<PAGE>
[GRAPHIC]
[GRAPHIC}
Smith Barney
Premium Total
Return Fund
---------------------------------------------
SEMI-ANNUAL REPORT
---------------------------------------------
June 30, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
<PAGE>
Smith Barney Premium Total Return Fund
================================================================================
The Smith Barney Premium Total Return Fund ("Fund") seeks total return
consisting of long-term capital appreciation and income by investing primarily
in a diversified portfolio of dividend-paying common stocks.
Smith Barney Premium Total Return Fund's
Average Annual Total Returns Ended
June 30, 1998
<TABLE>
<CAPTION>
Without Sales Charges*
--------------------------------------------------
Class A Class B Class L Class O#
================================================================================
<S> <C> <C> <C> <C>
Six-Months+ 7.41% 7.13% N/A 7.14%
- --------------------------------------------------------------------------------
One-Year 18.23 17.63 N/A 17.66
- --------------------------------------------------------------------------------
Five-Year 16.96 16.38 N/A 16.41
- --------------------------------------------------------------------------------
Ten-Year N/A 15.09 N/A N/A
- --------------------------------------------------------------------------------
Since Inception++ 16.56 14.29 3.16%+ 16.36
================================================================================
<CAPTION>
With Sales Charges**
--------------------------------------------------
Class A Class B Class L Class O#
================================================================================
<S> <C> <C> <C> <C>
Six-Months+ 2.03% 2.13% N/A 6.14%
- --------------------------------------------------------------------------------
One-Year 12.31 12.63 N/A 16.66
- --------------------------------------------------------------------------------
Five-Year 15.76 16.27 N/A 16.41
- --------------------------------------------------------------------------------
Ten-Year N/A 15.09 N/A N/A
- --------------------------------------------------------------------------------
Since Inception++ 15.50 14.29 1.13%+ 16.36
================================================================================
</TABLE>
* Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B, L and O shares.
# On June 12, 1998, Class C shares were renamed Class O shares.
** Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from initial purchase.
Thereafter, the CDSC declines by 1.00% per year until no CDSC is incurred.
Class L and O shares also reflect the deduction of a 1.00% CDSC which
applies if shares are redeemed within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Inception dates for Class A, B, L and O shares are November 6, 1992,
September 16, 1985, June 15, 1998 and June 1, 1993, respectively.
================================================================================
FUND HIGHLIGHT
================================================================================
Because of our continuing concerns with the level of market valuation, market
volatility and the sustainability of future corporate earnings growth, we
maintained a defensive positioning in the Fund throughout the first half of
1998.
================================================================================
NASDAQ SYMBOL
================================================================================
Class A SOPAX
Class B SOPTX
Class L SPTLX
Class O SPTCX
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WHAT'S INSIDE
================================================================================
Shareholder Letter ........................................................ 1
Distribution Policy ....................................................... 4
Historical Performance .................................................... 5
Smith Barney Premium Total Return Fund
at a Glance ............................................................... 8
Schedule of Investments ................................................... 9
Statement of Assets and Liabilities ....................................... 15
Statement of Operations ................................................... 16
Statements of Changes in Net Assets ....................................... 17
Notes to Financial Statements ............................................. 18
Financial Highlights ...................................................... 23
Additional Shareholder Information ........................................ 28
<PAGE>
================================================================================
Shareholder Letter
================================================================================
[PHOTO] [PHOTO]
HEATH B. HARRY J.
MCLENDON ROSENBLUTH
Chairman Investment Officer
Dear Shareholder:
We are pleased to present the semi-annual report for the Smith Barney Premium
Total Return Fund ("Fund") for the period ended June 30, 1998. In this report we
discuss stock market conditions and review our investment strategy during the
reporting period. A more detailed summary of performance and current holdings
can be found in the appropriate sections that follow. We hope you find this
report to be informative and useful.
A Classic Series Fund
The Premium Total Return Fund is part of the Classic Series of Smith Barney
Mutual Funds. The Classic Series funds are mutual funds, whose investment
decisions are determined by experienced portfolio managers, based on each fund's
investment objective and guidelines. Funds in the Smith Barney Classic Series
invest across asset classes and sectors, utilizing a range of strategies in
order to achieve their objectives.
Performance Overview
For the six months ended June 30, 1998, the Fund had a total return of 7.41% for
its Class A shares without sales charges. During this time, the U.S. stock
market, as measured by the Standard & Poor's 500 Composite Stock Index ("S&P
500"), had a total return of 17.7%. Additional performance information regarding
the Fund's other share classes can be found on page five.
Market Overview and Outlook
The S&P 500 had a total return of 4.1% for the month of June and returned 17.7%
for the six months ended June 30, 1998. Small-capitalization company stocks, as
measured by the Russell 2000 Index, continued to significantly lag behind the
performance of the large-capitalization names. (The Russell 2000 Index is made
up of 2,000 smaller-capitalized U.S.-based companies whose common stocks trade
either on the New York, American or Nasdaq stock exchanges. Market
capitalization is the value of a company's outstanding shares of common stock,
determined by the number of shares outstanding multiplied by the share price.)
The Russell 2000 Index returned 0.2% in June and 4.9% year-to-date at the close
of the reporting period.
Because of our continuing concerns with the level of market valuation, market
volatility and the sustainability of future corporate earnings growth, we
maintained a defensive positioning in the Fund throughout the first half of
1998. The invested position of the Fund was about 59% as of June 30, 1998. S&P
500 Index call options were sold to reduce market exposure and to take advantage
of stock price volatility and the Fund's cash levels were at about 11% of total
Fund assets at the end of the period under review.
The following facts and figures should provide some flavor for the lofty
valuations of the stock market today. The Index is currently selling at a
price-earnings multiple of nearly 24x trailing twelve month earnings and 23x
this year's earnings. (A price-earnings multiple is a widely used gauge of a
stock's valuation, that indicates what investors are paying for a company's
earnings power at the current stock price.)
The largest 20% of companies in the Index are selling at over 50x most recently
reported earnings for last year while only one-third of the companies in the S&P
500 are selling at trailing P/Es of less than 20. Roughly 10% of stocks in the
S&P 500 (by
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 1
<PAGE>
capitalization) are selling at an average price-to-book ratio of 8x and an
average price-to-earnings ratio of 36x while smaller and mid-capitalization
company stocks are selling at a discount to the S&P 500 (Price-to-book ratios
show the price of a stock compared to the difference between a company's assets
and liabilities.)
Faced with this environment, we have focused our stock selection on mid- and
smaller-capitalization company stocks and some select large-capitalization
names. Accordingly, as of June 30, 1998, the Fund's portfolio had a weighted
average price-to-earnings ratio of 17x trailing earnings, a price-to-book ratio
of 2.4x and a dividend yield of 1.8%, very reflective of our value style. (Our
value style means that the price we pay for a stock is always our primary
consideration.)
The defensive positioning of the Fund portfolio during the first six months of
the year has hurt performance results relative to the S&P 500. In addition to
the Fund's hedged position, the Fund portfolio has not been heavily invested in
the "mega-capitalization" growth stocks that have driven the Index up so far
this year. The top forty names (by market capitalization) in the S&P 500, which
in aggregate make up 50% of the S&P 500, have returned an average 21% so far
this year while the next 460 stocks have returned an average 10%. Of these top
forty names, eight are held in the Fund's portfolio and make up roughly 10.1% of
the portfolio. We do not own more of these stocks because we believe that the
biggest stocks, for the most part, are highly overvalued at this time.
The weighted average market capitalization of the Fund's portfolio as of June
30, 1998 was $23.5 billion versus $70.9 billion for the S&P 500 Index. We think
that the invested position of the Fund's portfolio coupled with not owning the
"biggest of the big" capitalization stocks, explains its performance shortfall
relative to the S&P 500.
