<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
SMITH BARNEY
BALANCED
Fund
CLASSIC INVESTOR SERIES
SEMI-ANNUAL REPORT
JANUARY 31, 2000
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Smith Barney Balanced Fund
The Smith Barney Balanced Fund ("Fund") seeks current income and long-term
capital appreciation by investing in equity and debt securities. The Fund will
maintain a target asset allocation of approximately 60% of its total assets in
equity securities and 40% of its total assets in fixed-income securities. Up to
25% of the Fund's assets may be invested in below-investment-grade securities.
Smith Barney Balanced Fund
Average Annual Total Returns
January 31, 2000
Without Sales Charge(1)
-------------------------------------------
Class A Class B Class L Class O
================================================================================
Six Months+ 5.82% 5.52% 5.49% 5.54%
- --------------------------------------------------------------------------------
One-Year 6.81 6.27 6.05 6.32
- --------------------------------------------------------------------------------
Five-Year 13.76 13.22 N/A 13.26
- --------------------------------------------------------------------------------
Ten-Year N/A 10.56 N/A N/A
- --------------------------------------------------------------------------------
Since Inception++ 10.85 10.88 8.87 9.52
- --------------------------------------------------------------------------------
With Sales Charge(2)
-------------------------------------------
Class A Class B Class L Class O
================================================================================
Six Months+ 0.52% 0.52% 3.43% 4.54%
- --------------------------------------------------------------------------------
One-Year 1.49 1.27 4.00 5.32
- --------------------------------------------------------------------------------
Five-Year 12.60 13.10 N/A 13.26
- --------------------------------------------------------------------------------
Ten-Year N/A 10.56 N/A N/A
- --------------------------------------------------------------------------------
Since Inception++ 10.06 10.88 8.22 9.52
- --------------------------------------------------------------------------------
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B, L and O shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase. 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,
March 28, 1988, June 15, 1998 and February 4, 1993, respectively.
- --------------------------------------------------------------------------------
FUND HIGHLIGHTS
- --------------------------------------------------------------------------------
As we enter the new millennium, we expect a continuation of solid economic
growth with only a modest upward bias towards inflation. The equity portion of
the Fund benefited from its broadening to a more diversified portfolio.
Currently, the Fund is overweighted in finance and utility stocks, and
underweighted in energy, capital goods and technology. Uncertainty over the
Federal Reserve Board's ("Fed") monetary policy actions has continued to plague
bond markets. The bond portion of the Fund remains allocated among U.S. Treasury
and agency securities, mortgage-backed securities and corporate bonds.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SUTAX
Class B SLSUX
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter ........................................................ 1
Historical Performance .................................................... 4
Smith Barney Balanced Fund at a Glance .................................... 7
Schedule of Investments ................................................... 8
Statement of Assets and Liabilities ....................................... 21
Statement of Operations ................................................... 22
Statements of Changes in Net Assets ....................................... 23
Notes to Financial Statements ............................................. 24
Financial Highlights ...................................................... 29
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO]
HEATH B. MCLENDON
Chairman
[PHOTO]
JOHN C. BIANCHI, CFA
Vice President and Investment Officer
[PHOTO]
CHARLES P. GRAVES III, CFA
Vice President and Investment Officer
[PHOTO]
JAMES E. CONROY
Vice President and Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Balanced
Fund ("Fund"), for the period ended January 31, 2000. We hope you find this
report to be useful and informative. Any discussion of the Fund's holdings is as
of January 31, 2000. Please refer to pages eight through nineteen for a list of
the Fund's holdings. A detailed summary of performance and current holdings can
be found in the appropriate sections that follow.
Performance Update
For the six months ended January 31, 2000, the Fund's Class A shares returned
5.82%, without sales charges, versus the Lipper, Inc. balanced fund peer group
average of 2.09% for the same period. (Lipper, Inc. is a major independent
fund-tracking organization.)
During the same period, the Standard & Poor's 500 Index ("S&P 500") returned
5.58% and the Lehman Brothers Government/Corporate Bond Index posted a return of
0.38%. (S&P 500 is an index of widely held common stocks listed on the New York
and American Stock Exchanges and the over-the-counter markets. Figures for the
S&P 500 include reinvestment of dividends. The Lehman Brothers Government/
Corporate Bond Index tracks the performance of the overall bond market and is a
broad measure of the performance of government and corporate fixed-rate debt
issues. Both indices are unmanaged and not subject to the same management and
trading expenses of a mutual fund.)
As of January 31, 2000, stocks represented roughly 61% of the Fund's total
investments, bonds made up approximately 37%, and cash made up 2%. For
additional information about the Fund's other classes of shares, please refer to
pages four to six.
Investment Strategy Update
In selecting stocks for the Fund, we employ an investing approach emphasizing a
portfolio broadly diversified across a wide range of industries. Generally, the
stock portion of the Fund will be composed of mostly mid- to
large-capitalization companies. However, the Fund may also invest in
smaller-capitalization companies if they otherwise meet the same investment
criteria.
Stock Market and Portfolio Update
Historically, we believe the value of an
investment has been defined as the present value of a discounted
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 1
<PAGE>
future stream of "something." Traditionally, for most investors, that
"something" was earnings or dividends or cash flow. Today, analysts,
particularly Internet analysts, no longer talk of price/earnings ratios ("P/E")
or cash flow but rather of "concept value." (A P/E ratio shows the multiple of
earnings at which a stock sells, determined by dividing current stock price by
current earnings per share.) When we first heard the term "concept value" in
conversation, it immediately reminded us of an often-quoted paragraph from an
88-year-old book. In his 1912 book, Psychology of the Stock Market, George
Seldon wrote, "When it comes to so complicated a matter as the price of stocks,
our haziness increases in proportion to the difficulty of the subject and our
ignorance of it. From reading, observation and conversation we imbibe a
miscellaneous assortment of ideas from which we conclude that the situation is
bullish or bearish. The very form of expression `the situation is bullish' --
not `the situation will soon become bullish' -- shows the extent to which we
allow the present to obscure the future in the formation of our judgement."
We believe a stock trading at a P/E multiple of 120X (a relative bargain for
most technology investments) in today's market is discounting approximately 40%
compound annual long-term growth. At a 40% growth rate, the law of large numbers
sets in awfully fast. In this environment we must be careful not to allow the
present to obscure the future. Our strategy is to temporarily remain
underweighted in technology versus the S&P 500 but overweight high-quality names
within the sector such as*:
. EMC Corp., a manufacturer of data storage devices
. Cisco Systems, Inc., a leading developer of hardware/ software networking
solutions
. Intel Corp., a major semiconductor designer, developer and manufacturer
. Sun Microsystems Inc., a worldwide provider of products, services and
support solutions for building and maintaining network computing
environments
. Oracle Corp., a developer and manufacturer of computer software that helps
corporations manage and grow their businesses
During the reporting period, and for the first time in many months, the equity
component of the Fund generated its performance from sectors other than
technology. As previously noted, the equity portion of the Fund is overweighted
in finance, and utility, and underweighted in energy, capital goods and
technology versus the S&P 500.
We are pleased to report that the equity portion of the Fund enjoyed good
returns during the period since broadening its mandate to a diversified stock
portfolio from its previous utility fund emphasis. Performance was helped by
strong returns from our technology holdings. (Past performance is not indicative
of future results.)
Bond Market Update
1999 was a difficult year for bonds. A strong economy, tight labor markets and
the persistent fear of accelerating inflation fueled concerns of a restrictive
Federal Reserve Board ("Fed") monetary policy. Last year was particularly
challenging for bonds, especially U.S. Treasury securities. The 30-year U.S.
Treasury bond suffered its worst decline in total return on record. This poor
performance of Treasuries reflects the reversal of the flight to quality that
developed during the global financial turmoil at the end of 1998. As we forge
ahead into 2000, we think that the worst may be over. Many bond experts expect
that yields on 30-year U.S. Treasuries will trade between 6% and 6.7% over the
next 12 months. These yields can provide investors with a comfortable cushion
against declines in bond prices.
- ----------
* Please note that the Fund's holdings are as of January 31, 2000 and are
subject to change.
- --------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
With Y2K and the fears associated with it behind us, the U.S. Treasury market
(as measured by the 30-year bond) has been plagued by uncertainty over Fed
monetary policy actions. Going forward, we continue to believe the Fed will
raise interest rates at least two more times this year for a total of 50 basis
points (0.5%).
We made no material changes to the structure of the Fund's bond portfolio in
January and we do not anticipate making many changes over the next few months.
The current allocation stands at 6.1% U.S. Treasury/agencies, 0.3% mortgages and
30.5% corporate bonds. Going forward, we will be trying to take advantage of the
inverted yield curve and will move down the credit curve as the market permits.
(The yield curve is the graphical depiction of the relationship between the
yield on bonds of the same credit quality but different maturities. An inverted
yield curve occurs when short-term interest rates are higher than long-term
rates.)
Markets Outlook
As we enter the new millennium, we would expect a continuation of solid economic
growth with only a modest upward bias towards inflation. We think the U.S.
economy should remain stable this year, as low unemployment and strong consumer
confidence will likely support demand. Additionally, we think that the Fed has
engineered a good balance between strong economic growth and an acceptable rate
of inflation. In fact, the Fed's recent actions may be sufficient to slow the
U.S. economy without triggering higher inflation. We believe that the good news
is that the economy's "soft landing" is likely to be at a higher annual growth
rate than was previously thought possible due to the potential emergence of a
"New Economy," where technological advances can spur economic growth without
inflationary pressures because of higher production.
In closing, thank you for investing in the Smith Barney Balanced Fund. We look
forward to helping you pursue your financial goals in the new century.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
/s/ John C. Bianchi
John C. Bianchi, CFA
Vice President
/s/ Charles P. Graves III
Charles P. Graves III, CFA
Vice President
/s/ James E. Conroy
James E. Conroy
Vice President
February 18, 2000
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 3
<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>
1/31/00 $ 13.86 $ 14.38 $ 0.20 $ 0.08 $ 0.00 5.82%+
- ----------------------------------------------------------------------------------------------------------------------------
7/31/99 16.52 13.86 0.37 3.66 0.00 12.27
- ----------------------------------------------------------------------------------------------------------------------------
7/31/98 15.53 16.52 0.68 0.83 0.00 16.70
- ----------------------------------------------------------------------------------------------------------------------------
7/31/97 14.51 15.53 0.82 0.32 0.00 15.48
- ----------------------------------------------------------------------------------------------------------------------------
7/31/96 14.03 14.51 0.82 0.00 0.00 9.21
- ----------------------------------------------------------------------------------------------------------------------------
7/31/95 13.28 14.03 0.82 0.08 0.02 13.24
- ----------------------------------------------------------------------------------------------------------------------------
7/31/94 15.97 13.28 0.83 0.50 0.00 (8.99)
- ----------------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/93 14.36 15.97 0.64 0.13 0.00 17.01+
============================================================================================================================
Total $ 5.18 $ 5.60 $ 0.02
============================================================================================================================
</TABLE>
<TABLE>
<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>
1/31/00 $ 13.82 $ 14.33 $ 0.17 $ 0.08 $ 0.00 5.52%+
- ----------------------------------------------------------------------------------------------------------------------------
7/31/99 16.49 13.82 0.32 3.66 0.00 11.78
- ----------------------------------------------------------------------------------------------------------------------------
7/31/98 15.52 16.49 0.62 0.83 0.00 16.17
- ----------------------------------------------------------------------------------------------------------------------------
7/31/97 14.51 15.52 0.75 0.32 0.00 14.88
- ----------------------------------------------------------------------------------------------------------------------------
7/31/96 14.02 14.51 0.75 0.00 0.00 8.78
- ----------------------------------------------------------------------------------------------------------------------------
7/31/95 13.28 14.02 0.76 0.08 0.02 12.62
- ----------------------------------------------------------------------------------------------------------------------------
7/31/94 15.97 13.28 0.75 0.50 0.00 (9.52)
- ----------------------------------------------------------------------------------------------------------------------------
7/31/93 14.83 15.97 0.80 0.15 0.00 14.69
- ----------------------------------------------------------------------------------------------------------------------------
7/31/92++ 13.95 14.83 0.35 0.00 0.01 8.98+
- ----------------------------------------------------------------------------------------------------------------------------
2/28/92 13.21 13.95 0.84 0.15 0.03 13.63
- ----------------------------------------------------------------------------------------------------------------------------
2/28/91 12.93 13.21 0.90 0.10 0.00 10.46
- ----------------------------------------------------------------------------------------------------------------------------
2/28/90 12.09 12.93 0.90 0.21 0.00 16.34
============================================================================================================================
Total $ 7.91 $ 6.08 $ 0.06
============================================================================================================================
</TABLE>
<TABLE>
<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>
1/31/00 $ 13.83 $ 14.35 $ 0.15 $ 0.08 $ 0.00 5.49%+
- ----------------------------------------------------------------------------------------------------------------------------
7/31/99 16.52 13.83 0.29 3.66 0.00 11.43
- ----------------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/98 17.14 16.52 0.00 0.23 0.00 (2.28)+
============================================================================================================================
Total $ 0.44 $ 3.97 $ 0.00
============================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<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>
1/31/00 $ 13.83 $ 14.34 $ 0.17 $ 0.08 $ 0.00 5.54%+
- ----------------------------------------------------------------------------------------------------------------------------
7/31/99 16.50 13.83 0.32 3.66 0.00 11.79
- ----------------------------------------------------------------------------------------------------------------------------
7/31/98 15.53 16.50 0.63 0.83 0.00 16.19
- ----------------------------------------------------------------------------------------------------------------------------
7/31/97 14.51 15.53 0.75 0.32 0.00 15.01
- ----------------------------------------------------------------------------------------------------------------------------
7/31/96 14.02 14.51 0.75 0.00 0.00 8.80
- ----------------------------------------------------------------------------------------------------------------------------
7/31/95 13.28 14.02 0.76 0.08 0.02 12.62
- ----------------------------------------------------------------------------------------------------------------------------
7/31/94 15.97 13.28 0.75 0.50 0.00 (9.52)
- ----------------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/93 15.17 15.97 0.39 0.02 0.00 8.08+
============================================================================================================================
Total $ 4.52 $ 5.49 $ 0.02
============================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
----------------------------------------
Class A Class B Class L Class O
================================================================================
Six Months Ended 1/31/00+ 5.82% 5.52% 5.49% 5.54%
- --------------------------------------------------------------------------------
Year Ended 1/31/00 6.81 6.27 6.05 6.32
- --------------------------------------------------------------------------------
Five Years Ended 1/31/00 13.76 13.22 N/A 13.26
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 10.56 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/00 10.85 10.88 8.87 9.52
================================================================================
With Sales Charge(2)
----------------------------------------
Class A Class B Class L Class O
================================================================================
Six Months Ended 1/31/00+ 0.52% 0.52% 3.43% 4.54%
- --------------------------------------------------------------------------------
Year Ended 1/31/00 1.49 1.27 4.00 5.32
- --------------------------------------------------------------------------------
Five Years Ended 1/31/00 12.60 13.10 N/A 13.26
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 10.56 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/00 10.06 10.88 8.22 9.52
================================================================================
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 1/31/00) 110.79%
- --------------------------------------------------------------------------------
Class B (1/31/90 through 1/31/00) 172.78
- --------------------------------------------------------------------------------
Class L (Inception* through 1/31/00) 14.86
- --------------------------------------------------------------------------------
Class O (Inception* through 1/31/00) 88.89
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B, L and O shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase and declines
thereafter by 1.00% per year until no CDSC charge 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.
