group [LOGO]
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder
Servicing Agent
The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of
the shareholders of
Smith Barney Convertible Fund. It is not authorized for
distribution to
prospective investors unless accompanied or preceded by a
current Prospectus for
the Fund, which contains information concerning the Fund's
investment policies
and expenses as well as other pertinent information.
Smith Barney
Convertible Fund
388 Greenwich Street
New York, New York 10013
FD01020 9/95
- -------------
ANNUAL REPORT
- -------------
1995
1995
1995
1995
1995
Smith Barney
Exchange
Reserve
Fund
---------------------------------------------
- ---------------------
July 31, 1995
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- ----------------------------------
Smith Barney Exchange Reserve Fund
- ----------------------------------
Dear Shareholder:
During 1994, yields on money-market mutual funds were
elevated to relatively
high levels by the Federal Reserve Board's series of six
rate hikes, which
pushed the federal funds rate to 5.50% by the end of the
year. During the fourth
quarter of 1994, the U.S. economy, as measured by gross
domestic product (GDP),
was still showing signs of strength and grew at a rate of
5.1%. By January 1995,
capacity utilization, business investments, and employment
remained strong, and
inflation levels were high enough to cause the Federal
Reserve Board some
concern. As a result, in early February the Fed raised the
federal funds rate
from 5.50% to 6%. This completed a series of tightening
moves which had seen
short-term interest rates rise from 3% to 6% in a 13-month
period.
By early March, however, conditions started to change.
Auto makers began to
experience sluggish demand. As consumers retrenched, auto
inventories began to
swell, resulting in cutbacks in production. In addition,
the unemployment
outlook worsened as banks merged and many large companies
downsized. As a
backdrop, inflation, as well as labor costs, appeared to
remain under control.
With economic indicators pointing to a second-quarter GDP
rate that was
estimated to be virtually flat, expectations grew that the
Fed's monetary policy
would either remain unchanged or ease slightly. In
anticipation of a possible
rate decline in July, the short-term yield curve inverted
with the yield on
one-year certificates of deposit dipping 18 basis points
below the yield on
three-month certificates of deposit. On July 6, 1995, the
Fed did ease by
lowering the federal funds rate from 6% to 5.75%, stating
that "as a result of
the monetary tightening initiated in early 1994,
inflationary pressures have
receded enough to accommodate a modest adjustment in
monetary conditions."
During its past fiscal year ended July 31, 1995, the
Fund's dividend
distributions resulted in a compounded annualized yield of
4.49%. The Fund's
portfolio remains focused on high-quality, conservative
money-market securities
issued by large domestic and international money-center
banks and well-known
multinational corporations. An investment in Smith Barney
Exchange Reserve Fund
is neither insured nor guaranteed by the U.S. government,
and there can be no
assurance that the Fund will be able to maintain a stable
net asset value of
$1.00 per share.
Outlook
Many market participants expect that the economy will
rebound from the stalled
levels of the second quarter. The level of recovery,
however, is subject to
1
<PAGE>
debate. If GDP growth in the third quarter is below 2%, we
believe that the Fed
will be inclined to lower short-term rates again.
Given that a recession is probably not on the horizon, the
Federal Reserve
appears to be easing rates to levels that will help it
achieve its target-GDP
rate of 2.5%. We would therefore expect the market to
anticipate a rise in the
GDP rate above 2.5% in 1996, which would result in a
steepening of the
short-term yield curve.
Sincerely,
/s/Heath B. McLendon /s/Phyllis M.
Zahorodny
Heath B. McLendon Phyllis M.
Zahorodny
Chairman and Investment Officer Vice President and
Investment Officer
August 18, 1995
- ----------------------------------------------------------
- ----------------------
Additional Information:
Change in Independent Auditor: On October 20, 1994,
based upon the
recommendation of the Audit Committee of the Fund, the
Board of Trustees
determined not to retain Coopers & Lybrand L.L.P.
("Coopers & Lybrand") as
the Fund's independent auditor and voted to appoint
KPMG Peat Marwick LLP.
During the Fund's two most recent fiscal years, Coopers
& Lybrand's audit
reports contained no adverse opinion or disclaimer of
opinion; nor were the
reports qualified or modified as to uncertainty, audit
scope, or accounting
principles. Further, during this same period there were
no disagreements with
Coopers & Lybrand on any matter of accounting
principles or practices,
financial statement disclosure, or auditing scope or
procedure, which
disagreements, if not resolved to the satisfaction of
Coopers & Lybrand,
would have caused it to make reference to the subject
matter of such
disagreements in connection with its audit reports. The
Fund has requested
Coopers & Lybrand to provide a letter to the Securities
& Exchange Commission
stating whether Coopers & Lybrand agrees with the
foregoing statements, and
to provide the Fund with a copy of such letter. A copy
of this letter is
available upon request by calling the Fund at (212) 723-
9218.