In spite of the level of market valuations and market volatility, we continue to
find new ideas for the Fund's portfolio. Three of the Fund's largest holdings at
December 31, 1997 (Lehman Brothers, Philip Morris Inc. and Long Island Lighting
Co.) are no longer top ten positions. They have been replaced in that list by
Aetna, Inc., Allmerica Financial Corp. and Tele Danmark A/S. The Fund's
portfolio in place today reflects our best investment ideas. It is built from
the bottom-up and every stock that is held is selected based on our disciplined
stock selection philosophy that focuses on finding companies that are selling at
a discount to intrinsic value, that have sound business fundamentals, and that
are experiencing improving business conditions.
The most recent significant purchases (a greater than 0.5% position) have
included the following:
o Aetna, Inc. (AET), an insurance, health care and financial services concern
o Ford Motor Co. (F), the world's largest truck manufacturer and second
largest auto producer
o Dillard Department Stores (DDS), an operator of 270 department stores in 27
Sunbelt and Midwestern states in the process of acquiring Mercantile
Stores, Inc.
o Northrup Grumman Corp. (NOC), the aerospace, defense and electronics giant
which Lockheed Martin, Inc. is trying to acquire
o Royal Dutch Petroleum (RD), parent company of Royal Dutch/Shell Group, the
world's largest oil and gas conglomerate
o Telebras SA (TBR), the Brazilian national telecommunications concern that
recently announced a restructuring and privatization of the company
o WMX Technologies Inc. (WMX), parent company of Waste Management, Inc.,
which is in the process of merging with USA Waste Services.
- --------------------------------------------------------------------------------
2 1998 Semi-Annual Report to Shareholders
<PAGE>
These purchases have been made in a number of different sectors of the market
and each stock has some catalyst that should lead to improved business operating
conditions. Moreover, each stock fits our bottom-up stock selection approach.
Investment Strategy
The Fund's main investment objective is to provide investors with long-term
total return by investing primarily in dividend-paying stocks. Our goal is to
give people exposure to the equity market -- a market that has historically
produced the highest returns relative to other investment classes -- with less
risk to principal than if they had invested in the stock market on their own. We
believe the best way to accumulate and build wealth is to compound absolute
returns.
We are "bottom up" investors who take a total return approach to investing. We
look for undervalued stocks and select them one at a time because of each
stock's characteristics. In our view the best way to find these undervalued
stocks is through a bottom-up approach combining qualitative and quantitative
techniques. Our starting point is always individual stocks, never "big picture"
economic forecasting.
The stock selection process for the Smith Barney Premium Total Return Fund
remained unchanged during the reporting period. The ideal candidate for
inclusion in the portfolio would possess three broadly defined characteristics:
1. Inexpensive valuation (e.g., low Price/Earnings ratio, Price-to-book
ratio, Price to net asset value.)
2. Sound long-term business fundamentals (e.g., high operating returns
relative to invested capital, balance sheet strength, a strong
competitive position)
3. Positive near-term business momentum (e.g., improving business trends)
First of all, the Fund's portfolio exhibits excellent value characteristics --
the price paid for a stock is always the primary consideration. In addition, the
portfolio's companies display strong business fundamentals and have better than
average business momentum.
Our risk management strategies involve several different aspects. Historically,
dividend-paying stocks have proven less volatile than the overall equity market.
Beyond that, careful stock selection should help to further reduce risk. We
periodically use options, primarily S&P 500 index calls, as part of our hedging
strategy to minimize volatility. We adjust the Fund's overall hedge exposure
based on our analysis of current market conditions.
The Fund's option program is designed to help reduce portfolio volatility. (An
option is the right to buy or sell a security that is granted in exchange for an
agreed upon sum.) We never engage in random options writing. Investors in the
Fund want exposure to stocks but are typically uncomfortable with volatility. We
believe our job is to manage a fully diversified portfolio that seeks to control
risk and maximize investment returns over the long run.
Market Perspective and Outlook
Our expectations for the stock market over the next six months contrast to those
of many Wall Street professionals. The Wall Street consensus expectation for
corporate earnings growth in the second half of 1998 is 14%. With growth rates
of 1.7% in the first quarter of this year and 1.5% expected for the second
quarter, we do not expect to see such robust earnings growth in the second half
of the year. As we stated at the beginning of this report, the Fund continues to
be defensively positioned.
With the S&P 500 rising more than 125% over the last three years our concern
with the level of market valuation and the quality and sustainability of
corporate earnings growth is as great as it has ever been. In addition, problems
with Asia show no sign of ebbing anytime soon and will continue to generate
uncertainty for domestic stocks as we move ahead into the second half of 1998.
We continue to be very cautious and we expect market volatility to continue.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 3
<PAGE>
We believe that the Fund's portfolio is well positioned to deal with this market
environment and we thank you for your investment in the Smith Barney Premium
Total Return Fund. We look forward to continuing to help you pursue your
financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Harry J. Rosenbluth
Heath B. McLendon Harry J. Rosenbluth
Chairman Investment Officer
July 24, 1998
================================================================================
Top Ten Holdings* As of June 30, 1998
================================================================================
1. SLM Holding Corp. 6.1%
- --------------------------------------------------------------------------------
2. Lowes Corp. 4.1
- --------------------------------------------------------------------------------
3. MCI Communications Corp. 4.1
- --------------------------------------------------------------------------------
4. Bristol-Myers Squibb Co. 3.9
- --------------------------------------------------------------------------------
5. Morgan Stanley Dean Witter & Co. 2.7
- --------------------------------------------------------------------------------
6. Republic New York Corp. 2.2
- --------------------------------------------------------------------------------
7. Ace, Ltd. 2.1
- --------------------------------------------------------------------------------
8. Allmerica Financial Corp. 1.9
- --------------------------------------------------------------------------------
9. Tele Danmark A/S, Sponsored ADR 1.9
- --------------------------------------------------------------------------------
10. Aetna Inc. 1.8
- --------------------------------------------------------------------------------
* As a percentage of total common stock.
Smith Barney Premium Total Return Fund
Distribution Policy
A mutual fund pays dividends to satisfy one of the requirements necessary to
qualify as a regulated investment company. Regulated investment companies avoid
paying federal income, and excise taxes by distributing substantially all of
their ordinary income and net capital gains. These distributions reach the
shareholder without being diluted by taxes, as well as retaining the long-term
capital gain tax benefits. Calendar year-end distributions are designed to
ensure the Fund, and the Funds' shareholders, of this favorable tax status.
As you know, the Fund's dividend policy recently has been changed from a monthly
distribution to a quarterly one. This change in dividend frequency has no impact
on the Fund's total distribution requirements as a regulated investment company,
and, as a result, is expected to provide shareholders with a comparable amount
of total distributions as had the former policy. Smith Barney Premium Total
Return Fund's quarterly dividend policy reflects the long-term total return
potential of its equity investments, and its ability to maintain a moderate
growth of principal. Shareholders are informed of the source and tax status of
all distributions promptly after the close of each calendar year.