++ For the period from March 1, 1992 to July 31, 1992, 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 and O shares are November 6, 1992,
March 28, 1988, June 15, 1998 and February 4, 1993, respectively.
- --------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of the Smith Barney Balanced Fund
vs. Standard & Poor's 500 Index and Lehman Brothers Government/Corporate Bond
Index+
- --------------------------------------------------------------------------------
January 1990 -- January 2000
[GRAPHIC]
<TABLE>
<CAPTION>
Balanced Fund Class B Lehman Brothers Gov't/Corp. Bond Index S&P 500 Index
<S> <C> <C> <C>
Jan\r1990 10000 10000 10000
July\r1990 9957 10513 11014
July\r1991 11319 11589 12416
July\r1992 13532 13401 14001
July\r1993 15635 14879 15221
July\r1994 14145 14860 16005
July\r1995 15930 16365 20176
July\r1996 17328 17233 23517
July\r1997 19907 19092 35771
July\r1998 23125 20633 42675
July\r1999 25849 21113 51294
Jan\r2000 27277 21193 54156
</TABLE>
+ Hypothetical illustration of $10,000 invested in Class B shares on January
31, 1990, assuming reinvestment of dividends and capital gains, if any, at
net asset value through January 31, 2000. The Standard & Poor's 500 Index
is composed of widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. The Lehman
Brothers Government/Corporate Bond Index is a combination of publicly
issued intermediate and long-term U.S. government bonds and corporate
bonds. Figures for the indices include reinvestment of dividends. The
indices are unmanaged and are not subject to the same management and
trading expenses of a mutual fund. The performance of the Fund's other
classes may be greater or less than the Class B shares' performance
indicated on this chart, depending on whether greater or lesser sales
charges and fees were incurred by shareholders investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Top Five Equity Holdings*
- ------------------------------------------------------
1. Chase Manhattan Corp. 2.3%
- ------------------------------------------------------
2. EMC Corp. 2.2
- ------------------------------------------------------
3. Cisco Systems, Inc. 2.1
- ------------------------------------------------------
4. MCI WorldCom, Inc. 1.8
- ------------------------------------------------------
5. Lucent Technologies Inc. 1.6
- ------------------------------------------------------
Top Five Bond Holdings*
- ------------------------------------------------------
1. Nextlink Communications Inc. 0.7%
- ------------------------------------------------------
2. United International Holdings 0.6
- ------------------------------------------------------
3. Donaldson, Lufkin & Jenrette, Inc. 0.5
- ------------------------------------------------------
4. PSINet Inc. 0.5
- ------------------------------------------------------
5. Verio Inc. 0.4
- ------------------------------------------------------
*As a percentage of total investments.
Investment Breakdown*
- ------------------------------------------------------
[GRAPHIC]
0.3% Collateralized Mortgage Obligation
30.5% Corporate Bonds and Notes
6.1% U.S. Government and Agency Obligations
1.9% Cash Equivalent
0.2% Warrants
61.0% Common and Preferred Stock
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (Unaudited) January 31, 2000
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 61.0%
Aerospace/Defense -- 0.7%
129,000 Boeing Co. $ 5,716,313
- --------------------------------------------------------------------------------
Airlines -- 0.9%
487,000 Southwest Airlines Co. 7,761,563
- --------------------------------------------------------------------------------
Aluminum -- 0.3%
40,000 Alcoa, Inc.@ 2,787,500
- --------------------------------------------------------------------------------
Broadcasting -- 2.2%
220,000 CBS Corp.(a) 12,828,750
175,000 Infinity Broadcasting Corp.(a) 5,687,500
- --------------------------------------------------------------------------------
18,516,250
- --------------------------------------------------------------------------------
Capital Goods -- 3.8%
216,000 Deere & Co.@ 9,436,500
95,000 General Electric Co. 12,670,625
135,000 Illinois Tool Works Inc. 7,897,500
65,000 Tyco International Ltd. 2,778,750
- --------------------------------------------------------------------------------
32,783,375
- --------------------------------------------------------------------------------
Consumer Durables -- 1.6%
120,000 Black & Decker Corp. 4,807,500
115,000 General Motors Corp. 9,250,313
- --------------------------------------------------------------------------------
14,057,813
- --------------------------------------------------------------------------------
Consumer Non-Durables -- 7.3%
40,000 Circuit City Stores, Circuit City Group 1,540,000
228,000 Colgate-Palmolive Co.@ 13,509,000
155,625 Dollar General Corp.@ 3,307,031
10,100 eToys Inc.(a) 147,713
148,000 Gillette Co. 5,568,500
125,000 Kimberly Clark Corp. 7,742,188
203,000 Lowe's Cos., Inc.@ 9,058,875
70,000 Newell Rubbermaid, Inc.@ 2,100,000
100,000 Procter & Gamble Co.@ 10,087,500
404,500 Staples, Inc.(a) 9,632,156
- --------------------------------------------------------------------------------
62,692,963
- --------------------------------------------------------------------------------
Consumer Services -- 1.0%
494,000 Kroger Co. 8,583,250
- --------------------------------------------------------------------------------
Electric and Gas -- 2.1%
154,000 AES Corp.@ 12,339,250
80,000 Edison International 2,320,000
77,000 PECO Energy Co. 3,205,125
- --------------------------------------------------------------------------------
17,864,375
- --------------------------------------------------------------------------------
Energy -- 3.6%
157,252 BP Amoco PLC, Sponsored ADR@ 8,452,295
152,000 Coastal Corp. 5,605,000
86,000 El Paso Energy Corp. 2,773,500
35,000 Enron Corp. 2,360,313
180,000 Halliburton Co.@ 6,480,000
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) January 31, 2000
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Energy -- 3.6% (continued)
72,000 Schlumberger Ltd. $ 4,396,500
10,067 Transocean Sedco Forex Inc. 320,256
- --------------------------------------------------------------------------------
30,387,864
- --------------------------------------------------------------------------------
Financial Services -- 10.0%
60,000 American Express Co. 9,888,750
118,750 American International Group, Inc. 12,364,844
347,000 Associates First Capital Corp. 6,940,000
268,000 Chase Manhattan Corp. 21,557,250
5,200 Donaldson, Lufkin & Jenrette, Inc. - DLJ Direct(a) 56,875
124,362 FleetBoston Financial Corp. 3,909,630
169,000 Freddie Mac 8,481,688
25,000 J.P. Morgan & Co. 3,070,313
53,000 Marsh & McLennan Cos, Inc. 4,982,000
95,000 St. Paul Cos., Inc. 2,867,812
107,000 State Street Corp.@ 8,580,063
65,000 XL Capital Ltd., Class A Shares 2,933,125
- --------------------------------------------------------------------------------
85,632,350
- --------------------------------------------------------------------------------
Healthcare -- 6.6%
206,000 Amgen, Inc.(a) 13,119,625
37,000 Bristol-Myers Squibb Co. 2,442,000
95,000 Johnson & Johnson 8,175,937
203,000 Medtronic, Inc. 9,287,250
270,000 Merck & Co, Inc. 21,279,375
54,000 Schering Plough Corp. 2,376,000
- --------------------------------------------------------------------------------
56,680,187
- --------------------------------------------------------------------------------
Leisure -- 0.4%
100,000 The Walt Disney Co. 3,631,250
- --------------------------------------------------------------------------------
Media Conglomerates -- 0.5%
106,000 Reader's Digest Associates, Inc., Class A Shares 4,001,500
- --------------------------------------------------------------------------------
Miscellaneous -- 0.3%
55,000 Nucor Corp. 2,736,250
- --------------------------------------------------------------------------------
Paper -- 0.3%
55,000 International Paper Co. 2,619,375
- --------------------------------------------------------------------------------
Technology-- 13.6%
176,000 Cisco Systems, Inc.(a) 19,272,000
99,000 Electronic Data Systems Corp. 6,694,875
162,000 EMC Corp.(a)@ 17,253,000
150,000 Intel Corp. 14,840,625
64,300 Koninklijke Philips Electronics NV 9,500,325
58,000 Lucent Technologies Inc.@ 3,204,500
75,000 Motorola, Inc.@ 10,256,250
35,000 N2H2, Inc.(a) 560,000
222,000 Oracle Corp.(a)@ 11,089,593
190,000 Sun Microsystems, Inc.(a) 14,926,875
7,462 World Access, Inc.(a) 128,727
408,000 Xerox Corp. 8,517,000
- --------------------------------------------------------------------------------
116,243,770
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) January 31, 2000
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Telecommunications -- 5.4%
110,000 America Online, Inc.(a) $ 6,263,125
140,000 AT&T Corp.@ 7,385,000
78,000 GTE Corp. 5,718,375
215,500 MCI WorldCom, Inc.(a) 9,899,531
276,638 SBC Communications Inc. 11,930,013
25,000 Time Warner Telecom Inc., Class A Shares(a) 1,518,750
100,000 Williams Cos., Inc. 3,875,000
- --------------------------------------------------------------------------------
46,589,794
- --------------------------------------------------------------------------------
Transportation - Other -- 0.4%
60,100 United Parcel Service Inc., Class B Shares 3,575,950
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $395,694,835) 522,861,692
================================================================================
PREFERRED STOCK -- 0.0%
Banking -- 0.0%
600 California Federal Preferred Capital Corp., 9.125% 13,200
- --------------------------------------------------------------------------------
Broadcasting -- 0.0%
242 Dobson Communications Corp., 13.000%(b) 23,242
- --------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $40,954) 36,442
================================================================================
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
================================================================================
CORPORATE BONDS AND NOTES -- 30.5%
Aerospace -- 0.3%
575,000 B- Dunlop Stand Aero Holdings, 11.875%
due 5/15/09 587,218
2,500,000 Baa2* Raytheon Co., 6.450% due 8/15/02 2,412,500
- --------------------------------------------------------------------------------
2,999,718
- --------------------------------------------------------------------------------
Aluminum -- 0.2%
Kaiser Aluminum & Chemicals:
250,000 B1* Series B, 10.875% due 10/15/06 252,500
220,000 B1* Series D, 10.875% due 10/15/06 221,925
1,525,000 B3* 12.750% due 2/1/03@ 1,509,750
- --------------------------------------------------------------------------------
1,984,175
- --------------------------------------------------------------------------------
Apparel -- 0.0%
265,000 B- Tropical Sportswear International Corp.,
Series A, 11.000% due 6/15/08 251,087
- --------------------------------------------------------------------------------
Auto Parts -- 0.4%
1,275,000 B Collins & Aikman Products, 11.500%
due 4/15/06 1,252,687
385,000 B Dura Operating Corp., Series B, 9.000%
due 5/1/09 359,012
1,450,000 B+ Tenneco Automotive Inc., 11.625%
due 10/15/09(e) 1,486,250
- --------------------------------------------------------------------------------
3,097,949
- --------------------------------------------------------------------------------
Automotive Aftermarket -- 0.1%
790,000 B+ Exide Corp., 10.000% due 4/15/05 754,450
- --------------------------------------------------------------------------------
Banking -- 0.3%
2,500,000 Aa3* NationsBank Corp., 6.500% due 8/15/03 2,412,500
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
================================================================================================
<S> <C> <C> <C>
Beverages - Soft Drinks -- 0.2%
2,500,000 A Coca-Cola Enterprises, 6.750% due 1/15/38 $2,143,750
- ------------------------------------------------------------------------------------------------
Broadcasting -- 0.3%
791,000 NA AMFM Inc., 12.625% due 10/31/06(b) 909,650
260,000 B Capstar Broadcasting, step bond to yield 11.002% due 2/1/09 232,375
1,160,000GBP NA Diamond Holding Inc., 10.000% due 2/1/08 1,857,918
- ------------------------------------------------------------------------------------------------
2,999,943
- ------------------------------------------------------------------------------------------------
Building Materials -- 0.3%
2,000,000 AA- Abbey National PLC, 7.950% due 10/26/29 1,995,000
580,000 B Atrium Cos., Inc., Series B, 10.500% due 5/1/09 556,800
- ------------------------------------------------------------------------------------------------
2,551,800
- ------------------------------------------------------------------------------------------------
Building Products -- 0.2%
555,000 B Amatek Industries, 12.000% due 2/15/08 526,556
300,000 B NCI Building Systems Inc., Series B, 9.250% due 5/1/09 284,625
Nortek Inc., Series B:
1,045,000 B+ 9.250% due 3/15/07 1,003,200
60,000 B+ 9.125% due 9/1/07 57,525
- ------------------------------------------------------------------------------------------------
1,871,906