- ----------------------------------------------------------
- ----------------------
2
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments
July 31, 1995
- ----------------------------------------------------------
- ----------------------
ANNUALIZED
FACE YIELD
ON DATE
AMOUNT SECURITY OF
PURCHASE VALUE
==========================================================
======================
DOMESTIC BANK OBLIGATIONS -- 3.1%
$5,000,000 Harris Trust and Savings Bank
matures 08/14/95 (Cost -- $5,000,000)
6.02% $ 5,000,000
==========================================================
======================
COMMERCIAL PAPER -- 66.7%
3,000,000 A.I. Credit matures 10/12/95
5.68 2,966,400
5,000,000 Alliance and Leicester Building Society
matures 10/10/95
5.75 4,944,875
5,000,000 Asset Securitization matures 08/08/95
6.03 4,994,215
4,000,000 B.A.T. Capital Corporation matures 09/21/95
5.77 3,967,587
5,000,000 Banque Francaise du Commerce Exterieur
matures 10/10/95
5.77 4,944,681
3,000,000 Canadian Imperial Bank Holdings
matures 10/17/95
5.75 2,963,617
5,000,000 Ciesco L.P. matures 09/19/95
5.74 4,961,344
5,000,000 Compagnie Bancaire USA matures 08/15/95
6.07 4,988,372
3,000,000 Corporate Asset Funding Co. matures 10/02/95
5.70 2,970,550
5,000,000 Credito Italiano matures 09/12/95
5.79 4,966,575
5,000,000 Dean Witter, Discover & Co. matures 08/24/95
5.78 4,981,632
5,000,000 Delaware Funding Corp. matures 08/08/95
6.00 4,994,254
5,100,000 Den Danske Bank matures 10/25/95
5.77 5,031,483
5,000,000 E.I. duPont De Nemours matures 08/08/95
6.01 4,994,235
7,000,000 Ford Motor Credit Corp. mature
09/05/95 to 10/03/95 5.76
to 5.78 6,952,322
5,000,000 General Electric Capital Corp.
matures 09/21/95
5.83 4,959,271
5,000,000 Goldman Sachs Group, L.P. matures 09/14/95
5.76 4,965,167
5,000,000 Halifax Building Society matures 08/07/95
6.07 4,995,025
5,000,000 Merrill Lynch & Co., Inc. matures 11/01/95
5.68 4,928,700
5,000,000 Saint-Gobain (Compagnie) matures 10/20/95
5.75 4,937,000
5,000,000 Siemens Corp. matures 08/14/95
5.74 4,989,690
5,000,000 Unilever Capital Corp. matures 10/10/95
5.68 4,945,556
5,000,000 Union Bank of Switzerland matures 08/01/95
5.82 5,000,000
- ----------------------------------------------------------
- ----------------------
TOTAL COMMERCIAL PAPER
(Cost -- $109,342,551)
109,342,551
==========================================================
======================
See Notes to Financial Statements.
3
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Schedule of Investments (continued)
July 31, 1995
- ----------------------------------------------------------
- ----------------------
ANNUALIZED
FACE YIELD
ON DATE
AMOUNT SECURITY OF
PURCHASE VALUE
==========================================================
======================
TIME DEPOSITS -- 9.1%
$ 5,000,000 Republic National Bank matures 08/01/95
5.81% $ 5,000,000
5,000,000 Dai-Ichi Kangyo Bank (Cayman) matures
08/01/95
5.88 5,000,000
5,000,000 Z-Landesbank matures 08/01/95
5.81 5,000,000
- ----------------------------------------------------------
- ----------------------
TOTAL TIME DEPOSITS
(Cost -- $15,000,000)
15,000,000
==========================================================
======================
FOREIGN CERTIFICATES OF DEPOSIT -- 18.3%
5,000,000 Abbey National PLC matures 09/29/95
5.77 5,000,936
5,000,000 Bank of Nova Scotia matures 09/08/95
5.89 4,999,651
5,000,000 Chemical Bank matures 09/18/95
5.70 5,000,000
5,000,000 National Westminster PLC matures 10/10/95
5.69 5,001,690
5,000,000 National Bank of Detroit matures 08/24/95
5.75 4,999,988
5,000,000 Toronto Dominion matures 09/29/95
5.76 5,001,232
- ----------------------------------------------------------
- ----------------------
TOTAL FOREIGN CERTIFICATES OF DEPOSIT
(Cost -- $30,003,497)
30,003,497
==========================================================
======================
REPURCHASE AGREEMENT -- 2.8%
4,565,000 Citibank, 5.83% due 08/01/95; Proceeds at
maturity -- $4,565,739; (Fully
collateralized
by U.S. Treasury Notes, 5.875% due 07/31/97;
Market value -- $4,659,169) (Cost --
$4,565,000) 4,565,000
==========================================================
======================
TOTAL INVESTMENTS -- 100%
(Cost -- $163,911,048*)
$163,911,048
==========================================================
======================
* Aggregate cost for Federal income tax purposes is
substantially the same.