- --------------------------------------------------------------------------------
4 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
Historical Performance -- Class A Shares
==============================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $22.19 $23.12 $0.32 $0.37 $0.00 7.41%+
- ------------------------------------------------------------------------------------------------------------------------------
12/31/97 19.14 22.19 0.38 1.25 0.00 25.19
- ------------------------------------------------------------------------------------------------------------------------------
12/31/96++ 17.40 19.14 0.16 0.47 0.00 13.80+
- ------------------------------------------------------------------------------------------------------------------------------
7/31/96 16.33 17.40 0.37 0.91 0.00 14.76
- ------------------------------------------------------------------------------------------------------------------------------
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 $2.41 $4.15 $1.25
==============================================================================================================================
<CAPTION>
==============================================================================================================================
Historical Performance -- Class B Shares
==============================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $22.17 $23.06 $0.30 $0.37 $0.00 7.13%+
- ------------------------------------------------------------------------------------------------------------------------------
12/31/97 19.14 22.17 0.29 1.25 0.00 24.55
- ------------------------------------------------------------------------------------------------------------------------------
12/31/96++ 17.40 19.14 0.12 0.47 0.00 13.57+
- ------------------------------------------------------------------------------------------------------------------------------
7/31/96 16.33 17.40 0.29 0.91 0.00 14.21
- ------------------------------------------------------------------------------------------------------------------------------
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
==============================================================================================================================
Total $3.59 $4.55 $4.69
==============================================================================================================================
<CAPTION>
==============================================================================================================================
Historical Performance -- Class L Shares
==============================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Inception*-- 6/30/98 $23.06 $23.12 $0.00 $0.37 $0.00 3.16%+
==============================================================================================================================
</TABLE>
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Smith Barney Premium Total Return Fund 5
<PAGE>
<TABLE>
<CAPTION>
==============================================================================================================================
Historical Performance -- Class O Shares
==============================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $22.18 $23.07 $0.30 $0.37 $0.00 7.14%+
- ------------------------------------------------------------------------------------------------------------------------------
12/31/97 19.15 22.18 0.30 1.25 0.00 24.60
- ------------------------------------------------------------------------------------------------------------------------------
12/31/96++ 17.41 19.15 0.12 0.47 0.00 13.58+
- ------------------------------------------------------------------------------------------------------------------------------
7/31/96 16.33 17.41 0.29 0.91 0.00 14.30
- ------------------------------------------------------------------------------------------------------------------------------
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 $1.89 $3.75 $0.98
==============================================================================================================================
<CAPTION>
==============================================================================================================================
Historical Performance -- Class Y Shares
==============================================================================================================================
Net Asset Value
--------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/98 $22.24 $23.19 $0.34 $0.37 $0.00 7.58%+
- ------------------------------------------------------------------------------------------------------------------------------
12/31/97 19.17 22.24 0.44 1.25 0.00 25.61
- ------------------------------------------------------------------------------------------------------------------------------
12/31/96++ 17.42 19.17 0.18 0.47 0.00 13.95+
- ------------------------------------------------------------------------------------------------------------------------------
Inception*-- 7/31/96 17.57 17.42 0.21 0.46 0.00 2.93+
==============================================================================================================================
Total $1.17 $2.55 $0.00
==============================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.
<TABLE>
<CAPTION>
=============================================================================================================================
Average Annual Total Return
=============================================================================================================================
Without Sales Charge(1)
-------------------------------------------------------------------------------------
Class A Class B Class L Class O Class Y
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/98+ 7.41% 7.13% N/A 7.14% 7.58%
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 18.23 17.63 N/A 17.66 18.64
- -----------------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/98 16.96 16.38 N/A 16.41 N/A
- -----------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 6/30/98 N/A 15.09 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 16.56 14.29 3.16%+ 16.36 21.21
=============================================================================================================================
<CAPTION>
With Sales Charge(2)
-------------------------------------------------------------------------------------
Class A Class B Class L Class O Class Y
=============================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 6/30/98+ 2.03% 2.13% N/A 6.14% 7.58%
- -----------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/98 12.31 12.63 N/A 16.66 18.64
- -----------------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/98 15.76 16.27 N/A 16.41 N/A
- -----------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 6/30/98 N/A 15.09 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/98 15.50 14.29 1.13%+ 16.36 21.21
=============================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
6 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Cumulative Total Return
================================================================================
<TABLE>
<CAPTION>
Without Sales Charge(1)
================================================================================
<S> <C>
Class A (Inception* through 6/30/98) 137.64%
- --------------------------------------------------------------------------------
Class B (6/30/88 through 6/30/98) 307.64
- --------------------------------------------------------------------------------
Class L (Inception* through 6/30/98) 3.16+
- --------------------------------------------------------------------------------
Class 0 (Inception* through 6/30/98) 116.03
- --------------------------------------------------------------------------------
Class Y (Inception* through 6/30/98) 58.50
================================================================================
</TABLE>
(1) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B, L and O shares.
(2) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from initial purchase and
declines thereafter by 1.00% per year until no CDSC occurs. Class L and O
shares also reflect the deduction of a 1.00% CDSC, which applies if shares
are redeemed within the first year of purchase.
++ For the period from August 1, 1996 to December 31, 1996, which reflects a
change in the fiscal year end of the Fund.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B, L, O and Y shares are November 6, 1992,
September 16, 1985, June 15, 1998, June 1, 1993 and February 7, 1996,
respectively.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 7
<PAGE>
================================================================================
Smith Barney Premium Total Return Fund at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class B Shares of the
Smith Barney Premium Total Return Fund vs. Standard & Poor's 500 Index+
- --------------------------------------------------------------------------------
June 1988--June 1998
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Smith Barney Standard & Poor's
Premium Total Return Fund 500 Index
------------------------- ---------
<S> <C> <C>
Jun-1988 $10,000 $10,000
Dec-1988 $10,008 $10,343
Dec-1989 $11,920 $13,615
Dec-1990 $12,281 $13,192
Dec-1991 $16,005 $17,203
Dec-1992 $18,146 $18,513
Dec-1993 $20,287 $20,374
Dec-1994 $20,880 $20,642
Dec-1995 $25,439 $28,389
Dec-1996 $30,550 $32,723
Dec-1997 $37,478 $43,639
Jun-1998 $40,764 $51,372
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class B shares on June 30,
1988, assuming reinvestment of dividends and capital gains, if any, at net
asset value through June 30, 1998, compared to the Standard & Poor's 500
Index. The index is composed of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange and over-the-counter
market. The index is unmanaged and is not subject to the same management
and trading expenses as a mutual fund. The performance of the Fund's other
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 values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
[THE FOLLOWING TABLE WAS REPRESENTED BY A BAR CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Industry Diversification of Common Stock*
- --------------------------------------------------------------------------------
<S> <C>
Banking and Financial Services 13.5%
Capital Goods 3.1%
Consumer Non-Durables 10.3%
Consumer Services 14.9%
Energy 7.4%
Healthcare 10.8%
Insurance 12.0%
Other 5.8%
Real Estate 3.2%
Consumer Durables 1.9%
Technology 2.8%
Utilities 14.3%
</TABLE>
* As a percentage of total common stock.
[THE FOLLOWING TABLE WAS REPRESENTED BY A PIE CHART IN THE PRINTED MATERIAL.]