- ------------------------------------------------------------------------------------------------
Cable Television -- 2.9%
Adelphia Communications Corp., Series B:
415,000 B+ 9.875% due 3/1/07 415,000
505,000 BB- 8.375% due 11/15/17 451,344
2,500,000 A- Cable & Wireless Communications, 6.750% due 12/1/08 2,446,875
1,520,000 BB- Century Communications, Series B, zero coupon due 1/15/08 638,400
Charter Communications Holdings Inc.:
2,490,000 B+ Step bond to yield 11.713% due 11/5/10(e) 1,444,200
830,000 B+ 10.000% due 4/1/09(e) 832,075
2,250,000 BB- CSC Holdings Inc., 10.500% due 5/15/16 2,486,250
1,650,000 B Echostar DBS Corp., 9.375% due 2/1/09 1,629,375
2,025,000 B- NTL Inc., Series B, 11.500% due 10/1/08 2,156,625
1,760,000 BB- Roger Cablesystems Ltd., 11.000% due 12/1/15 1,986,600
1,500,000 B+ TeleWest Communication PLC, 11.250% due 11/1/08 1,590,000
8,290,000 B- United International Holdings, Series B, step bond to yield
11.378% due 2/15/08 5,512,850
6,600,000 B United Pan-Europe Communications, Series B, step bond to yield
12.500% due 8/1/09 3,597,000
- ------------------------------------------------------------------------------------------------
25,186,594
- ------------------------------------------------------------------------------------------------
Casinos/Gambling -- 0.3%
205,000 BB+ Circus Circus Enterprises, 7.625% due 7/15/13 175,787
1,085,000 B Harvey Casinos Resorts, 10.625% due 6/1/06 1,116,193
245,000 B Hollywood Casino Shreveport, 13.000% due 8/1/06(e) 262,149
155,000 B Hollywood Casino Corp., 11.250% due 5/1/07 160,037
570,000 NR Jazz Casino Co., 5.867% due 11/15/09(b) 273,600
Sun International Hotels Ltd.:
445,000 B+ 8.625% due 12/15/07 419,413
220,000 B+ 9.000% due 3/15/07 203,500
250,000 B- Venetian Casino Co., 12.250% due 11/15/04@ 207,500
- ------------------------------------------------------------------------------------------------
2,818,179
- ------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- -------------------------------------------------------------------------------
Smith Barney Balanced Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
=========================================================================================
<S> <C> <C> <C>
Chemicals - Major -- 0.4%
Huntsman ICI Chemicals:
5,165,000 B+ Zero coupon due 12/31/09(e) $1,614,063
1,000,000 B+ 10.125% due 7/1/09(e) 1,015,000
670,000 B+ Terra Industries Inc., Series B, 10.500% due 6/15/05 536,000
- -----------------------------------------------------------------------------------------
3,165,063
- -----------------------------------------------------------------------------------------
Chemicals - Specialty -- 0.2%
Lyondell Chemical Co. :
220,000 BB Series A, 9.625% due 5/1/07 218,350
840,000 BB Series B, 9.875% due 5/1/07 832,650
550,000 B Zeneca Specialty Chemical PLC, 11.000% due 7/1/09(e) 566,500
- -----------------------------------------------------------------------------------------
1,617,500
- -----------------------------------------------------------------------------------------
Coal Mining -- 0.1%
1,100,000 Caa2* AEI Holding Co. Inc., 10.500% due 12/15/05(e) 753,500
- -----------------------------------------------------------------------------------------
Construction/AG Equipment/Trucks -- 0.1%
1,335,000 B Columbus McKinnon Corp., 8.500% due 4/1/08 1,174,800
- -----------------------------------------------------------------------------------------
Consumer Electronics/Appliances -- 0.3%
3,000,000 BBB Black & Decker, 6.625% due 11/15/00 2,992,500
- -----------------------------------------------------------------------------------------
Containers/Packaging-- 0.8%
275,000 B AEP Industries Inc., 9.875% due 11/15/07 237,875
750,000EUR B1* BSN Financing, 10.250% due 8/1/09(e) 761,315
1,000,000 B Huntsman Packaging Corp., 9.125% due 10/1/07 973,750
1,610,000 B Stone Container Finance, 11.500% due 8/15/06(e) 1,710,625
930,000 B- Sweetheart Cup Co. Inc., 10.500% due 9/1/03 890,475
Tekni-Plex, Inc.:
1,480,000 B- Series B, 11.250% due 4/1/07 1,566,950
325,000 B- Series B, 9.250% due 3/1/08 321,343
- -----------------------------------------------------------------------------------------
6,462,333
- -----------------------------------------------------------------------------------------
Contract Drilling -- 0.3%
1,595,000 BB Pride International Inc., 10.000% due 6/1/09 1,598,987
900,000 BB- RBF Finance Co., 11.375% due 3/15/09 954,000
- -----------------------------------------------------------------------------------------
2,552,987
- -----------------------------------------------------------------------------------------
Discount Stores -- 0.3%
1,860,000 B+ Ames Dept. Stores, 10.000% due 4/15/06 1,748,400
850,000 BB+ Kmart Corp., 12.500% due 3/1/05 948,812
- -----------------------------------------------------------------------------------------
2,697,212
- -----------------------------------------------------------------------------------------
Diversified Commercial Services -- 0.1%
750,000 B2* Intertek Financial PLC, Series B, 10.250% due 11/1/06 667,500
- -----------------------------------------------------------------------------------------
Diversified Financial Services -- 0.2%
Amresco Inc:
600,000 CCC- Series 97-A, 10.000% due 3/15/04 393,000
2,265,000 CCC- Series 98-A, 9.875% due 3/15/05 1,483,575
- -----------------------------------------------------------------------------------------
1,876,575
- -----------------------------------------------------------------------------------------
Diversified Manufacturing -- 0.5%
580,000 B- Blount Inc., 13.000% due 8/1/09(e) 616,250
2,500,000 Baa2* FMC Corp., 7.000% due 5/15/08 2,250,000
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited)(continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
============================================================================================
<S> <C> <C> <C>
Diversified Manufacturing -- 0.5% (continued)
1,500,000 B+ Park-Ohio Industries Inc., 9.250% due 12/1/07 $1,395,000
- --------------------------------------------------------------------------------------------
4,261,250
- --------------------------------------------------------------------------------------------
Drugs/Generic -- 0.3%
2,465,000 BB ICN Pharmaceuticals Inc., Series B, 9.250% due 8/15/05 2,400,293
- --------------------------------------------------------------------------------------------
Electronic Components -- 0.2%
2,000,000 B+ Celestica International Inc., 10.500% due 12/31/06 2,105,000
- --------------------------------------------------------------------------------------------
Engineering and Construction -- 0.2%
390,000 B- American Plumbing & Mechanical, 11.625% due 10/15/08 368,550
435,000 B Group Maintenance America Corp., 9.750% due 1/15/09 448,050
745,000 BB- Integrated Electrical Services, Series B, 9.375% due 2/1/09 725,443
- --------------------------------------------------------------------------------------------
1,542,043
- --------------------------------------------------------------------------------------------
Environmental Services -- 0.9%
4,225,000 B+ Allied Waste NA, 10.000% due 8/1/09(e)@ 3,707,438
795,000 B+ IT Group Inc., Series B, 11.250% due 4/1/09 771,150
330,000 CCC+ Metal Management Inc., 10.000% due 5/15/08 249,150
745,000 B+ URS Corp., Series B, 12.250% due 5/1/09 778,525
2,500,000 BBB USA Waste Services, 6.500% due 12/15/02 2,300,000
- --------------------------------------------------------------------------------------------
7,806,263
- --------------------------------------------------------------------------------------------
Finance Companies -- 2.6%
2,000,000 A+ American General Finance Corp., 5.875% due 7/15/01 1,962,500
2,790,000 AA- Associates Corp. NA, 5.750% due 10/15/03 2,636,550
2,500,000 A+ AT&T Capital Corp., 6.250% due 5/15/01 2,471,875
1,225,000 A+ CIT Group Inc., 6.800% due 4/17/00 1,225,673
2,525,000 A Countrywide Home Loan, 7.200% due 10/30/06 2,427,156
2,000,000 AAA General Electric Capital Corp., 7.000% due 2/3/03 1,987,500
2,000,000 A Household Finance Corp., 6.750% due 6/1/00 1,997,740
2,500,000 A+ International Lease Finance Corp., 5.950% due 6/1/01 2,456,250
Private Export Funding Corp.:
2,500,000 AAA Series G, 6.670% due 9/15/09 2,406,250
1,000,000 AAA 7.010% due 4/30/04 992,500
2,000,000 A- TransAmerica Financial Corp., 6.750% due 6/1/00 1,998,700
- --------------------------------------------------------------------------------------------
22,562,694
- --------------------------------------------------------------------------------------------
Food Distributors -- 0.8%
185,000 B- Agrilink Foods Inc., 11.875% due 11/01/08 182,919
1,945,000 B2* Carrols Corp., 9.500% due 12/1/08 1,735,913
2,400,000 A+ Diageo PLC, 8.625% due 8/15/01 2,445,000
2,000,000 B- Imperial Holly, 9.750% due 12/15/07 1,390,000
490,000 B- Premier International Foods PLC, 12.000% due 9/1/09(e) 490,613
985,000 B SC International Services Inc., Series B, 9.250% due 9/1/07 906,200
- --------------------------------------------------------------------------------------------
7,150,645
- --------------------------------------------------------------------------------------------
Forest Products -- 0.2%
865,000 B Ainsworth Lumber, 12.500% due 7/15/07 951,500
585,000 B+ Millar Western Forest, 9.875% due 5/15/08 580,613
- --------------------------------------------------------------------------------------------
1,532,113
- --------------------------------------------------------------------------------------------
Home Furnishings -- 0.1%
610,000 B Falcon Products Inc., Series B, 11.375% due 6/15/09 573,400
- --------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
===============================================================================================
<S> <C> <C> <C>
Homebuilding -- 0.1%
1,320,000 BB- US Home Corp., 8.875% due 2/15/09 $1,199,550
- -----------------------------------------------------------------------------------------------
Hospital/Nursing Management -- 0.6%
2,500,000 BB+ Columbia/HCA Healthcare, zero coupon due 6/1/02 2,024,533
4,200 B+ Fresenius Medical Care, 9.000% due 12/1/06 399,000
2,825,000 B- Magellan Health Services, 9.000% due 2/15/08 2,295,313
- -----------------------------------------------------------------------------------------------
4,718,846
- -----------------------------------------------------------------------------------------------
Hotels/Resorts -- 0.7%
2,500,000 A Carnival Corp., 6.150% due 4/15/08 2,221,875
1,915,000 B- Courtyard by Marriott, Series B, 10.750% due 2/1/08 1,857,550
50,000 BB HMH Properties, Inc., Series C, 8.450% due 12/1/08 45,125
Intrawest Corp.:
555,000 B+ 9.750% due 8/15/08 532,800
1,040,000 B+ 10.500% due 2/1/10(e) 1,029,600
- -----------------------------------------------------------------------------------------------
5,686,950
- -----------------------------------------------------------------------------------------------
Insurance - Life -- 0.6%
2,500,000 BBB+ Conseco Inc., 6.400% due 2/10/03 2,365,625
2,000,000 AA Mass Mutual Life, 7.625% due 11/15/23(e) 1,905,000
1,300,000 AAA SunAmerica Inc., 6.580% due 1/15/02 1,283,750
- -----------------------------------------------------------------------------------------------
5,554,375
- -----------------------------------------------------------------------------------------------
Internet Services -- 1.6%
505,000 Caa2* Cybernet Internet Services, 14.000% due 7/1/09 426,725
1,155,000 B- Exodus Communications, 10.750% due 12/15/09(e) 1,163,663
920,000 NR Globix Corp., 12.500% due 2/1/10(e) 926,900
PSINet Inc.:
420,000 B- 10.500% due 12/1/06(e) 425,250
2,500,000 B- 11.500% due 11/1/08 2,625,000
1,205,000 B- 11.000% due 8/1/09 1,244,163
1,950,000 NR Splitrock Services Inc., Series B, 11.750% due 7/15/08 2,081,625
Verio Inc.:
695,000 B- 10.375% due 4/1/05 698,475
1,915,000 B- 11.250% due 12/1/08 2,001,175
1,010,000 B- 10.625% due 11/15/09(e) 1,047,875
1,225,000 CCC+ Wam!Net Inc., Series B, step bond to yield 13.161% due 3/1/05 695,188
- -----------------------------------------------------------------------------------------------
13,336,039
- -----------------------------------------------------------------------------------------------
Investment Bankers/Brokers/Services -- 0.6%
Donaldson, Lufkin & Jenrette Inc.:
2,000,000 A- 6.375% due 5/26/00 1,997,260
2,500,000 A- 6.170% due 7/15/03 2,387,500
1,000,000 BBB+ PaineWebber Group Inc., 7.000% due 3/1/00 999,990
- -----------------------------------------------------------------------------------------------
5,384,750
- -----------------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 0.4%
480,000 B- AMC Enterainment Inc., 9.500% due 2/1/11 386,400
560,000 B- Premier Parks Inc., step bond to yield 10.819% due 4/1/08 375,200
2,500,000 B- SFX Entertainment Inc., Series B, 9.125% due 2/1/08 2,331,250
- -----------------------------------------------------------------------------------------------
3,092,850
- -----------------------------------------------------------------------------------------------
Machinery - Industrial/Components -- 0.0%
339,000 B- Alvey Systems Inc., 11.375% due 1/31/03 354,255
- -----------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