See Notes to Financial Statements.
4
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Statement of Assets and Liabilities
July 31, 1995
- ----------------------------------------------------------
- ----------------------
ASSETS:
Investments, at value (Cost $163,911,048)
$ 163,911,048
Cash
197
Interest receivable
201,767
- ----------------------------------------------------------
- ----------------------
Total Assets
164,113,012
- ----------------------------------------------------------
- ----------------------
LIABILITIES:
Investment advisory fees payable
86,133
Administration fees payable
57,422
Distribution costs payable
107,877
Dividends payable
317,736
Accrued expenses
261,554
- ----------------------------------------------------------
- ----------------------
Total Liabilities
830,722
- ----------------------------------------------------------
- ----------------------
Total Net Assets
$163,282,290
==========================================================
======================
NET ASSETS:
Par value of shares of beneficial interest
$ 163,353
Capital paid in excess of par value
163,190,190
Accumulated net realized loss on investments
(71,253)
- ----------------------------------------------------------
- ----------------------
Total Net Assets
$163,282,290
==========================================================
======================
Shares Outstanding
163,353,543
- ----------------------------------------------------------
- ----------------------
Net Asset Value
$1.00
- ----------------------------------------------------------
- ----------------------
See Notes to Financial Statements.
5
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Statement of Operations For the
Year Ended July 31, 1995
- ----------------------------------------------------------
- ----------------------
INVESTMENT INCOME:
Interest
$10,224,829
- ----------------------------------------------------------
- ----------------------
EXPENSES:
Distribution fees (Note 3)
913,440
Investment advisory fees (Note 3)
547,990
Administration fees (Note 3)
365,327
Shareholder and system servicing fees
213,537
Custody
76,971
Registration fees
47,832
Shareholders communications
36,680
Audit and legal
30,662
Trustees' fees
21,890
Other
17,318
- ----------------------------------------------------------
- ----------------------
Total Expenses
2,271,647
- ----------------------------------------------------------
- ----------------------
Net Investment Income
7,953,182
- ----------------------------------------------------------
- ----------------------
Net Realized Gain from Security Transactions
36,423
- ----------------------------------------------------------
- ----------------------
Increase in Net Assets From Operations
$ 7,989,605
==========================================================
======================
See Notes to Financial Statements.
6
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Statement of Changes in Net Assets For the
Year Ended July 31, 1995
- ----------------------------------------------------------
- ----------------------
1995 1994
==========================================================
======================
OPERATIONS:
Net investment income $
7,953,182 $ 4,649,064
Net realized gain from security transactions
36,423 49,072
- ----------------------------------------------------------
- ----------------------
Increase in Net Assets
From Operations
7,989,605 4,698,136
- ----------------------------------------------------------
- ----------------------
DIVIDENDS TO SHAREHOLDERS (NOTE 2)
(7,953,182) (4,649,064)
- ----------------------------------------------------------
- ----------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares
394,980,881 631,604,784
Net value of shares issued for reinvestment
of dividends
7,200,684 4,011,153
Cost of shares reacquired
(491,181,738) (549,680,752)
- ----------------------------------------------------------
- ----------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions
(89,000,173) 85,935,185
- ----------------------------------------------------------
- ----------------------
Increase (Decrease) in Net Assets
(88,963,750) 85,984,257
NET ASSETS:
Beginning of year
252,246,040 166,261,783
- ----------------------------------------------------------
- ----------------------
End of year
$163,282,290 $252,246,040
==========================================================
======================
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements
- ----------------------------------------------------------
- ----------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Exchange Reserve Fund ("Fund"), a
separate investment fund
of the Smith Barney Income Funds ("Trust"), a
Massachusetts business trust, is
registered under the Investment Company Act of 1940, as
amended, as a
diversified, open-end management investment company. The
Trust consists of the
Fund and six other separate investment funds: Smith Barney
Premium Total Return
Fund, Smith Barney Convertible Fund, Smith Barney High
Income Fund, Smith Barney
Tax-Exempt Income Fund, Smith Barney Diversified Strategic
Income Fund and Smith
Barney Utilities Fund. The financial statements and
financial highlights for the
other Funds are presented in separate annual reports.