<TABLE>
<CAPTION>
Investment Breakdown
- --------------------------------------------------------------------------------
<S> <C>
Preferred Stock 4.1%
Corporate Bonds 1.2%
Convertible Bonds 0.1%
Cash Equivalent 11.1%
Common Stock 83.5%
</TABLE>
- --------------------------------------------------------------------------------
8 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Schedule of Investments (unaudited) June 30, 1998
============================================================================================================
SHARES SECURITY VALUE
============================================================================================================
<S> <C> <C>
COMMON STOCK -- 83.5%
Banking and Financial Services -- 11.3%
100,000 Cal Fed BanCorp Inc.+ $ 2,150,000
571,600 Federal Home Loan Mortgage Corp. 26,900,925
143,700 JSB Financial Inc. 8,415,431
333,400 Lehman Brothers Holdings, Inc. 25,859,338
990,800 Local Financial 12,880,400
11,974 Morgan ST "Sony Corp"-- (currency protected security)+ 20,198,641
1,200,000 Morgan Stanley Dean Witter & Co. 109,650,000
1,410,800 Republic New York Corp. 88,792,225
4,974,250 SLM Holding Corp.++ 243,738,250
- ------------------------------------------------------------------------------------------------------------
538,585,210
- ------------------------------------------------------------------------------------------------------------
Capital Goods -- 2.6%
659,300 Fluor Corp.++ 33,624,300
245,938 Lockheed Martin Corp.++ 26,038,686
1,000,000 Louisiana-Pacific Corp.++ 18,250,000
645,700 Lubrizol Corp. 19,532,425
291,500 Raytheon Co., Class B Shares 17,234,938
219,600 W.W. Grainger, Inc. 10,938,825
- ------------------------------------------------------------------------------------------------------------
125,619,174
- ------------------------------------------------------------------------------------------------------------
Consumer Durables -- 1.6%
104,400 Borg-Warner Automotive Inc. 5,017,725
450,000 Ford Motor Co. 26,550,000
675,000 Fuji Photo Film, Unsponsored ADR 23,329,687
689,510 Volvo Aktie Bolget, Sponsored ADR 20,383,639
- ------------------------------------------------------------------------------------------------------------
75,281,051
- ------------------------------------------------------------------------------------------------------------
Consumer Non-Durables -- 8.6%
420,000 Alberto-Culver Co., Class A Shares++ 10,657,500
600,000 B.A.T. Industries PLC, Sponsored ADR++ 12,112,500
750,000 Fortune Brands, Inc.++ 28,828,125
275,000 Gallaher Group PLC, Sponsored ADR 6,015,625
2,056,700 Loews Corp.# 179,189,987
658,600 Nestle S.A., Sponsored ADR 69,811,600
18,260 Nestle S.A., Sponsored ADR@ 1,944,690
394,300 Premark International, Inc. 12,716,175
1,621,100 Philip Morris Cos., Inc.# 63,830,812
300,800 UST, Inc. 8,121,600
850,000 Whitman Corp. 19,496,875
- ------------------------------------------------------------------------------------------------------------
412,725,489
- ------------------------------------------------------------------------------------------------------------
Consumer Services -- 12.6%
308,900 Bowne & Co., Inc. 13,900,500
379,300 Capstar Broadcasting Corp., Class A Shares+ 9,529,913
1,106,700 Deluxe Corp. 39,633,694
617,500 Dillard's, Inc., Class A Shares 25,587,656
1,396,100 Dun & Bradstreet Corp. 50,434,113
1,148,600 H & R Block Inc. 48,384,775
904,500 Harcourt General, Inc.++ 53,817,750
763,850 Hasbro Inc.++ 30,028,853
442,000 J.C. Penney Co., Inc. 31,962,125
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 9
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
============================================================================================================
SHARES SECURITY VALUE
============================================================================================================
<S> <C> <C>
Consumer Services -- 12.6% (continued)
1,214,200 Kmart Corp.+++ $ 23,373,350
619,100 Liz Claiborne, Inc.++ 32,347,975
268,312 Luby's Cafeterias Inc. 4,712,230
885,000 McDonald's Corp. 61,065,000
570,300 Mercantile Stores Co., Inc. 45,018,056
36,950 Midas, Inc. 743,619
500,000 Moore Corp., Ltd.++ 6,625,000
268,700 Pittston Brink's Group 9,908,313
221,500 Sbarro Inc. 6,008,187
1,324,700 Viad Corp. 36,760,425
2,147,500 Venator Group Inc. 41,070,937
400,000 Wal-Mart Stores, Inc.++ 24,300,000
- ------------------------------------------------------------------------------------------------------------
595,212,471
- ------------------------------------------------------------------------------------------------------------
Diamonds/Precious Stones -- 0.2%
598,000 De Beers Cons Mines ADR++ 10,465,000
- ------------------------------------------------------------------------------------------------------------
Energy -- 6.2%
600,000 Elf Aquitaine, Sponsored ADR++ 42,600,000
200,000 Eni S.p.A., Sponsored ADR++ 13,000,000
480,200 Mobil Oil Corp.# 36,795,325
863,000 Repsol S.A., Sponsored ADR++ 47,465,000
450,000 Royal Dutch Petroleum Co. 24,665,625
840,000 Sun Co., Inc.++ 32,602,500
1,344,300 Tosco Corp.++ 39,488,813
450,000 Total S.A., Sponsored ADR++ 29,418,750
964,448 Ultramar Diamond Shamrock CP 30,440,390
- ------------------------------------------------------------------------------------------------------------
296,476,403
- ------------------------------------------------------------------------------------------------------------
Gold Mining -- 0.2%
650,000 Homestake Mining Co.++ 6,743,750
- ------------------------------------------------------------------------------------------------------------
Healthcare -- 9.1%
507,400 Abbott Labs, Inc. 20,739,975
958,100 Aetna Inc. 72,935,362
1,393,800 Astra AB, Sponsored ADR, Class A Shares 28,572,900
1,349,000 Bristol-Myers Squibb Co. 155,050,687
766,900 Columbia/HCA Healthcare Corp.++ 22,335,962
550,000 Foundation Health Systems, Inc., Class A Shares+ 14,506,250
430,000 Merck & Co., Inc. 57,512,500
333,000 Pharmacia & Upjohn Inc. 15,359,625
505,600 Schering-Plough Corp. 46,325,600
- ------------------------------------------------------------------------------------------------------------
433,338,861
- ------------------------------------------------------------------------------------------------------------
Insurance -- 10.0%
2,193,900 Ace, Ltd. 85,562,100
1,145,668 Allmerica Financial Corp. 74,468,420
430,550 Allstate Corp. 39,422,234
525,675 Aon Corp.++ 36,928,669
619,000 Everest Reinsurance Holdings 23,792,813
581,600 Exel Ltd.++ 45,255,750
215,000 Financial Security Assurance Holdings Inc.++ 12,631,250
22,300 General Re Corp.++ 5,653,050
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
============================================================================================================
SHARES SECURITY VALUE
============================================================================================================
<S> <C> <C>
Insurance -- 10.0% (continued)
201,200 Horace Mann Educators Co. $ 6,941,400
349,200 IPC Holdings Ltd. 10,585,125
453,300 Mid Ocean Ltd. 35,584,050
251,600 Partnerre Ltd. 12,831,600
839,600 St. Paul Cos., Inc. 35,315,675
450,000 Terra Nova Holdings Ltd. (Bermuda) 14,118,750
603,500 TIG Holdings Inc. 13,880,500
334,800 Transatlantic Holdings Inc. 25,884,225
- ------------------------------------------------------------------------------------------------------------
478,855,611
- ------------------------------------------------------------------------------------------------------------
Miscellaneous -- 0.4%
1,300,000 Agrium, Inc. 16,412,500
176,800 FBR Asset Investment Corp@ 3,182,400
- ------------------------------------------------------------------------------------------------------------
19,594,900
- ------------------------------------------------------------------------------------------------------------
Real Estate -- 2.7%
250,000 American General Hospitality++ 5,312,500
1,000,000 Anthracite Capital, Inc. 13,875,000
110,600 Apartment Investment & Management Co., Class A Shares 4,368,700
89,200 Associated Estates Realty Corp. 1,666,925
92,733 Avalon Bay Communities, Inc. 3,523,854
142,433 Camden Property Trust 4,237,382
465,700 Capital Automotive REIT 6,607,119
480,000 Captec Net Lease Realty, Inc. 7,320,000
154,800 Charles E. Smith Residential Realty, Inc. 4,953,600
328,800 Equity Inns Inc. 4,336,050
20,000 Horizon Group Properties, Inc.+ 131,875
286,300 Mid-America Apartment Communities 7,533,269
400,000 Prime Retail Inc. 4,775,000
304,900 RFS Hotels Investment Inc. 5,793,100
291,800 Storage Trust Realty 6,820,825
160,000 Summit Properties Inc. 3,030,000
1,466,200 TrizecHahn Corp. 31,431,663
400,000 Walden Residential Properties Inc.# 11,475,000
62,650 Wellsford Residential Property Trust+ 869,269
- ------------------------------------------------------------------------------------------------------------
128,061,131
- ------------------------------------------------------------------------------------------------------------