Media Conglomerates -- 0.6%
2,500,000 BBB- News America Holdings, 7.750% due 2/1/24 $2,368,750
2,500,000 BBB Time Warner Inc., 7.950% due 2/1/00 2,500,000
- ---------------------------------------------------------------------------------------
4,868,750
- ---------------------------------------------------------------------------------------
Medical Specialties -- 0.1%
590,000 B- Hanger Orthopedic Group, 11.250% due 6/15/09 502,975
- ---------------------------------------------------------------------------------------
Metals/Minerals -- 0.1%
785,000 B- Haynes International Inc., 11.625% due 9/1/04 502,400
- ---------------------------------------------------------------------------------------
Motor Vehicles -- 0.3%
2,500,000 A+ Ford Motor Co., 7.400% due 11/1/46 2,315,625
- ---------------------------------------------------------------------------------------
Multi-Sector Companies -- 0.1%
1,315,000 B- Triarc Consumer Beverage, 10.250% due 2/15/09(e) 1,264,044
- ---------------------------------------------------------------------------------------
Newspapers -- 0.1%
485,000 B+ Garden State Newspapers, 8.625% due 7/1/11 444,381
- ---------------------------------------------------------------------------------------
Oil and Gas Production -- 0.7%
Belco Oil & Gas Corp., Series B:
350,000 B1* 10.500% due 4/1/06 356,125
635,000 B1* 8.875% due 9/15/07 601,663
930,000 B Canadian Forest Oil Ltd., 8.750% due 9/15/07 864,900
1,750,000 B Clark USA Inc., Series B, 10.875% due 12/1/05 717,500
790,000 B Forest Oil Corp., 10.500% due 1/15/06 797,900
715,000 B+ Nuevo Energy Co., Series B, 9.500% due 6/1/08 700,700
780,000 B+ Parker Drilling Co., Series D, 9.750% due 11/15/06 748,800
1,000,000 B+ R&B Falcon Corp., 12.250% due 3/15/06 1,085,000
445,000 B+ Vintage Petroleum, 9.750% due 6/30/09 448,338
- ---------------------------------------------------------------------------------------
6,320,926
- ---------------------------------------------------------------------------------------
Oil/Gas Transmission -- 0.3%
1,500,000 BBB+ Enron Corp., 6.450% due 11/15/01 1,475,625
665,000 BB- Leviathan Gas Pipelines, Series B, 10.375% due 6/1/09 688,275
- ---------------------------------------------------------------------------------------
2,163,900
- ---------------------------------------------------------------------------------------
Package Goods/Cosmetics -- 0.2%
2,000,000 AA Procter & Gamble Corp., 6.875% due 9/15/09 1,920,000
- ---------------------------------------------------------------------------------------
Packaged Foods -- 0.4%
2,265,000 BBB+ Conagra Inc., 5.500% due 10/15/02 2,146,088
1,000,000 BBB+ Quaker Oats, 7.440% due 3/2/26 911,250
- ---------------------------------------------------------------------------------------
3,057,338
- ---------------------------------------------------------------------------------------
Paper -- 0.6%
400,000 B Doman Industries Ltd., 8.750% due 3/15/04 351,000
1,260,000EUR B Kappa Beheer BV, 10.625% due 7/15/09(e) 1,297,501
235,000 CCC+ Repap New Brunswick, 10.625% due 4/15/05 215,613
Riverwood International:
880,000 B- 10.625% due 8/1/07 888,800
1,380,000 CCC+ 10.875% due 4/1/08 1,329,975
1,110,000 BB+ Tembec Industries Inc., 9.875% due 9/30/05 1,132,200
- ---------------------------------------------------------------------------------------
5,215,089
- ---------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
===============================================================================================
<S> <C> <C> <C>
Pharmaceuticals - Other -- 0.1%
415,000 B King Pharmaceutical Inc., 10.750% due 2/15/09 $ 434,713
- -----------------------------------------------------------------------------------------------
Photographic Products -- 0.1%
1,075,000 BB- Polaroid Corp., 11.500% due 2/15/06@ 1,075,000
- -----------------------------------------------------------------------------------------------
Printing/Forms -- 0.1%
505,000 B Merrill Corp., 12.000% due 5/1/09(e)(f) 492,375
- -----------------------------------------------------------------------------------------------
Railroads -- 0.6%
3,000,000 BBB+ Norfolk Southern Corp., 7.875% due 2/15/04 3,011,250
2,000,000 BBB- Union Pacific Co., 7.875% due 2/15/02 2,005,000
- -----------------------------------------------------------------------------------------------
5,016,250
- -----------------------------------------------------------------------------------------------
Real Estate Investment Trust -- 0.1%
900,000 NR Ocwen Asset Investment, 11.500% due 7/1/05 765,000
- -----------------------------------------------------------------------------------------------
Recreational Products/Toys -- 0.3%
2,000,000 A Hasbro Inc., 6.600% due 7/15/28 1,705,000
500,000EUR B2* Head Holding, 10.750% due 7/15/06(e) 509,989
- -----------------------------------------------------------------------------------------------
2,214,989
- -----------------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.1%
1,035,000 BB- Avis Rent a Car Inc., 11.000% due 5/1/09 1,073,813
75,000 B NationsRent Inc., 10.375% due 12/15/08 73,406
- -----------------------------------------------------------------------------------------------
1,147,219
- -----------------------------------------------------------------------------------------------
Retail - Food Chains -- 0.0%
395,000 B+ Stater Brothers Holding, 10.750% due 8/15/06 399,938
- -----------------------------------------------------------------------------------------------
Retail - Other Specialty Stores -- 0.1%
1,260,000 B- Advance Stores Co. Inc., Series B, 10.250% due 4/15/08 1,089,900
- -----------------------------------------------------------------------------------------------
Savings and Loan Associations -- 0.1%
1,250,000 B2* Ocwen Capital Trust I, 10.875% due 8/1/27 793,750
- -----------------------------------------------------------------------------------------------
Semiconductors -- 0.2%
2,000,000 B Fairchild Semiconductor, 10.125% due 3/15/07 1,985,000
- -----------------------------------------------------------------------------------------------
Steel/Iron -- 0.3%
1,025,000 B+ Russel Metals Inc., 10.000% due 6/1/09 1,000,656
755,000 B+ WCI Steel Inc., Series B, 10.000% due 12/1/04 753,113
940,000 B- WHX Corp., 10.500% due 4/15/05 914,150
- -----------------------------------------------------------------------------------------------
2,667,919
- -----------------------------------------------------------------------------------------------
Telecommunications - Major U.S. -- 0.1%
500,000 B2* Omnipoint Corp., Series A, 11.625% due 8/15/06 528,750
- -----------------------------------------------------------------------------------------------
Telecommunications - Other -- 3.4%
Call-Net Enterprises Inc.:
250,000 B+ Step bond to yield 12.787% due 8/15/08 126,875
455,000 B+ 9.375% due 5/15/09 384,475
Esprit Telecom Group PLC:
1,500,000 B- 11.500% due 12/15/07 1,481,250
750,000 B- 10.875% due 6/15/08 733,125
Focal Communications Corp.:
510,000 B Series B, step bond to yield 12.978% due 2/15/08 335,325
405,000 B 11.875% due 1/15/10(d) 414,113
740,000 CCC+ GT Group Telecom, step bond to yield 13.250% due 2/1/10(e)(f) 394,050
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
============================================================================================================
<S> <C> <C> <C>
Telecommunications - Other -- 3.4% (continued)
Hermes Europe Railtel BV:
2,250,000 B 11.500% due 8/15/07 $2,283,750
350,000 B 10.375% due 1/15/09 336,875
ICG Holding Inc:
705,000 B- Step bond to yield 12.932% due 9/15/05 643,313
595,000 B- Step bond to yield 12.644% due 5/1/06 480,463
1,000,000EUR CCC+ Jazztel PLC, 13.250% due 12/15/09(e) 1,007,748
KMC Telecom Holdings Inc.:
450,000 B- Step bond to yield 15.834% due 2/15/08 252,000
935,000 B- 13.500% due 5/15/09 939,675
3,580,000 B Level 3 Communications, step bond to yield 11.322% due 12/1/08 2,165,900
360,000 B+ Metromedia Fiber Network, 10.000% due 12/15/09 363,600
Microcell Telecommunication:
475,000 B3* Series B, Step bond to yield 11.843% due 6/1/06 427,500
985,000 B- Step bond to yield 11.785% due 6/1/09 630,400
Nextlink Communications:
2,030,000 B Step bond yield 12.053% due 6/1/09 1,238,300
1,380,000 B Step bond yield 12.125% due 12/1/09(e) 800,400
2,400,000 B 12.500% due 4/15/06 2,577,000
1,285,000 B 10.750% due 6/1/09 1,301,063
2,000,000 B- Primus Telecomm Group, 11.750% due 8/1/04 1,977,500
Tele 1 Europe BV:
490,000 B- 13.000% due 5/15/09 512,050
500,000EUR B- 13.000% due 5/15/09 523,442
2,500,000 BBB Telephone and Data Systems, 7.000% due 8/1/06 2,337,500
1,655,000 B- Versatel Telecom BV, 13.250% due 5/15/08 1,750,163
1,065,000 B- Viatel Inc., 11.250% due 4/15/08 1,001,100
1,250,000 BB- Williams Communications Group Inc., 10.875% due 10/1/09 1,287,500
- ------------------------------------------------------------------------------------------------------------
28,706,455
- ------------------------------------------------------------------------------------------------------------
Telecommunications Equipment -- 0.2%
2,375,000 NA World Access Inc., Series B, 13.250% due 1/15/08 2,137,500
- ------------------------------------------------------------------------------------------------------------
Telephone and Cellular -- 1.6%
Airgate PCS, Inc.:
320,000 Caa1* Step bond yield 13.548% due 10/1/09 176,800
995,000 NR Step bond yield 13.227% due 10/1/09(f) 686,550
1,355,000 B- Centennial Cellular, 10.750% due 12/15/08 1,415,975
2,305,000 B Crown Castle International Corp., step bond to yield 11.057% due 5/15/11 1,383,000
505,000 NA Dobson/Sygnet Communications, 12.250% due 12/15/08 552,975
95,000 CCC+ Dolphin Telecomm PLC., step bond to yield 11.704% due 6/1/08 44,175
1,835,000 B- Millicom International Cellular, step bond to yield 14.382% due 6/1/06 1,587,275
Nextel Communications:
1,135,000 B1* Step bond yield 10.913% due 9/15/07 851,250
1,635,000 B1* Step bond yield 10.743% due 2/15/08 1,140,413
495,000 NR Spectrasite Holdings Inc., step bond to yield 11.250% due 4/15/09 287,718
Telesystem International Wireless:
2,885,000 CCC+ Series B, step bond to yield 12.262% due 6/30/07 1,904,100
2,050,000 CCC+ Series C, step bond to yield 12.051% due 11/1/07 1,086,500
1,275,000 B3* Triton PCS, Inc., step bond to yield 11.399% due 5/1/08 910,030
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT(c) RATING(d) SECURITY VALUE
=======================================================================================
<S> <C> <C> <C>
Telephone and Cellular -- 1.6% (continued)
Voicestream Wireless Co.:
720,000 B- Step bond to yield 11.875% due 11/15/09(e) $ 439,200
1,010,000 B- 10.375% due 11/15/09(e) 1,040,300
- ---------------------------------------------------------------------------------------
13,506,261
- ---------------------------------------------------------------------------------------
Textiles -- 0.0%
700,000DEM B Texon International PLC., 10.000% due 2/1/08 308,138
- ---------------------------------------------------------------------------------------
Transportation - Marine -- 0.1%
615,000 B- Oglebay Norton Co., 10.000% due 2/1/09 579,638
- ---------------------------------------------------------------------------------------
Unregulated Power Generation -- 0.6%
AES Corp.:
1,345,000 BB 10.250% due 7/15/06 1,355,088
1,635,000 Ba1* 9.500% due 6/1/09 1,630,913
2,000,000 BB+* Calpine Corp., 10.500% due 5/15/06 2,100,000
- ---------------------------------------------------------------------------------------
5,086,001
- ---------------------------------------------------------------------------------------
Wholesale Distributors -- 0.2%
505,000 B Buhrmann US Inc., 12.250% due 11/1/09(e) 515,100
980,000 B- Fisher Scientific International, 9.000% due 2/1/08 918,750
- ---------------------------------------------------------------------------------------
1,433,850
- ---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $275,341,236) 261,237,411
=======================================================================================
COLLATERALIZED MORTGAGE OBLIGATION -- 0.3%
2,779,982 Airplanes Pass-Through Trust, 10.875% due 3/15/19
(Cost -- $3,071,880) 2,363,735
=======================================================================================
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 6.1%
U.S. Government Agencies -- 3.2%
5,000,000 Federal Home Loan Bank, 5.880% due 4/15/08 4,578,550
5,000,000 Federal Home Loan Mortgage Corp., 5.750% due 7/15/03 4,797,600
Federal National Mortgage Association:
5,000,000 4.625% due 10/15/01 4,823,250
14,630,376 6.500% due 5/1/29 13,583,280
- ---------------------------------------------------------------------------------------
27,782,680
- ---------------------------------------------------------------------------------------
U.S. Treasury Obligations -- 2.9%
6,700,000 U.S. Treasury Notes, 6.500% due 8/15/05 6,623,352
U.S. Treasury Bonds:
2,500,000 7.875% due 2/15/21 2,831,775
16,000,000 6.250% due 8/15/23 15,261,600
- ---------------------------------------------------------------------------------------
24,716,727