The significant accounting policies consistently
followed by the Trust are:
(a) security transactions are recorded on trade date; (b)
the Trust uses the
amortized cost method for valuing investments;
accordingly, the cost of
securities plus accreted discount, or minus amortized
premium, approximates
market value; (c) interest income is recorded on the
accrual basis; (d) gains or
losses on the sale of securities are recorded on the
identified cost basis; (e)
direct expenses are charged to each Fund and each class;
management fees and
general Fund expenses are allocated on the basis of the
relative net assets of
each class; and (f) the Fund intends to comply with the
applicable provisions of
the Internal Revenue Code of 1986, as amended, pertaining
to regulated
investment companies and to make distributions of taxable
income sufficient to
relieve it from substantially all Federal income and
excise taxes.
2. DIVIDENDS
The Fund declares and records a dividend of
substantially all of its net
investment income on each business day. Such dividends are
paid or reinvested
monthly on the payable date. Net realized gains, if any,
are distributed
annually.
3. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION
AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"),
a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment advisor
to the Fund. The Fund
pays SBMFM an advisory fee calculated at an annual rate of
0.30% of the average
daily net assets.
SBMFM also acts as the Fund's administrator for which
the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily
net assets. These
fees are calculated daily and paid monthly.
8
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements (continued)
- ----------------------------------------------------------
- ----------------------
In addition, The Boston Company Advisors, Inc.
("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank
Corporation, acted as
sub-administrator to the Fund. SBMFM paid Boston Advisors
a portion of its
administration fee at a rate agreed upon from time to time
between SBMFM and
Boston Advisors. As of March 20, 1995 this relationship
was terminated.
There is a contingent deferred sales charge ("CDSC")
of 5.00% on certain
Class B shares if redemption occurs less than one year
from initial purchase and
thereafter declines by 1.00% per year until no CDSC is
incurred. Class C shares
have a 1.00% CDSC if redemption occurs within the first
year from the date such
investment was made. For the year ended July 31, 1995,
CDSC's of approximately
$1,429,000 were paid to SB.
Pursuant to a Distribution Plan, the Fund pays a
distribution fee with
respect to Class B and C shares calculated at the annual
rate of 0.50% of the
average daily net assets for that class.
All officers and one trustee of the Fund are
employees of SB.
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes
possession of) U.S. Government
securities from banks and securities dealers subject to
agreements to resell the
securities to the sellers at a future date (generally, the
next business day),
at an agreed-upon higher repurchase price. The Fund
requires continual
maintenance of the market value of the collateral in
amounts at least equal to
the repurchase price.
5. CAPITAL LOSS CARRYFORWARD
At July 31, 1995, the Fund had for Federal tax
purposes $71,253 of unused
capital loss carryforwards, available to offset future
capital gains through
1998. To the extent that these carryforward losses are
used to offset capital
gains, it is probable that any gains so offset will not be
distributed.
6. SHARES OF BENEFICIAL INTEREST
The Fund may issue an unlimited number of shares of
beneficial interest
with a par value of $.001 per share. The Fund has the
ability to issue multiple
classes of shares. Each share of a class represents an
identical interest and
has the same rights, except that each class bears certain
direct expenses,
including those specifically related to the distribution
of its shares. 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.
9
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Notes to Financial Statements (continued)
- ----------------------------------------------------------
- ----------------------
At July 31, 1995, the Fund had the following shares
outstanding for each class:
Class B
Class C
==========================================================
======================
The Fund 160,503,249
2,850,294
==========================================================
======================
Changes in shares of beneficial interest of the Fund
which is divided into
two classes were as follows:
Year Ended
Year Ended
July 31, 1995
July 31, 1994
==========================================================
======================
Class B
Shares sold 361,779,702
631,604,784
Shares issued on reinvestment 7,111,345
4,011,153
Shares redeemed (460,741,514)
(549,680,752)
- ----------------------------------------------------------
- ----------------------
Net Increase (Decrease) (91,850,467)
85,935,185
==========================================================
======================
Period Ended
July 31, 1995*
=======================================================
Class C
Shares sold 33,201,179
Shares issued on reinvestment 89,339
Shares redeemed (30,440,224)
- -------------------------------------------------------
Net Increase 2,850,294
=======================================================
* For the period from November 7, 1994 (inception date) to
July 31, 1995.