Steel Producers -- 1.0%
2,159,100 British Steel PLC, Sponsored ADR++ 49,119,525
350,000 Nucor Corp. 16,100,000
- ------------------------------------------------------------------------------------------------------------
65,219,525
- ------------------------------------------------------------------------------------------------------------
Technology -- 2.4%
1,000,000 Compaq Computer Corp.++ 28,375,000
600,000 Electronic Data Systems Corp. 24,000,000
1,416,200 First Data Corp.++ 47,177,162
350,000 Tektronix, Inc.++ 12,381,250
- ------------------------------------------------------------------------------------------------------------
111,933,412
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 11
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
============================================================================================================
SHARES SECURITY VALUE
============================================================================================================
<S> <C> <C>
Transportation -- 1.1%
1,670,900 Canadian Pacific Ltd. $ 47,411,787
94,400 Stolt Nielson S.A. 1,616,600
127,400 Stolt Nielson S.A., Sponsored ADR++ 2,213,575
- ------------------------------------------------------------------------------------------------------------
51,241,962
- ------------------------------------------------------------------------------------------------------------
Utilities -- 11.9%
435,500 CMS Energy Corp. 19,162,000
450,000 Columbia Energy Group++ 25,031,250
1,564,700 Entergy Corp.++ 44,985,125
1,268,557 FirstEnergy Corp.++ 39,008,128
501,300 Illinova Corp. 15,039,000
1,749,632 MarketSpan Corp. 52,379,608
2,847,000 MCI Communications Corp. 165,481,875
539,300 Pinnacle West Capital Corp. 24,268,500
572,300 Public Service New Mexico 12,984,056
1,650,000 Tele Danmark A/S, Sponsored ADR++ 77,756,250
434,000 Telecomunicacoes Brasileiras S.A., Sponsored ADR 47,387,375
652,700 Telefonos de Mexico S.A., Sponsored ADR, Class L Shares++ 31,370,394
370,600 Telephone & Data Systems, Inc. 14,592,375
- ------------------------------------------------------------------------------------------------------------
569,445,936
- ------------------------------------------------------------------------------------------------------------
Waste Management -- 1.6%
555,000 U.S.A. Waste Services Inc.+++ 27,403,125
1,380,600 Waste Management, Inc. 48,321,000
- ------------------------------------------------------------------------------------------------------------
75,724,125
- ------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost-- $2,716,964,066) 3,994,524,011
============================================================================================================
PREFERRED STOCK -- 4.1%
Banking and Financial Services -- 2.3%
4,500 BankUnited Capital Trust, 10.250% due 12/31/26 4,837,500
80,000 Criimi Mae Inc., Series B, Convertible 10.875%# 2,695,000
760,000 Golden State Bancorp, Convertible 8.750% 65,882,500
304,767 Riggs National Corp., Washington, D.C.,
Series B, Exchangeable 10.750%# 8,457,284
250,000 Salomon Inc., Convertible 6.750%# 11,656,250
600,000 SL Green Realty Corp., 8.000% 15,300,000
- ------------------------------------------------------------------------------------------------------------
108,828,534
- ------------------------------------------------------------------------------------------------------------
Insurance -- 0.2%
143,500 Aetna Inc., 6.250% due 7/19/00++ 10,780,438
- ------------------------------------------------------------------------------------------------------------
Oil-Refining -- 0.3%
1,000,000 Tesoro Petroleum Corp., 7.250% due 7/1/01 15,937,500
- ------------------------------------------------------------------------------------------------------------
Rail-Transportation -- 0.5%
472,000 Union Pacific Capital Trust, 6.250% due 4/1/28@ 22,125,000
- ------------------------------------------------------------------------------------------------------------
Real Estate -- 0.8%
160,000 Crown American Realty Trust, Series A, Exchangeable 11.000%@ 8,580,000
350,000 General Growth Properties, 7.250% due 7/15/08 8,837,500
200,000 First Washington Realty Inc., Series A, Exchangeable 9.750%@ 5,887,500
243,000 Prime Retail Inc., Series A, Exchangeable 10.500%# 6,409,125
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
============================================================================================================
SHARES SECURITY VALUE
============================================================================================================
<S> <C> <C>
Real Estate -- 0.8% (continued)
77,700 Security Capital Pacific Trust# $ 2,340,712
200,000 Walden Residential Properties Inc., Series B, Exchangeable 9.160%# 5,087,500
- ------------------------------------------------------------------------------------------------------------
37,142,337
- ------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost-- $138,898,029) 194,813,809
============================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
============================================================================================================
<S> <C> <C>
CORPORATE BONDS -- 1.2%
Financial -- 0.2%
$ 4,000,000 Hawthorne Financial Corp., 12.500% due 12/31/04 4,210,000
2,000,000 Mego Mortgage, 12.500% due 12/1/01 1,802,500
2,000,000 Mego Mortgage, 12.500% due 12/1/01@ 1,902,500
3,000,000 Wilshire Financial Services, 13.000% due 1/1/04 3,247,500
- ------------------------------------------------------------------------------------------------------------
11,162,500
- ------------------------------------------------------------------------------------------------------------
Food Retail -- 0.4%
11,300,000 P&C Food Markets, 11.500% due 10/15/01 9,181,250
11,860,000 Penn Traffic Co., 8.625% due 12/15/03 9,161,850
- ------------------------------------------------------------------------------------------------------------
18,343,100
- ------------------------------------------------------------------------------------------------------------
Gas Transmission -- 0.1%
Columbia Gas Systems Inc., Debentures:
774,000 6.390% due 12/28/00 779,805
771,000 6.610% due 11/28/02 783,529
771,000 6.800% due 11/28/05 796,057
771,000 7.050% due 11/28/07 798,949
771,000 7.320% due 11/28/10 815,332
771,000 7.420% due 11/28/15 814,369
771,000 7.620% due 11/28/25 818,224
- ------------------------------------------------------------------------------------------------------------
5,606,265
- ------------------------------------------------------------------------------------------------------------
Industrial -- 0.5%
5,635,000 Comcast Corp., 9.375% due 5/15/05+ 6,057,625
4,915,000 Paging Network, 8.875% due 2/1/06 4,841,275
6,000,000 Rogers Cable Systems Inc., 10.000% due 3/15/05 6,660,000
4,000,000 Shop At Home Inc., 11.000% due 4/1/05 4,155,000
- ------------------------------------------------------------------------------------------------------------
21,713,900
- ------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS
(Cost-- $57,113,701) 56,825,765
============================================================================================================
CONVERTIBLE BONDS -- 0.1%
2,500,000 Ashanti Capital, 5.500% due 3/15/03++ 1,962,500
1,500,000 Pacific Concord Financial, 4.750% due 12/10/98@ 1,470,000
- ------------------------------------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS
(Cost-- $4,000,000) 3,432,500
============================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 13
<PAGE>
<TABLE>
<CAPTION>
============================================================================================================
Schedule of Investments (unaudited)(continued) June 30, 1998
============================================================================================================
SHARES SECURITY VALUE
============================================================================================================
<S> <C> <C>
WARRANTS -- 0.0%
5,509 Security Cap Group, Expire 9/18/98+ (Cost-- $34,673) $ 1,894
============================================================================================================
SUB-TOTAL INVESTMENTS
(Cost-- $2,917,010,469) 4,249,597,979
============================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
============================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 11.1%
$532,638,000 Chase Manhattan Bank, 5.696% due 7/1/98;
Proceeds at maturity -- $532,722,275; (Fully collateralized
by U.S. Treasury Notes, 5.375% due 6/30/00;
Market value-- $543,416,967) (Cost-- $532,638,000) 532,638,000
============================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $3,449,648,469*) $4,782,235,979
============================================================================================================
</TABLE>
+ Non-income producing security.
++ A portion of this security is on loan (See Note 6).