- ---------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- $56,062,585) 52,499,407
=======================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
18 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
========================================================================================================
WARRANTS(a) -- 0.2%
Internet Services -- 0.1%
<S> <C> <C>
505 Cybernet Internet Service, Expire 7/1/09(d) $ 60,600
1,950 SplitRock Service, Expire 7/15/08 370,500
5,490 Wam!Net, Inc., Expire 3/1/05 63,821
- --------------------------------------------------------------------------------------------------------
494,921
- --------------------------------------------------------------------------------------------------------
Telecommunications - Other -- 0.1%
Tele 1 Europe B.V.:
490 Expire 5/15/09(d) 95,550
500 Expire 5/15/09 95,395
1,655 Versatel Telecommunications, Expire 5/15/08(d) 707,513
- --------------------------------------------------------------------------------------------------------
898,458
- --------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $222,170) 1,393,379
========================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
========================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.9%
$ 16,384,000 Morgan Stanley Dean Witter & Co., 5.680% due 2/1/00;
Proceeds at maturity -- $16,386,585; (Fully collateralized by
U.S. Treasury Notes, 5.500% to 7.000% due 5/15/09 to 7/15/09;
Market value -- $16,711,219) (Cost -- $16,384,000) 16,384,000
========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $746,817,660**) $856,776,066
========================================================================================================
</TABLE>
@ All or a portion of this security is on loan (See Note 5).
(a) Non-income producing security.
(b) Payment-in-kind security for which part of the income earned may be paid as
additional principal.
(c) Face amount in U.S. dollars unless otherwise indicated.
(d) All ratings are by Standard & Poor's Ratings Service with the exception of
those identified by an asterisk (*), which are rated by Moody's Investor
Services, Inc.
(e) Security is exempt from registration under Rule 144A of the Securities Act
of 1993. This security may be sold in transaction that are exempt from
registration, normally to qualified institutional buyers.
(f) Security issued with attached warrants.
** Aggregate cost for Federal income tax purposes is substantially the same
Currency abbreviations:
-----------------------
GBP -- British Pound
EUR -- Euro
DEM -- German Mark
See page 20 for definition of ratings.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"CCC" may be modified by the addition of a plus (+) or a minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small
degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
BB, B -- Bonds rated "BB" and "B" are regarded, on balance, as predominantly
and CCC speculative with respect to and CCC capacity to pay interest and repay
principal in accordance with the terms of the obligation. "BB"
represents a lower degree of speculation than "B", and "CCC" the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3
may be applied to each generic rating from "Aa" to "Caa", where 1 is the highest
and 3 the lowest rating within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin, and principal is secure. While the
various protective elements are likely to change, such changes as can
be visualized are most unlikely to impair the fundamentally strong
position of these bonds.
Aa -- Bonds rated "Aa" are judged to be of the high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities, or fluctuation of protective elements may be of greater
amplitude, or there may be other elements present that make the
long-term risks appear somewhat larger than in Aaa securities.
A -- Bonds rated "A" possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate, but
elements may be present that suggest a susceptibility to impairment
some time in the future.
Baa -- Bonds rated "Baa" are considered to be medium grade obligations; that
is they are neither highly protected nor poorly secured. Interest
payment and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. These
bonds lack outstanding investment characteristics and may have
speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby may not well
safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payment or of
maintenance of other terms of the contract over any long period of
time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be in
default, or present elements of danger may exist with respect to
principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
- --------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost -- $746,817,660) $856,776,066
Cash 278
Collateral for securities on loan (Note 5) 85,240,716
Receivable for securities sold 772,247
Receivable for Fund shares sold 94,096
Dividends and interest receivable 7,518,141
Receivable for open forward foreign currency contracts (Note 8) 244,512
- --------------------------------------------------------------------------------------------------------------------------
Total Assets 950,646,056
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 5) 85,240,716
Payable for securities purchased 5,890,420
Investment advisory fees payable 311,309
Administration fees payable 138,056
Payable for Fund shares purchased 59,004
Payable for open forward foreign currency contracts (Note 8) 36,921
Distribution fees payable 2,311
Accrued expenses 307,754
- --------------------------------------------------------------------------------------------------------------------------
Total Liabilities 91,986,491
- --------------------------------------------------------------------------------------------------------------------------
Total Net Assets $858,659,565
==========================================================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 59,823
Capital paid in excess of par value 715,039,178
Undistributed net investment income 5,854,448
Accumulated net realized gain from security transactions and foreign currencies 27,550,415
Net unrealized appreciation of investments and foreign currencies 110,155,701
Total Net Assets $858,659,565
==========================================================================================================================
Shares Outstanding:
Class A 25,131,159
----------------------------------------------------------------------------------------------------------------
Class B 33,424,432
----------------------------------------------------------------------------------------------------------------
Class L 848,349
----------------------------------------------------------------------------------------------------------------
Class O 419,215
----------------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 14.38
----------------------------------------------------------------------------------------------------------------
Class B * $ 14.33
----------------------------------------------------------------------------------------------------------------
Class L ** $ 14.35
----------------------------------------------------------------------------------------------------------------
Class O ** $ 14.34
----------------------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $ 15.14
----------------------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 14.49
==========================================================================================================================
</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 Balanced Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended January 31, 2000
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 15,888,546
Dividends 2,576,441
- --------------------------------------------------------------------------------
Total Investment Income 18,464,987
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 2,460,084
Investment advisory fees (Note 2) 1,980,453
Administration fees (Note 2) 880,201
Shareholder and system servicing fees 455,735
Shareholder communications 123,288
Registration fees 48,526
Audit and legal 22,796
Custody 22,442
Pricing service fees 10,615
Trustees' fees 8,492
Other 8,591
- --------------------------------------------------------------------------------
Total Expenses 6,021,223
- --------------------------------------------------------------------------------
Net Investment Income 12,443,764
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 8):
Realized Gain From:
Security transactions (excluding short-term securities) 27,483,615
Foreign currency transactions 177,544
- --------------------------------------------------------------------------------
Net Realized Gain 27,661,159
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and
Foreign Currencies:
Beginning of period 102,319,889
End of period 110,155,701
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 7,835,812
- --------------------------------------------------------------------------------
Net Gain on Investments and Foreign Currencies 35,496,971
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 47,940,735
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
22 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended January 31, 2000 (unaudited)
and the Year Ended July 31, 1999
<TABLE>
<CAPTION>
2000 1999
====================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 12,443,764 $ 27,456,408
Net realized gain 27,661,159 5,500,671
Increase in net unrealized appreciation 7,835,812 69,388,242
- ------------------------------------------------------------------------------------
Increase in Net Assets From Operations 47,940,735 102,345,321
- ------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (11,127,034) (23,023,939)
Net realized gains (4,875,008) (222,811,078)
- ------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (16,002,042) (245,835,017)
- ------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sales of shares 89,192,543 119,334,482
Net asset value of shares issued for
reinvestment of dividends 13,091,026 201,028,376
Cost of shares reacquired (168,500,424) (323,959,616)
- ------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (66,216,855) (3,596,758)
- ------------------------------------------------------------------------------------
Decrease in Net Assets (34,278,162) (147,086,454)
NET ASSETS:
Beginning of period 892,937,727 104,024,181
- ------------------------------------------------------------------------------------
End of period* $ 858,659,565 $ 892,937,727
====================================================================================
* Includes undistributed net investment income of: $ 5,854,448 $ 4,537,718
====================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 23
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Balanced Fund ("Fund"), a separate investment fund of the Smith
Barney Income Funds ("Trust"), a Massachusetts business trust, is registered
under the Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company. The Trust consists of this Fund and seven other
separate investment funds: Smith Barney Convertible Fund, Smith Barney
Diversified Strategic Income Fund, Smith Barney High Income Fund, Smith Barney
Premium Total Return Fund, Smith Barney Municipal High Income Fund, Smith Barney
Exchange Reserve Fund and Smith Barney Total Return Bond Fund. The financial
statements and financial highlights for the other funds are presented in
separate shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing price on such markets;
securities for which no sales price were reported and U.S. government and agency
obligations are valued at bid price, or in the absence of a recent bid price, at
the bid equivalent obtained from one or more of the major market makers; (c)
securities maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (d) dividend income is
recorded on ex-dividend date and interest income is recorded on an accrual
basis; (e) dividends and distributions to shareholders are recorded on the
ex-dividend date; (f) gains or losses on the sale of securities are recorded on
the identified cost basis; (g) 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; (h) 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;
(i) the character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At July 31, 1999, reclassifications were made to the
Fund's capital accounts to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations. Net investment
income, net realized gains and net assets were not affected by this change; and
(j) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
In addition, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked to market daily
by recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled. The Fund from time to time may also enter
into options and/or futures contracts to hedge market risk.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Trust. The Fund pays SSBC an investment advisory fee calculated
at an annual rate of 0.45% of the average daily net assets. This fee is
calculated daily and paid monthly.