10
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Financial Highlights
- ----------------------------------------------------------
- ----------------------
For a share of each class of beneficial interest
outstanding throughout each
year:
Class B Shares 1995 1994
1993 1992 1991
==========================================================
======================
Net Asset Value,
Beginning of Year $1.00 $1.00
$1.00 $1.00 $1.00
- ----------------------------------------------------------
- ----------------------
Net investment income 0.044 0.022
0.021 0.040 0.062
Dividends from net
investment income (0.044) (0.022)
(0.021) (0.040) (0.062)
- ----------------------------------------------------------
- ----------------------
Net Asset Value, End of Year $1.00 $1.00
$1.00 $1.00 $1.00
- ----------------------------------------------------------
- ----------------------
Total Return 4.49% 2.18%
2.15% 4.06% 6.36%
- ----------------------------------------------------------
- ----------------------
Net Assets, End of Year (000s) $160,432 $252,246
$166,262 $225,476 $426,862
- ----------------------------------------------------------
- ----------------------
Ratios to Average Net Assets:
Expenses 1.24% 1.26%
1.25% 1.22% 1.17%
Net investment income 4.35 2.24
2.16 4.13 6.27
==========================================================
======================
Class C Shares 1995(1)
==========================================================
======================
Net Asset Value,
Beginning of Year $1.00
- ----------------------------------------------------------
- ----------------------
Net investment income 0.035
Dividends from net
investment income (0.035)
- ----------------------------------------------------------
- ----------------------
Net Asset Value, End of Year $1.00
- ----------------------------------------------------------
- ----------------------
Total Return 3.52%++
- ----------------------------------------------------------
- ----------------------
Net Assets, End of Year (000s) $2,850
- ----------------------------------------------------------
- ----------------------
Ratios to Average Net Assets:
Expenses 1.21%+
Net investment income 4.76+
==========================================================
======================
(1) For the period from November 7, 1994 (inception date)
to July 31, 1995.
++ Total return is not annualized as it may not be
representative of the total
return for the year.
+ Annualized.
11
<PAGE>
Smith Barney Exchange Reserve Fund
- ----------------------------------------------------------
- ----------------------
Independent Auditors' Report
- ----------------------------------------------------------
- ----------------------
The Shareholders and Board of Trustees of
Smith Barney Exchange Reserve Fund of
Smith Barney Income Funds:
We have audited the accompanying statement of assets
and liabilities,
including the schedule of investments, of Smith Barney
Exchange Reserve Fund of
Smith Barney Income Funds as of July 31, 1995, and the
related statement of
operations, statement of changes in net assets, and
financial highlights for the
year then ended. These financial statements and financial
highlights are the
responsibility of the Fund's management. Our
responsibility is to express an
opinion on these financial statements and financial
highlights based on our
audit. The statement of changes in net assets for the year
ended July 31, 1994
and the financial highlights for each of the years in the
four-year period then
ended were audited by other auditors whose report thereon
dated September 9,
1994, expressed an unqualified opinion on that statement
of changes in net
assets and those financial highlights.
We conducted our audit in accordance with generally
accepted auditing
standards. Those standards require that we plan and
perform the audit to obtain
reasonable assurance about whether the financial
statements and financial
highlights are free of material misstatement. An audit
includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial
statements. Our procedures included confirmation of
securities owned as of July
31, 1995, by correspondence with the custodian. An audit
also includes assessing
the accounting principles used and significant estimates
made by management, as
well as evaluating the overall financial statement
presentation. We believe that
our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly,
in all material respects, the financial position of Smith
Barney Exchange
Reserve Fund of Smith Barney Income Funds as of July 31,
1995, and the results
of its operations, changes in its net assets and financial
highlights for the
year then ended, in conformity with generally accepted
accounting principles.
/s/KPMG Peat Marwick LLP
New York, New York
September 22, 1995
12
<PAGE>
Smith Barney
Exchange Reserve
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 and Investment Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Phyllis M. Zahorodny
Vice President and Investment Officer
Christina T. Sydor
Secretary
SMITH BARNEY
------------
A Member of Travelers Group [LOGO]
Investment Adviser
Smith Barney Mutual Funds Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank
Shareholder Servicing
Agent
The Shareholder Services
Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general information of
the shareholders of
Smith Barney Exchange Reserve Fund. It is not authorized
for distribution to
prospective investors unless accompanied or preceded by a
current Prospectus for
the Fund, which contains information concerning the Fund's
investment policies,
fees and expenses as well as other pertinent information.
Smith Barney
Exchange Reserve Fund
388 Greenwich Street
New York, New York 10013
FD0428 9/95