# Security segregrated by Custodian to cover written call options.
@ Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
===========================================================================================
Statement of Assets and Liabilities (unaudited) June 30, 1998
===========================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost--$2,917,010,469) $ 4,249,597,979
Repurchase agreement (Cost--$532,638,000) 532,638,000
Cash 745
Collateral for securities on loan (Note 6) 511,704,634
Receivable for securities sold 5,521,118
Receivable for Fund shares sold 6,886,506
Dividends and interest receivable 12,055,316
- -------------------------------------------------------------------------------------------
Total Assets 5,318,404,298
- -------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 511,704,634
Options written (Note 4) 194,334,375
Payable for securities purchased 33,106,398
Investment advisory fees payable 2,165,272
Administration fees payable 799,326
Distribution fees payable 771,595
Payable for Fund shares purchased 214,045
Accrued expenses 294,394
- -------------------------------------------------------------------------------------------
Total Liabilities 743,390,039
- -------------------------------------------------------------------------------------------
Total Net Assets $ 4,575,014,259
===========================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 198,260
Capital paid in excess of par value 3,156,624,407
Overdistributed net investment income (26,479,912)
Accumulated net realized gain from security transactions and options 145,264,920
Net unrealized appreciation of investments and options 1,299,406,584
- -------------------------------------------------------------------------------------------
Total Net Assets $ 4,575,014,259
===========================================================================================
Shares Outstanding:
Class A 41,154,586
--------------------------------------------------------------------------------------
Class B 148,683,757
--------------------------------------------------------------------------------------
Class L 239,849
--------------------------------------------------------------------------------------
Class O 5,470,061
--------------------------------------------------------------------------------------
Class Y 2,711,424
--------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $23.12
--------------------------------------------------------------------------------------
Class B * $23.06
--------------------------------------------------------------------------------------
Class L ** $23.12
--------------------------------------------------------------------------------------
Class O ** $23.07
--------------------------------------------------------------------------------------
Class Y (and redemption price) $23.19
--------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $24.34
--------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $23.35
===========================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L and O shares reduced by a 1.00% CDSC if
shares are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 15
<PAGE>
<TABLE>
<CAPTION>
=================================================================================
Statement of Operations (unaudited) For the Six Months Ended June 30, 1998
=================================================================================
<S> <C>
INVESTMENT INCOME:
Dividends $ 45,499,038
Interest 18,383,934
Less: Foreign withholding tax (1,790,198)
- ---------------------------------------------------------------------------------
Total Investment Income 62,092,774
- ---------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 13,944,297
Investment advisory fees (Note 2) 12,056,197
Administration fees (Note 2) 4,384,072
Shareholder and system servicing fees 1,845,830
Registration fees 134,986
Shareholder communications 126,939
Custody 72,575
Audit and legal 24,727
Insurance 15,372
Trustees' fees 9,546
Other 11,970
- ---------------------------------------------------------------------------------
Total Expenses 32,626,511
- ---------------------------------------------------------------------------------
Net Investment Income 29,466,263
- ---------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND OPTIONS (NOTES 3 AND 4):
Realized Gain (Loss) From:
Security transactions (excluding short-term securities) 271,499,250
Options written (86,300,624)
- ---------------------------------------------------------------------------------
Net Realized Gain 185,198,626
- ---------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of
Investments and Options:
Beginning of period 1,210,594,087
End of period 1,299,406,584
- ---------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 88,812,497
- ---------------------------------------------------------------------------------
Net Gain on Investments and Options 274,011,123
- ---------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 303,477,386
=================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 1998 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Statements of Changes in Net Assets
==========================================================================================================
For the Six Months Ended June 30, 1998 (unaudited)
and the Year Ended December 31, 1997
1998 1997
=========================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 29,466,263 $ 54,219,703
Net realized gain 185,198,626 246,317,401
Increase in net unrealized appreciation 88,812,497 491,156,780
- ---------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 303,477,386 791,693,884
- ---------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (58,398,040) (53,130,328)
Net realized gains (73,201,506) (220,180,678)
- ---------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (131,599,546) (273,311,006)
- ---------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 489,425,570 836,715,233
Net asset value of shares issued for reinvestment
of dividends 102,752,768 204,886,682
Cost of shares reacquired (336,787,351) (444,981,969)
- ---------------------------------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 255,390,987 596,619,946
- ---------------------------------------------------------------------------------------------------------
Increase in Net Assets 427,268,827 1,115,002,824
NET ASSETS:
Beginning of period 4,147,745,432 3,032,742,608
- ---------------------------------------------------------------------------------------------------------
End of period* $ 4,575,014,259 $ 4,147,745,432
=========================================================================================================
* Includes undistributed (overdistributed) net investment income of: $ (26,479,912) $ 2,451,865
=========================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Smith Barney Premium Total Return Fund ("Fund"), a separate investment fund
of 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 this
Fund and seven other separate investment funds: Smith Barney Exchange Reserve
Fund, Smith Barney Convertible Fund, Smith Barney High Income Fund, Smith Barney
Municipal High Income Fund, Smith Barney Diversified Strategic Income Fund,
Smith Barney Balanced Fund (formerly known as Smith Barney Utilities Fund) and
Smith Barney Total Return Bond Fund. The financial statements and financial
highlights for the other Funds are presented in separate semi-annual reports
dated January 31, 1998.
The significant accounting policies consistently followed by the Fund are: (a)
security 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 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) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) interest income, adjusted for amortization of premium
and accretion of discount, is recorded on the accrual basis; (e) dividend income
is recorded on the ex-dividend date; foreign dividend income is recorded on the
ex-dividend date or as soon as practical after the Fund determines the existence
of a dividend declaration after exercising reasonable due diligence; (f)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (g) gains or losses on the sale of securities calculated by using the
specific identification method; (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 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
class; management fees and general fund expenses are allocated on the basis of
relative net assets of each class; (j) the character of income and gains
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At December 31, 1997,
reclassifications were made to the Portfolio's capital accounts to reflect
permanent book/tax differences and income and gains available for distributions
under income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change; (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; and (l) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
In addition, the Fund may from time to time enter into options and/or futures
contracts in order to hedge market risk.
- --------------------------------------------------------------------------------
18 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
2. Investment Advisory Agreement, Administration Agreement
and Other Transactions
Smith Barney Strategy Advisers Inc. ("SBSA"), a subsidiary of Mutual Management
Corp. ("MMC") which, in turn, is a subsidiary of Salomon Smith Barney Holdings
Inc. ("SSBH"), acts as investment adviser to the Trust. 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.
SBSA has entered into a sub-advisory agreement with Boston Partners Asset
Management, L.P. ("Boston Partners"). Pursuant to the sub-advisory agreement,
Boston Partners is responsible for the day-to-day portfolio operations and
investment decisions for the Fund. SBSA pays Boston Partners a monthly fee
calculated at an annual rate of 0.15% of the average daily net assets of the
Fund. This fee is paid monthly.
MMC 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.
Smith Barney Inc. ("SB"), another subsidiary of SSBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
six months ended June 30, 1998, SB received brokerage commissions of $425,088.
On June 12, 1998, the Fund's existing Class C shares were renamed as Class O
shares. In addition, June 15, 1998 is the inception date for Class L shares,
which are being sold at net asset value plus a maximum initial sales charge of
1.00%. For the six months ended June 30, 1998, SB received sales charges of
approximately $1,268,000 for sales of the Fund's Class A shares and $43,000 for
sales of the Fund's Class L shares.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from initial purchase and
declines thereafter by 1.00% per year until no CDSC is incurred. Class L and O
shares have a 1.00% CDSC, which applies if redemption occurs within the first
year of purchase. For the six months ended June 30, 1998, CDSCs paid to SB were:
<TABLE>
<CAPTION>
Class B Class O
================================================================================
<S> <C> <C>
CDSCs $1,330,000 $16,000
================================================================================
</TABLE>
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B, L and O shares calculated at the annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B, L and O shares calculated at the annual rate of 0.50%,
0.75% and 0.45% of the average daily net assets of each class, respectively. For
the six months ended June 30, 1998, total Distribution Plan fees incurred were:
<TABLE>
<CAPTION>
Distribution
Plan Fees
================================================================================
<S> <C>
Class A $ 1,127,877
- --------------------------------------------------------------------------------
Class B 12,420,258
- --------------------------------------------------------------------------------
Class L 1,256
- --------------------------------------------------------------------------------
Class O 394,906
================================================================================
</TABLE>
All officers and one Trustee of the Trust are employees of SB.
3. Investments
During the six months ended June 30, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
================================================================================
<S> <C>
Purchases $861,282,112
- --------------------------------------------------------------------------------
Sales 763,206,820
================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 19
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
At June 30, 1998, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
<TABLE>
================================================================================
<S> <C>
Gross unrealized appreciation $1,402,648,578
Gross unrealized depreciation (70,061,068)
- --------------------------------------------------------------------------------
Net unrealized appreciation $1,332,587,510
================================================================================
</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.
At June 30, 1998, the Fund had no open purchased call or put options.