SSBC 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.
- --------------------------------------------------------------------------------
24 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through January 31, 2000, the Fund paid transfer agent
fees of $259,904 to Private Trust.
CFBDS, Inc. ("CFBDS") act as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
SSB acts as the primary broker for its portfolio agency transactions. For the
six months ended January 31, 2000, SSB received total brokerage commissions of
$11,935.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B shares,
which applies if redemption occurs within one year from purchase and declines
thereafter by 1.00% per year until no CDSC is incurred. Class L and O shares
also have a 1.00% CDSC, which applies if redemption occurs within the first year
of purchase. In addition, Class A shares have a 1.00% CDSC, which applies if
redemption occurs within the first year of purchase. This CDSC only applies to
those purchases of Class A shares which, when combined with current holdings of
Class A shares, equal or exceed $500,000 in the aggregate, these purchases do
not incur an initial sales charge.
For the six months ended January 31, 2000, CFBDS and SSB received sales charges
of $40,000 and $42,000 on sales of the Fund's Class A and Class L shares,
respectively. In addition, CDSCs paid to SSB were approximately:
Class A Class B
================================================================================
CDSCs $1,000 $74,000
================================================================================
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 for each respective class. In addition, the Fund 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 for each
class, respectively. For the six months ended January 31, 2000, total
Distribution Plan fees incurred were as follows:
Distribution
Plan Fees
=====================================================
Class A $ 425,533
- -----------------------------------------------------
Class B 1,965,293
- -----------------------------------------------------
Class L 47,734
- -----------------------------------------------------
Class O 21,524
=====================================================
All officers and one Trustee of the Trust are employees of SSB.
3. Investments
During the six months ended January 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
=====================================================
Purchases $163,544,904
- -----------------------------------------------------
Sales 246,005,186
=====================================================
At January 31, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were approximately
as follows:
=====================================================
Gross unrealized appreciation $159,017,809
Gross unrealized depreciation (49,059,403)
- -----------------------------------------------------
Net unrealized appreciation $109,958,406
=====================================================
4. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 25
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
5. 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. Fees earned by the Fund on securities lending are recorded as
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 January 31, 2000, the Fund loaned common stocks having a value of
approximately $84,398,731 and holds the following collateral for loaned
securities:
Security Description Value
================================================================================
Commercial Paper:
American Home Product, 5.900% due 3/3/00 $ 1,536,174
Atlantic One Funding, 5.920% due 2/23/00 4,380,103
Atlantic One Funding, 5.970% due 3/22/00 1,964,725
Atlantic One Funding, 5.980% due 3/23/00 1,473,203
CC USA Discount Commercial paper,
6.900% due 2/14/00 1,710,738
Moriarity Discount Commercial paper,
5.950% due 2/18/00 554,646
Sigma Financial Corp., 5.960% due 3/7/00 5,313,467
Floating Rate Certificate of Deposit:
Bank of Montreal, 5.570% due 2/2/00 3,393,231
Floating Rate Commercial Paper:
American Home Product, 5.480% due 4/20/00 3,505,639
Floating Rate Notes:
Goldman Sachs Group LP, 5.280% due 8/23/00 4,185,986
Sigma Finance Corp., 6.230% due 4/4/00 5,007
Sigma Finance Corp., 5.640% due 1/22/01 55,250
Time Deposit:
Chase Manhattan Bank, 5.880% due 2/1/00 12,044,554
Tri-Party Repurchase Agreements:
J.P. Morgan Security, 5.800% due 2/1/00 13,637,437
Morgan Stanley Dean Witter, 5.810% due 2/1/00 31,480,556
- --------------------------------------------------------------------------------
Total $85,240,716
================================================================================
Income earned by the Fund from securities loaned for the six months ended
January 31, 2000 was $65,748.
6. 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 closing sales transaction, the Fund will realize a gain or loss
depending on whether the sales proceeds from the closing sales transaction are
greater or less than the premium paid for the option. When the 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 January 31, 2000, 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 if the cost of the closing
purchase transaction exceeds the premium received when the option was written)
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 reduced by the premium
originally received. When a written put option is exercised, the amount of the
premium received will reduce the cost of the security which the Fund purchased
upon exercise. When written index options are exercised, settlement is made in
cash.
- --------------------------------------------------------------------------------
26 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
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
call option is that the Fund gives up the opportunity to participate in any
decrease 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.
During the six months ended January 31, 2000, the Fund did not write any
options.
7. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. The initial margin is segregated by the custodian and is noted in the
schedule of investments. During the period the futures contract is open, changes
in the value of the contract are recognized as unrealized gains or losses by
"marking-to-market" on a daily basis to reflect the market value of the contract
at the end of each day's trading. Variation margin payments are made or received
and recognized as assets due from or liabilities due to broker, depending upon
whether unrealized gains or losses are incurred. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transactions and the Fund's basis in the
contract. The Fund enters into such contracts to hedge a portion of its
portfolio. The Fund bears the market risk that arises from changes in the value
of the financial instruments and securities indices (futures contracts) and the
credit risk should a counterparty fail to perform under such contracts.
At January 31, 2000, the Fund had no open futures contracts.
8. Forward Foreign Currency Contracts
At January 31, 2000, the Fund had forward foreign currency contracts open as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized gain (loss) on the contracts
reflected in the accompanying financial statements were as follows:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
==================================================================================================================
<S> <C> <C> <C> <C>
To Sell:
Euro 516,250 $ 505,929 6/15/00 $ (20,749)
Euro 229,332 224,747 6/15/00 (9,217)
Euro 343,998 337,121 6/15/00 (2,233)
- ------------------------------------------------------------------------------------------------------------------
(32,199)
- ------------------------------------------------------------------------------------------------------------------
To Buy:
Euro 353,250 345,619 2/2/00 (493)
Euro 573,330 516,868 6/15/00 29,235
Euro 1,000,000 980,008 6/15/00 54,892
Euro 4,000,000 3,920,423 6/15/00 160,385
British Pound 1,148,400 1,856,390 6/22/00 (4,229)
- ------------------------------------------------------------------------------------------------------------------
239,790
- ------------------------------------------------------------------------------------------------------------------
Net Unrealized Gain on Forward
Foreign Currency Contracts $ 207,591
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 27
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
9. Shares of Beneficial Interest
At January 31, 2000, 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
expenses, specifically related to the distribution of its share.
At January 31, 2000, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class O
===================================================================================================================
<S> <C> <C> <C> <C>
Total Paid-in Capital $338,657,012 $358,499,773 $ 11,795,461 $ 6,146,755
===================================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 2000 July 31, 1999
-------------------------------- ---------------------------------
Shares Amount Shares Amount
====================================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 5,065,629 $ 70,995,432 5,919,283 $ 81,549,199
Shares issued on reinvestment 390,829 5,513,292 4,606,069 56,520,992
Shares reacquired (2,750,537) (38,652,405) (4,974,702) (68,325,408)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 2,705,921 $ 37,856,319 5,550,650 $ 69,744,783
====================================================================================================================================
Class B
Shares sold 924,664 $ 13,008,822 2,154,517 $ 29,356,635
Shares issued on reinvestment 522,858 7,338,107 1,468,647 139,771,603
Shares reacquired (9,144,117) (127,909,196) (7,345,693) (237,964,734)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease (7,696,595) $(107,562,267) (3,722,529) $ (68,836,496)
====================================================================================================================================
Class L
Shares sold 362,997 $ 5,096,660 577,934 $ 7,896,903
Shares issued on reinvestment 10,543 148,915 26,724 334,662
Shares reacquired (68,010) (941,839) (91,287) (1,238,215)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 305,530 $ 4,303,736 513,371 $ 6,993,350
====================================================================================================================================
Class O
Shares sold 6,500 $ 91,629 12,802 $ 177,899
Shares issued on reinvestment 6,448 90,712 134,052 1,634,462
Shares reacquired (71,419) (996,984) (204,621) (2,891,437)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease (58,471) $ (814,643) (57,767) $ (1,079,076)
====================================================================================================================================
Class Y(1)
Shares sold -- -- -- --
Shares issued on reinvestment -- -- 27 $ 332
Shares reacquired -- -- (118) (1,535)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease -- -- (91) $ (1,203)
====================================================================================================================================
Class Z(2)
Shares sold -- -- 26,802 $ 353,846
Shares issued on reinvestment -- -- 225,868 2,766,325
Shares reacquired -- -- (989,658) (13,538,287)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease -- -- (736,988) $ (10,418,116)
====================================================================================================================================
</TABLE>
(1) At January 31, 1999, all Class Y shares were fully redeemed.
(2) At January 31, 1999, all Class Z shares were fully redeemed.
- --------------------------------------------------------------------------------
28 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 2000(1)(2) 1999(2) 1998 1997 1996 1995
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.86 $ 16.52 $ 15.53 $ 14.51 $ 14.03 $ 13.28
- ------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.23 0.45 0.70 0.80 0.83 0.85
Net realized and unrealized gain 0.57 0.92 1.80 1.36 0.47 0.82
- ------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.80 1.37 2.50 2.16 1.30 1.67
- ------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.20) (0.37) (0.68) (0.82) (0.82) (0.82)
Net realized gains (0.08) (3.66) (0.83) (0.32) -- (0.08)
Capital -- -- -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.28) (4.03) (1.51) (1.14) (0.82) (0.92)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 14.38 $ 13.86 $ 16.52 $ 15.53 $ 14.51 $ 14.03
- ------------------------------------------------------------------------------------------------------------------------
Total Return 5.82%++ 12.27% 16.70% 15.48% 9.21% 13.24%
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 362 $ 310 $ 279 $ 248 $ 266 $ 169
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.05%+ 1.08% 1.05% 1.06% 1.04% 1.07%
Net investment income 3.19+ 3.26 4.29 5.29 5.55 6.36
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 60% 110% 45% 58% 36%
========================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 29
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998 1997 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.82 $ 16.49 $ 15.52 $ 14.51 $ 14.02 $ 13.28
- ------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.19 0.38 0.62 0.73 0.77 0.78
Net realized and unrealized gain 0.57 0.93 1.80 1.35 0.47 0.82
- ------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.76 1.31 2.42 2.08 1.24 1.60
- ------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.17) (0.32) (0.62) (0.75) (0.75) (0.76)
Net realized gains (0.08) (3.66) (0.83) (0.32) -- (0.08)
Capital -- -- -- -- -- (0.02)
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.25) (3.98) (1.45) (1.07) (0.75) (0.86)
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 14.33 $ 13.82 $ 16.49 $ 15.52 $ 14.51 $ 14.02
- ------------------------------------------------------------------------------------------------------------------------------
Total Return 5.52%++ 11.78% 16.17% 14.88% 8.78% 12.62%
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 479 $ 568 $ 740 $ 951 $ 1,310 $ 1,573
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.54%+ 1.56% 1.52% 1.52% 1.55% 1.56%
Net investment income 2.71+ 2.81 3.87 4.85 5.13 5.82
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 60% 110% 45% 58% 36%
==============================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
30 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 2000(1)(2) 1999(2) 1998(3)
==========================================================================================
<S> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.83 $ 16.52 $ 17.14
- ------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.17 0.35 0.02
Net realized and unrealized gain (loss) 0.58 0.91 (0.41)
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.75 1.26 (0.39)
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.15) (0.29) --
Net realized gains (0.08) (3.66) (0.23)
- ------------------------------------------------------------------------------------------
Total Distributions (0.23) (3.95) (0.23)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 14.35 $ 13.83 $ 16.52
- ------------------------------------------------------------------------------------------
Total Return 5.49%++ 11.43% (2.28)%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 12,171 $ 7,508 $ 486
- ------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.80%+ 1.85% 1.74%+
Net investment income 2.44+ 2.54 2.51+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 60% 110%
==========================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from June 15, 1998 (inception date) to July 31, 1998.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Balanced Fund 31
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class O Shares 2000(1)(2) 1999(2) 1998(2)(3) 1997(2) 1996 1995(4)
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 13.83 $ 16.50 $ 15.53 $ 14.51 $ 14.02 $ 13.28
- -----------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.19 0.39 0.64 0.73 0.77 0.78
Net realized and unrealized gain 0.57 0.92 1.79 1.36 0.47 0.82
- -----------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.76 1.31 2.43 2.09 1.24 1.60
- -----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.17) (0.32) (0.63) (0.75) (0.75) (0.76)
Net realized gains (0.08) (3.66) (0.83) (0.32) -- (0.08)
Capital -- -- -- -- -- (0.02)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.25) (3.98) (1.46) (1.07) (0.75) (0.86)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 14.34 $ 13.83 $ 16.50 $ 15.53 $ 14.51 $ 14.02
- -----------------------------------------------------------------------------------------------------------------------------
Total Return 5.54%++ 11.79% 16.19% 15.01% 8.80% 12.62%
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 6,013 $ 6,606 $ 8,838 $ 9,381 $ 11,441 $ 3,925
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.54%+ 1.50% 1.48% 1.47% 1.50% 1.51%
Net investment income 2.71+ 2.83 3.89 4.89 5.19 5.77
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 60% 110% 45% 58% 36%
=============================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class O shares.
(4) On November 7, 1994, the former Class D shares were renamed Class C shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
32 2000 Semi-Annual Report to Shareholders
<PAGE>
Smith Barney Balanced Fund
Trustees
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
Richard E. Hanson, Jr.
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
Officers
Heath B. McLendon
Chairman and Investment Officer
Lewis E. Daidone
Senior Vice President and Treasurer
John C. Bianchi
Vice President and Investment Officer
James E. Conroy
Vice President and Investment Officer
Charles P. Graves III
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of the shareholders of
Smith Barney Income Funds -- Smith Barney Balanced Fund, but it may also be used
as sales literature when proceeded or accompanied by the current Prospectus,
which gives details about charges, expenses, investment objectives and operating
policies of the Fund. If used as sales material after March 31, 2000, this
report must be accompanied by performance information for the most recently
completed calendar quarter.
[GRAPHIC]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
Balanced Fund
388 Greenwich Street,
MF-2 New York, New York 10013
www.smithbarney.com/mutualfunds
<PAGE>
[LOGO OF SMITH BARNEY]
SMITH BARNEY
DIVERSIFIED STRATEGIC
INCOME Fund
CLASSIC INVESTOR SERIES
SEMI-ANNUAL REPORT
JANUARY 31,2000
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Smith Barney
Diversified Strategic
Income Fund
The Smith Barney Diversified Strategic Income Fund ("Fund") seeks high current
income by investing primarily in U.S. government securities and U.S. government
mortgage-related securities, foreign government securities, including securities
issued by supranational organizations and U.S. and foreign corporate debt
securities.
Smith Barney Diversified Strategic Income Fund Average Annual Total Returns
January 31, 2000
Without Sales Charges(1)
------------------------------------------
Class A Class B Class L
=====================================================================
Six-Month+ 0.46% 0.22% 0.08%
- ---------------------------------------------------------------------
One-Year (1.80) (2.26) (2.27)
- ---------------------------------------------------------------------
Five-Year 7.41 6.91 6.91
- ---------------------------------------------------------------------
Ten-Year N/A 7.70 N/A
- ---------------------------------------------------------------------
Since Inception++ 6.68 7.55 5.72
=====================================================================
With Sales Charges(2)
------------------------------------------
Class A Class B Class L
=====================================================================
Six-Month+ (4.04)% (4.15)% (1.93)%
- ---------------------------------------------------------------------
One-Year (6.20) (6.39) (4.16)
- ---------------------------------------------------------------------
Five-Year 6.43 6.76 6.68
- ---------------------------------------------------------------------
Ten-Year N/A 7.70 N/A
- ---------------------------------------------------------------------
Since Inception++ 6.00 7.55 5.58
=====================================================================
(1) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and L
shares.
(2) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum sales charge of 4.50% and 1.00%, respectively; and
Class B shares reflect the deduction of a 4.50% CDSC, which applies if
shares are redeemed within one year from initial purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per
year until no CDSC is incurred. Class L shares also reflect the deduction
of a 1.00% CDSC, which applies if shares are redeemed within the first year
of purchase.
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 and L shares are November 6, 1992, December
28, 1989 and March 19, 1993, respectively.
- --------------------------------------------------------------------------------
FUND HIGHLIGHT
- --------------------------------------------------------------------------------
The Fund's investment team follows a flexible investment approach that
emphasizes both diversification and balance. Based on their analysis of current
economic and market conditions, the team allocates assets across three classes
of bonds: U.S. government and mortgage securities, high-yield corporate bonds
and foreign government securities.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SDSAX
Class B SLDSX
Class L SDSIX
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter .......................................................... 1
Historical Performance ...................................................... 5
Smith Barney Diversified Strategic Income
Fund at a Glance ............................................................ 8
Schedule of Investments ..................................................... 9
Statement of Assets and Liabilities.......................................... 21
Statement of Operations...................................................... 22
Statements of Changes in Net Assets.......................................... 23
Notes to Financial Statements................................................ 24
Financial Highlights......................................................... 30
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
HEATH B. JAMES E.
MCLENDON CONROY
Chairman Vice President and
Investment Officer
[PHOTO] [PHOTO]
JOHN C. SIMON
BIANCHI, CFA HILDRETH
Vice President and Investment Officer
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney
Diversified Strategic Income Fund ("Fund") for the period ended January 31,
2000.
Any discussion of the Fund's holdings is as of January 31, 2000. Please refer to
pages 9 through 19 for a list of the Fund's holdings. We hope you find this
report to be useful and informative.
Performance Update
For the six months ended January 31, 2000, the Fund's Class A, B and L shares
returned 0.46%, 0.22% and 0.08% without the effects of sales charges,
respectively, as compared to the Lehman Brothers Aggregate Bond Index return of
0.66% for the same period. (The Lehman Brothers Aggregate Bond Index is made up
of U.S. Treasury bonds, government agency bonds, mortgage-backed securities and
corporate bonds.)
The Diversified Strategic Income Fund relies on the portfolio managers' ability
to manage the Fund's asset allocation in light of rapidly changing global market
conditions. Our goal is to provide our shareholders with a dividend level
consistent with maintaining a relatively stable net asset value ("NAV").
As of January 31, 2000, the Fund's allocation was roughly 17.1% in foreign
government bonds, 27.7% in high-yield corporate bonds, 49.6% in U.S. government
securities, 5.2% in U.S. Treasuries and 0.4% in other sectors. Following are
brief summaries of the economic and market conditions that affected the Fund's
three major bond sectors during the reporting period.
Market & Economic Update
1999 turned out to be one of the two worst years for the bond market in the
1990's (1994 being the other), making it perhaps one of the most challenging
bond markets in history.
On February 2, 2000, the Federal Reserve Board ("Fed") raised interest rates for
a fourth time in less than eight months, aiming to keep inflation at bay and to
curb the nation's rapidly growing economy. In 1999, the bond market was
negatively impacted by diminishing liquidity -- a direct result of the global
financial crisis that reached its climax in October of 1998, as well as the
Fed's monetary policy actions.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 1
<PAGE>
It is our belief that the worst may be over. With the likelihood of more
moderate growth going forward, inflation fears could abate. The bond market is
likely to remain unsettled until worries about Fed monetary tightening and the
rapid pace of economic growth subside. We foresee the Fed raising rates again in
the first half of 2000. Nevertheless, we doubt that yields will rise much above
recent levels. In fact, many bond experts expect that yields on 30-year U.S.
Treasuries will trade between 6.0% and 6.7% over the next 12 months. If these
indicators are correct, these yields can provide investors with a comfortable
cushion against declines in bond prices.
U.S. Government and Mortgage Backed Securities
The continued focus on "how much" the Fed will tighten monetary policy in the
coming months is now thrown into apparent conflict with the U.S. Treasury's
intent to "buy back" or retire U.S. Treasury securities. The market response has
been for short and intermediate rates to rise while 30 year rates have remained
steady.
The spread market, namely corporates and mortgage securities, continues to
gyrate daily as the swap spread or dealers cost of funding constantly changes.
It has created a highly illiquid market that has kept many institutional
investors sidelined while the hedge funds attempt to protect their positions.
In our view, the larger issue at hand is whether the stock market has returned
to focusing on fundamentals and not on the "herd" mentality of 1999. The Fed,
through active policy and jawboning, is attempting to sober investor
expectations. This will ultimately dictate the course for bonds in 2000.
During the period, we continued to emphasize higher coupon mortgages in the
Fund's U.S. government and mortgage-backed securities portion and balance the
shorter duration purchases against longer dated strip treasuries. (Duration is a
common gauge of the price sensitivity of an asset or portfolio to a change in
interest rates.)
High Yield Corporate Bonds
During this period of rising interest rates and declining bond prices, the
Fund's high-yield bonds benefited from having an eight-year average maturity
that enabled it to better weather the increase in overall interest rates than
longer maturity securities. (Maturity refers to the date on which the principal
is required to be paid on a bond.)
We would expect to maintain this maturity given the continued volatility in the
bond markets. In addition, over the last six months, we continued to add to our
basic industry positions on the assumption that stronger U.S. economic growth
would benefit a number industries. We also maintained healthy weightings in the
fast-growing telecommunications, cable and media sectors. The strongest
performing industry sectors in the high yield market in the past six months were
in basic materials (i.e., forest products, metals, mining etc.), chemicals,
cable and media, and telecommunications. (Please note that portfolio holdings
are as of January 31, 2000 and are subject to change.)
The worst performing sectors included restaurants, healthcare and
textile/apparel. Some of our better performing investments included Ocean
Energy, a major oil company, Tembec, a paper and forest products company,
Nextel, a fast growing wireless communications company, Nextlink, a fast growing
telecommunications company, and PSINet, a major Internet telecommunications
company.
During the first half of 1999, the higher quality issues had actually
underperformed the lower quality issues by a meaningful margin because of their
higher sensitivity to rising U.S. Treasury rates. Given our relatively higher
quality orientation versus our peer group, our total return performance was
negatively impacted in the first half of 1999. We especially lagged our high-
yield peer group since a number of our high-yield fund competitors had
emphasized a combination of lower quality issues, emerging market debt as well
as common and preferred stock.
- --------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
During the second half of 1999, we witnessed a sharp reversal of the first half
of the year's trends. Lower quality issues dramatically underperformed in the
second half of last year because of rising default rates. Yet, we do not
attribute rising defaults in the high-yield market to a deteriorating U.S.
economy. We believe, instead, that rising defaults may be a natural fallout from
the massive amount of new issuance in the past three years when a great deal of
merger and acquisition activity took place. A number of defaults are occurring
among the less viable companies that are simply not competitive in today's more
challenging economic environment. Given our quality orientation, we did not have
any defaults in the Fund in 1999. In our view, this is no time to get reckless
with respect to credit risk.
Foreign Government Securities
Our investment strategy regarding the Fund's foreign government securities
currently emphasizes three factors:
. To be fully invested and earn high yield;
. To stay in for a moderately long duration and be prepared to take advantage
of potential spread tightening; and
. To focus on countries with low external financing requirements.
We restored our Japanese bond position in the Fund to 65% of its duration-
weighted index. We have not owned Japanese bonds for almost a year because
yields were in the 1.0% to 1.8% range.
However, we underestimated the extent of the recession in Japan during the first
half of 1999, and the subsequent rally in Japanese bonds. Indeed, Japan has
become the best performing global government bonds. As a result, we thought it
was prudent to increase our Japanese bond exposure during the period.
Another significant change to the Fund's global government bond holdings during
the past year was the elimination of our above-index position in Australia and
the reduction of our above-index position in Denmark. These moves allowed us to
take profits as those markets outperformed the U.S. We also increased the
percentage of assets allocated to Euroland and extended duration in that market
in the wake of Euroland underperformance versus the U.S. during the summer of
1999. (Euroland refers to the eleven countries whose official currency is the
euro--Austria, Belgium, Germany, Ireland, Italy, Luxembourg, Netherlands,
Portugal and Spain.)
Bond yields have moved higher worldwide in recent months, making 1999 the worst
year for bond returns since 1994. In local currency terms, returns are
significantly worse than at the same stage in 1994. In our opinion, a growing
global economy and concerns over inflationary pressures have been responsible
for the rise in yields. Over the next twelve months, we expect the rebound in
the global economy to continue and bond yields to move slightly higher. We also
anticipate an uptick in inflation over the same period, but no return to the
kind of high inflation levels last seen in the 1980s.
We expect better performance from Europe versus the U.S. over next six months
because interest rates in euroland are discounting greater central bank rate
hikes than in the U.S., yet both inflation and economic growth are lower in
Europe.