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 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 depending upon whether the cost of
the closing transaction is greater or less than the premium originally received,
without regard to any unrealized gain or loss on the underlying security, and
the liability related to such option is eliminated. When a written call option
is exercised the cost of the security sold will be decreased by the premium
originally received. When a written put option is exercised, the amount of the
premium originally received will reduce the cost of the security which the Fund
purchased upon exercise. When written index options are exercised, settlement is
made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Fund enters into options for hedging purposes. The risk in writing a
covered call option is that the Fund gives up the opportunity to participate in
any increase in the price of the underlying security beyond the exercise price.
The risk in writing a put option is that the Fund is exposed to the risk of loss
if the market price of the underlying security declines.
The following written call option transactions occurred during the six months
ended June 30, 1998:
<TABLE>
<CAPTION>
Number of
Contracts Premiums
==================================================================================================================
<S> <C> <C>
Options written, outstanding at December 31, 1997 21,500 $ 120,321,486
Options written during the six months ended June 30, 1998 32,100 239,313,863
Options cancelled in closing purchase transactions (30,500) (198,481,900)
- ------------------------------------------------------------------------------------------------------------------
Options written, outstanding at June 30, 1998 23,100 $ 161,153,449
==================================================================================================================
</TABLE>
The following table represents the written call option contracts open at June
30, 1998:
<TABLE>
<CAPTION>
Number of Strike
Contracts Expiration Price Value
==================================================================================================================
<S> <C> <C> <C> <C>
1,000,000 S&P 500 Index 9/19/98 $1,060 $ 97,000,000
560,000 S&P 500 Index 9/19/98 1,075 47,600,000
750,000 S&P 500 Index 9/19/98 1,100 49,734,375
- ------------------------------------------------------------------------------------------------------------------
Total Call Options Written
(Premiums received-- $161,153,449) $194,334,375
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
20 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
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. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations, and receives a lenders fee. Fees earned by the Fund on securities
lending are recorded in interest income. Loans of securities by the Fund are
collateralized by cash, U.S. Government securities or high quality money market
instruments that are maintained at all times in an amount at least equal to the
current market value of the loaned securities, plus a margin which may vary
depending on the type of securities loaned. The custodian establishes and
maintains the collateral in a segregated account. The Fund maintains exposure
for the risk of any losses in the investment of amounts received as collateral.
At June 30, 1998, the Fund had loaned common stocks having a value of
approximately $495,487,237 and holds the following collateral for loaned
securities:
<TABLE>
<CAPTION>
Security Description Value
===========================================================================================
<S> <C>
Time Deposits:
UBS, 6.000% due 7/1/98 $ 5,905,885
Banque Paribas, 6.500% due 7/1/98 75,518,985
Deutsche Bank, 7.000% due 7/1/98 61,397,549
Svenska Handelsbank, 6.500% due 7/1/98 61,397,549
Toronto Dominion, 6.500% due 7/1/98 61,397,549
Repurchase Agreements:
Goldman, Sachs, 6.250% due 7/1/98 38,517,647
Morgan Stanley, 6.250% due 7/1/98 39,908,407
Commercial Paper:
Citibank Credit Card MT 4-2, 5.607% due 7/27/98 16,908,077
Mitsubishi International, 5.615% due 7/30/98 49,391,957
Dakota, 5.586% due 7/16/98 49,738,246
Old Line Funding, 5.608% due 7/1/98 51,622,783
- -------------------------------------------------------------------------------------------
Total $511,704,634
===========================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 21
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
7. Shares of Beneficial Interest
At June 30, 1998, the Trust had an unlimited number of shares of beneficial
interest authorized 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 specifically related to the distribution of its shares.
At June 30, 1998, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class O Class Y
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
Total Paid-in Capital $684,034,752 $2,306,534,124 $5,497,942 $107,547,875 53,207,974
====================================================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
----------------------------------- -----------------------------------
Shares Amount Shares Amount
================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 5,185,686 $ 119,028,014 7,107,852 $ 148,102,037
Shares issued on reinvestment 986,213 22,458,141 2,132,100 45,150,021
Shares redeemed (2,574,350) (59,244,254) (3,453,293) (72,491,471)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase 3,597,549 $ 82,241,901 5,786,659 $ 120,760,587
================================================================================================================================
Class B
Shares sold 13,921,781 $ 318,069,615 29,688,917 $ 617,410,878
Shares issued on reinvestment 3,402,359 77,316,453 7,330,304 155,323,915
Shares redeemed (11,600,957) (265,872,145) (17,135,886) (357,356,107)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase 5,723,183 $ 129,513,923 19,883,335 $ 415,378,686
================================================================================================================================
Class L+
Shares sold 237,677 $ 5,448,420 -- --
Shares issued on reinvestment 2,183 49,773 -- --
Shares redeemed (11) (251) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase 239,849 $ 5,497,942 -- --
================================================================================================================================
Class O++
Shares sold 1,624,138 $ 37,166,762 2,288,586 $ 47,815,009
Shares issued on reinvestment 128,723 2,928,309 206,937 4,412,593
Shares redeemed (505,955) (11,670,701) (498,841) (10,416,117)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase 1,246,906 $ 28,424,370 1,996,682 $ 41,811,485
================================================================================================================================
Class Y
Shares sold 423,498 $ 9,712,759 1,113,070 $ 23,387,309
Shares issued on reinvestment 4 92 7 153
Shares redeemed -- -- (212,175) (4,718,274)
- --------------------------------------------------------------------------------------------------------------------------------
Net Increase 423,502 $ 9,712,851 900,902 $ 18,669,188
================================================================================================================================
</TABLE>
+ Transactions for Class L shares are for the period from June 15, 1998
(inception date) to June 30, 1998.
++ On June 12, 1998, Class C shares were renamed Class O shares.
- --------------------------------------------------------------------------------
22 Smith Barney Premium Total Return Fund
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1998(1) 1997(2) 1996(2)(3) 1996 1995 1994
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $22.19 $19.14 $17.40 $16.33 $15.69 $15.65
- --------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.27 0.39 0.16 0.37 0.44 0.33
Net realized and unrealized gain 1.35 4.29 2.21 1.98 1.48 0.99
- --------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.62 4.68 2.37 2.35 1.92 1.32
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.32) (0.38) (0.16) (0.37) (0.43) (0.55)
Net realized gains (0.37) (1.25) (0.47) (0.91) (0.14) (0.52)
Capital -- -- -- -- (0.71) (0.21)
- --------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.69) (1.63) (0.63) (1.28) (1.28) (1.28)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $23.12 $22.19 $19.14 $17.40 $16.33 $15.69
- --------------------------------------------------------------------------------------------------------------------------------
Total Return 7.41%++ 25.19% 13.80%++ 14.76% 12.92% 8.65%
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $951,502 $833,540 $608,203 $534,329 $471,578 $67,699
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.11%+ 1.11% 1.12%+ 1.12% 1.16% 1.19%
Net investment income 1.73+ 1.89 2.05+ 2.16 2.81 2.05
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 43% 30% 58% 63% 34%
- --------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $0.06 $0.06 $0.06 $0.06 -- --
================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from August 1, 1996 to December 31, 1996.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 23
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares 1998(1) 1997(2) 1996(2)(3) 1996 1995 1994
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $22.17 $19.14 $17.40 $16.33 $15.69 $15.65
- ----------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.14 0.29 0.12 0.28 0.36 0.25
Net realized and unrealized gain 1.42 4.28 2.21 1.99 1.48 1.00
- ----------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.56 4.57 2.33 2.27 1.84 1.25
- ----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.30) (0.29) (0.12) (0.29) (0.34) (0.49)
Net realized gains (0.37) (1.25) (0.47) (0.91) (0.14) (0.52)
Capital -- -- -- -- (0.72) (0.20)
- ----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.67) (1.54) (0.59) (1.20) (1.20) (1.21)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $23.06 $22.17 $19.14 $17.40 $16.33 $15.69
- ----------------------------------------------------------------------------------------------------------------------------------
Total Return 7.13%++ 24.55% 13.57%++ 14.21% 12.36% 8.12%
- ----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $3,429 $3,170 $2,355 $2,021 $1,655 $1,697
- ----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.60%+ 1.60% 1.54%+ 1.62% 1.66% 1.66%
Net investment income 1.23+ 1.39 1.63+ 1.66 2.31 1.58
- ----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 43% 30% 58% 63% 34%
- ----------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $0.06 $0.06 $0.06 $0.06 -- --
==================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from August 1, 1996 to December 31, 1996.
(4) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
24 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class L Shares 1998(1)
================================================================================
<S> <C>
Net Asset Value, Beginning of Period $23.06
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.01
Net realized and unrealized gain 0.42
- --------------------------------------------------------------------------------
Total Income From Operations 0.43
- --------------------------------------------------------------------------------
Less Distributions From:
Net realized gains (0.37)
- --------------------------------------------------------------------------------
Total Distributions (0.37)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $23.12
- --------------------------------------------------------------------------------
Total Return++ 3.16%
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $5,544
- --------------------------------------------------------------------------------
Ratios to Average Net Assets+:
Expenses 1.97%
Net investment income 2.31
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 19%
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.06
================================================================================
</TABLE>
(1) For the period from June 15, 1998 (inception date) to June 30, 1998
(unaudited).
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 25
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class O Shares(1) 1998(2) 1997(3) 1996(3)(4) 1996 1995 1994(5)
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $22.18 $19.15 $17.41 $16.33 $15.69 $15.65
- ------------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.18 0.30 0.12 0.29 0.36 0.23
Net realized and unrealized gain 1.38 4.28 2.21 1.99 1.48 1.02
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 1.56 4.58 2.33 2.28 1.84 1.25
- ------------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.30) (0.30) (0.12) (0.29) (0.35) (0.49)
Net realized gains (0.37) (1.25) (0.47) (0.91) (0.14) (0.52)
Capital -- -- -- -- (0.71) (0.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.67) (1.55) (0.59) (1.20) (1.20) (1.21)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $23.07 $22.18 $19.15 $17.41 $16.33 $15.69
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return 7.14%++ 24.60% 13.58%++ 14.30% 12.36% 8.12%
- ------------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $126,214 $93,676 $42,637 $31,044 $12,937 $1,878
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.57%+ 1.56% 1.55%+ 1.59% 1.62% 1.60%
Net investment income 1.29+ 1.41 1.61+ 1.68 2.35 1.65
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 43% 30% 58% 63% 34%
- ------------------------------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(6) $0.06 $0.06 $0.06 $0.06 -- --
====================================================================================================================================
</TABLE>
(1) On June 12, 1998, Class C shares were renamed Class O shares.
(2) For the six months ended June 30, 1998 (unaudited).
(3) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(4) For the period from August 1, 1996 to December 31, 1996.
(5) On November 7, 1994, the former Class D shares were renamed Class C shares.
(6) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
26 1998 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class Y Shares 1998(1) 1997(2) 1996(2)(3) 1996(4)
=======================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $22.24 $19.17 $17.42 $17.57
- -------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.24 0.47 0.17 0.19
Net realized and unrealized gain 1.42 4.29 2.23 0.33
- -------------------------------------------------------------------------------------------------------
Total Income From Operations 1.66 4.76 2.40 0.52
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.44) (0.18) (0.21)
Net realized gains (0.37) (1.25) (0.47) (0.46)
- -------------------------------------------------------------------------------------------------------
Total Distributions (0.71) (1.69) (0.65) (0.67)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $23.19 $22.24 $19.17 $17.42
- -------------------------------------------------------------------------------------------------------
Total Return 7.58%++ 25.61% 13.95%++ 2.93%++
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $62,875 $50,882 $26,585 $13,192
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.76%+ 0.76% 0.80%+ 0.87%+
Net investment income 2.08+ 2.22 2.36+ 2.24+
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 43% 30% 58%
- -------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.06 $0.06 $0.06 $0.06
=======================================================================================================
</TABLE>
(1) For the six months ended June 30, 1998 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(3) For the period from August 1, 1996 to December 31, 1996.
(4) For the period from February 7, 1996 (inception date) to July 31, 1996.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Premium Total Return Fund 27
<PAGE>
================================================================================
Additional Shareholder Information (unaudited)
================================================================================
On February 6, 1998, a special meeting of shareholders of the Fund was held for
the purpose of voting on the following matters:
1. To elect Trustees of the Trust; and
2. To approve or disapprove the reclassification, modification and/or
elimination of certain fundamental investment policies.
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
Shares Voted Percentage Shares Voted Percentage
Name of Trustee For Shares Voted Against Shares Voted
===================================================================================================================================
<S> <C> <C> <C> <C>
Lee Abraham 470,650,429.393 97.232% 13,397,258.703 2.768%
Alan J. Bloostein 470,662,468.281 97.235 13,385,219.815 2.765
Richard E. Hanson, Jr. 470,785,649.601 97.260 13,262,038.495 2.740
Heath B. McLendon 470,800,123.228 97.263 13,247,564.868 2.737
===================================================================================================================================
</TABLE>
Proposal 2 requested that shareholders approve certain changes to the
fundamental investment policies of the Fund in order to modernize them in view
of certain regulatory, business or industry developments that have occurred
since original adoption of these policies by the Fund. The following chart
demonstrates that all proposals were approved by the shareholders.
Please note that "M" indicates a modification of the policy; "E" indicates the
elimination of the policy; and "R" indicates the reclassification of the policy
from fundamental (which would require shareholder approval to change) to
non-fundamental (which can be changed by a vote of the Board of Trustees).
<TABLE>
=====================================================================================
<S> <C>
"M" Diversification Approved
- -------------------------------------------------------------------------------------
"M" Industry Concentration Approved
- -------------------------------------------------------------------------------------
"M" Borrowing Approved
- -------------------------------------------------------------------------------------
"E" Pledging Assets Approved
- -------------------------------------------------------------------------------------
"M" Lending by the Fund Approved
- -------------------------------------------------------------------------------------
"R" Margin and Short Sales Approved
- -------------------------------------------------------------------------------------
"M" Real Estate Approved
- -------------------------------------------------------------------------------------
"R" Securities of other Investment Companies Approved
- -------------------------------------------------------------------------------------
"R" Investments in Oil, Gas, Land and Mineral Exploration Approved
- -------------------------------------------------------------------------------------
"R" Puts and Calls Approved
=====================================================================================
</TABLE>
The information below reports the lowest percentage of shares voting for the
proposals, the highest percentage of shares voting against and abstaining by
shareholders of the Fund on all proposals.
<TABLE>
<CAPTION>
Percentage Percentage Percentage
Shares Voted of Shares Shares Voted of Shares Shares of Shares
For Voted Against Voted Abstaining Abstained
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
88,627,499.135 90.837% 1,576,331.031 1.616% 7,364,001.686 7.547%
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
28 1998 Semi-Annual Report to Shareholders
<PAGE>
Smith Barney
Premium Total
Return Fund
Trustees Investment Adviser
Lee Abraham Smith Barney Strategy Advisers Inc.
Allan J. Bloostein
Richard E. Hanson, Jr. Distributor
Heath B. McLendon, Chairman Smith Barney Inc.
Officers Custodian
Heath B. McLendon PNC Bank, N.A.
President and Chief Executive Officer
Shareholder Servicing Agent
Lewis E. Daidone First Data Investor Services Group, Inc.
Senior Vice President and Treasurer P.O. Box 9134
Boston, MA 02205-9134
Harry J. Rosenbluth
Investment Officer
Thomas M. Reynolds This report is submitted for the
Controller general information of shareholders of
Smith Barney Income Funds -- Smith
Christina T. Sydor Barney Premium Total Return Fund. It
Secretary is not authorized for distribution to
prospective investors unless
accompanied by a current Prospectus
for the Fund, which contains
information concerning the Fund's
investment policies and expenses as
well as other pertinent information.
SMITH BARNEY
--------------------------------
A Member of TravelersGroup[LOGO]
Smith Barney Premium
Total Return Fund
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
www.smithbarney.com
FD2169 8/98