One risk to our expectations is the Japanese economy rebounding too strongly,
leading to a drain of capital from the U.S. and Europe back to Japan, resulting
in a stronger yen and greater upward pressure on commodity prices. Should this
occur, the global economy could become unbalanced and worldwide inflation might
again resurface.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 3
<PAGE>
Market Outlook
We will continue to focus on what we believe are the better quality securities
in each of the Fund's bond sectors and look to pick up additional yield. We
remain bullish on the total return prospects of the bond market at current
valuation levels, especially given the continued health of the economy. As we
enter the new millennium, we expect a continuation of solid economic growth with
only a modest upward bias to inflation.
Thank you for investing in the Smith Barney Diversified Strategic Income Fund.
We look forward to continuing to help you pursue your financial goals in the new
century.
Sincerely,
/s/ Heath B. McLendon /s/ James E. Conroy
Heath B. McLendon James E. Conroy
Chairman Vice President and
Investment Officer
/s/ John C. Bianchi, CFA /s/ Simon Hildreth
John C. Bianchi, CFA Simon Hildreth
Vice President and Investment Officer
Investment Officer
February 18, 2000
- --------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $7.46 $7.24 $0.26 $0.00 $0.00 0.46%+
- ------------------------------------------------------------------------------------------------------------------
7/31/99 7.96 7.46 0.49 0.01 0.04 0.41
- ------------------------------------------------------------------------------------------------------------------
7/31/98 8.01 7.96 0.58 0.05 0.00 7.47
- ------------------------------------------------------------------------------------------------------------------
7/31/97 7.82 8.01 0.67 0.00 0.00 11.36
- ------------------------------------------------------------------------------------------------------------------
7/31/96 7.85 7.82 0.62 0.00 0.05 8.39
- ------------------------------------------------------------------------------------------------------------------
7/31/95 7.76 7.85 0.48 0.00 0.19 10.35
- ------------------------------------------------------------------------------------------------------------------
7/31/94 8.41 7.76 0.62 0.10 0.04 1.16
- ------------------------------------------------------------------------------------------------------------------
Inception*-- 7/31/93 8.24 8.41 0.45 0.12 0.00 9.30+
==================================================================================================================
Total $4.17 $0.28 $0.32
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $7.48 $7.26 $0.24 $0.00 $0.00 0.22%+
- ------------------------------------------------------------------------------------------------------------------
7/31/99 7.98 7.48 0.46 0.01 0.03 (0.06)
- ------------------------------------------------------------------------------------------------------------------
7/31/98 8.03 7.98 0.54 0.05 0.00 6.93
- ------------------------------------------------------------------------------------------------------------------
7/31/97 7.83 8.03 0.62 0.00 0.00 10.89
- ------------------------------------------------------------------------------------------------------------------
7/31/96 7.86 7.83 0.57 0.00 0.05 7.80
- ------------------------------------------------------------------------------------------------------------------
7/31/95 7.76 7.86 0.44 0.00 0.18 10.00
- ------------------------------------------------------------------------------------------------------------------
7/31/94 8.41 7.76 0.60 0.10 0.03 0.66
- ------------------------------------------------------------------------------------------------------------------
7/31/93 8.55 8.41 0.58 0.14 0.00 7.28
- ------------------------------------------------------------------------------------------------------------------
7/31/92 7.98 8.55 0.68 0.00 0.07 17.12
- ------------------------------------------------------------------------------------------------------------------
7/31/91 8.06 7.98 0.71 0.06 0.09 10.42
- ------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/90 8.00 8.06 0.40 0.00 0.00 6.00+
==================================================================================================================
Total $5.84 $0.36 $0.45
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $7.48 $7.25 $0.24 $0.00 $0.00 0.08%+
- ------------------------------------------------------------------------------------------------------------------
7/31/99 7.97 7.48 0.46 0.01 0.03 0.08
- ------------------------------------------------------------------------------------------------------------------
7/31/98 8.01 7.97 0.54 0.05 0.00 7.08
- ------------------------------------------------------------------------------------------------------------------
7/31/97 7.81 8.01 0.62 0.00 0.00 10.92
- ------------------------------------------------------------------------------------------------------------------
7/31/96 7.84 7.81 0.57 0.00 0.05 7.82
- ------------------------------------------------------------------------------------------------------------------
7/31/95 7.76 7.84 0.44 0.00 0.18 9.73
- ------------------------------------------------------------------------------------------------------------------
7/31/94 8.41 7.76 0.60 0.10 0.03 0.66
- ------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/93 8.36 8.41 0.20 0.03 0.00 3.41+
==================================================================================================================
Total $3.67 $0.19 $0.29
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $7.46 $7.24 $0.27 $0.00 $0.00 0.62%+
- ------------------------------------------------------------------------------------------------------------------
7/31/99 7.96 7.46 0.51 0.01 0.04 0.72
- ------------------------------------------------------------------------------------------------------------------
7/31/98 8.00 7.96 0.60 0.05 0.00 7.96
- ------------------------------------------------------------------------------------------------------------------
7/31/97 7.82 8.00 0.70 0.00 0.00 11.64
- ------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/96 7.89 7.82 0.53 0.00 0.05 6.65+
==================================================================================================================
Total $2.61 $0.06 $0.09
==================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Z Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $7.47 $7.25 $0.27 $0.00 $0.00 0.63%+
- ------------------------------------------------------------------------------------------------------------------
7/31/99 7.96 7.47 0.51 0.01 0.04 0.84
- ------------------------------------------------------------------------------------------------------------------
7/31/98 8.01 7.96 0.60 0.05 0.00 7.78
- ------------------------------------------------------------------------------------------------------------------
7/31/97 7.82 8.01 0.69 0.00 0.00 11.69
- ------------------------------------------------------------------------------------------------------------------
7/31/96 7.85 7.82 0.63 0.00 0.06 8.72
- ------------------------------------------------------------------------------------------------------------------
7/31/95 7.76 7.85 0.49 0.00 0.20 10.94
- ------------------------------------------------------------------------------------------------------------------
7/31/94 8.41 7.76 0.65 0.10 0.04 1.43
- ------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/93 8.24 8.41 0.47 0.12 0.00 9.47+
==================================================================================================================
Total $4.31 $0.28 $0.34
==================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charges(1)
---------------------------------------------------------------
Class A Class B Class L Class Y Class Z
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 1/31/00+ 0.46% 0.22% 0.08% 0.62% 0.63%
- -----------------------------------------------------------------------------------------------------
Year Ended 1/31/00 (1.80) (2.26) (2.27) (1.49) (1.49)
- -----------------------------------------------------------------------------------------------------
Five Years Ended 1/31/00 7.41 6.91 6.91 N/A 7.76
- -----------------------------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 7.70 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Inception* through 1/31/00 6.68 7.55 5.72 6.33 7.04
=====================================================================================================
</TABLE>
<TABLE>
<CAPTION>
With Sales Charges(2)
----------------------------------------------------------------
Class A Class B Class L Class Y Class Z
=====================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 1/31/00+ (4.04)% (4.15)% (1.93)% 0.62% 0.63%
- -----------------------------------------------------------------------------------------------------
Year Ended 1/31/00 (6.20) (6.39) (4.16) (1.49) (1.49)
- -----------------------------------------------------------------------------------------------------
Five Years Ended 1/31/00 6.43 6.76 6.68 N/A 7.76
- -----------------------------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 7.70 N/A N/A N/A
- -----------------------------------------------------------------------------------------------------
Inception* through 1/31/00 6.00 7.55 5.58 6.33 7.04
=====================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (Inception* through 1/31/00) 59.68%
- --------------------------------------------------------------------------------
Class B (1/31/90 through 1/31/00) 110.04
- --------------------------------------------------------------------------------
Class L (Inception* through 1/31/00) 46.60
- --------------------------------------------------------------------------------
Class Y (Inception* through 1/31/00) 30.28
- --------------------------------------------------------------------------------
Class Z (Inception* through 1/31/00) 63.59
================================================================================
(1) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividend and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 4.50% and 1.00%,
respectively; and Class B shares reflect the deduction of a 4.50% CDSC,
which applies if shares are redeemed within one year from purchase. This
CDSC declines by 0.50% the first year after purchase and thereafter by
1.00% per year until no CDSC is incurred. Class L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
* Inception dates for Class A, B, L, Y and Z shares are November 6, 1992,
December 28, 1989, March 19, 1993, October 10, 1995 and November 6, 1992,
respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of the Smith Barney Diversified
Strategic Income Fund vs. Lehman Brothers Aggregate Bond Index+
January 1990 -- January 2000
[GRAPH]
Smith Barney Lehman Brothers
Diversified Strategic Aggregate
Income Fund Bond Index
Jan 31, 1990 10,000 10,000
July 1990 10,680 10,425
July 1991 11,793 11,541
July 1992 13,811 13,247
July 1993 14,816 14,595
July 1994 14,913 14,609
July 1995 16,404 16,086
July 1996 17,684 16,976
July 1997 19,610 18,804
July 1998 20,970 20,283
July 1999 20,959 20,787
Jan 31, 2000 21,004 20,924
+ Hypothetical illustration of $10,000 invested in Class B shares at
inception on January 31, 1990, assuming reinvestment of dividends and
capital gains, if any, at net asset value through January 31, 2000. The
Lehman Brothers Aggregate Bond Index is composed of the Government
Corporate Bond Index, the Asset-Backed Securities Index and the
Mortgage-Backed Securities Index and includes treasury issues, agency
issues, corporate bond issues and mortgage-backed issues. The index is
unmanaged and it is not subject to the same management and trading expenses
as a mutual fund. An investor may not invest directly in an index. The
performance of the Fund's other classes may be greater or less than the
Class B shares' performance indicated on this chart, depending on whether
greater or lesser sales charges and fees were incurred by shareholders
investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
Top Ten Holdings* As of January 31, 2000
- --------------------------------------------------------------------------------
1. Government National Mortgage Association 34.2%
- --------------------------------------------------------------------------------
2. Federal National Mortgage Association 13.2
- --------------------------------------------------------------------------------
3. U.S. Treasury Principal Strips 5.3
- --------------------------------------------------------------------------------
4. Buoni Poliennali Del Tes 3.5
- --------------------------------------------------------------------------------
5. Bundesobligation 3.4
- --------------------------------------------------------------------------------
6. Kingdom of Denmark 2.7
- --------------------------------------------------------------------------------
7. U.K. Treasury 1.9
- --------------------------------------------------------------------------------
8. NYKREDIT 1.6
- --------------------------------------------------------------------------------
9. Federal Home Mortgage Corp. 1.0
- --------------------------------------------------------------------------------
10. United International Holdings 0.8
- --------------------------------------------------------------------------------
* As a percentage of total investments.
Investment Breakdown*
- --------------------------------------------------------------------------------
[GRAPH]
17.1% International Bonds
0.4% Common Stock, Preferred Stock and Warrants
27.7% Corporate Bonds and Notes
54.8% U.S. Agencies & Government Obligations
- --------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. GOVERNMENT SECTOR -- 54.8%
U.S. GOVERNMENT AGENCIES & OBLIGATIONS -- 54.8%
$242,150,000 U.S. Treasury Principal Strip, zero coupon bond to yield
6.364% due 11/15/09 (a) $ 124,060,710
95,100,000 Federal Home Loan Bank, zero coupon bond to yield
7.402% due 3/16/23 (a) 13,628,781
24,164,506 Federal Home Loan Mortgage Corp., 7.000% due 2/1/22 through 6/1/28 23,054,389
Federal National Mortgage Association:
6,866,400 6.000% balloon due 4/1/05 6,518,755
4,116,662 6.000% due 1/1/13 through 9/1/13 3,845,210
316,611,083 7.000% due 7/1/15 through 9/1/29 (a) 301,866,506
50,000,000 zero coupon bond to yield 7.041% due 6/1/17 14,525,500
Government National Mortgage Association:
465,674,545 8.000% due 10/15/22 through 12/15/29 464,654,757
26,534 7.000% due 10/15/25 25,257
227,557,008 7.500% due 12/15/28 through 7/15/29 (b) 221,938,626
120,000,000 8.000% due 2/15/29 (c) 119,661,600
- --------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT SECTOR
(Cost -- $1,333,569,432) 1,293,780,091
==============================================================================================================
<CAPTION>
FACE
AMOUNT RATING(d) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HIGH YIELD SECTOR -- 28.1%
CORPORATE BONDS AND NOTES -- 27.7%
Aerospace -- 0.1%
2,485,000 B- Dunlop Standard Aerospace Holdings, Sr. Notes,
11.875% due 5/15/09 (e) 2,537,806
- --------------------------------------------------------------------------------------------------------------
Airlines -- 0.3%
9,562,738 BB Airplanes Pass Through Trust, Corporate Collateralized Mortgage Obligation,
Series D, 10.875% due 3/15/19(e) 8,130,910
- --------------------------------------------------------------------------------------------------------------
Aluminum -- 0.5%
Kaiser Aluminum Chemical Corp.:
1,045,000 B1* Sr. Notes, Series B, 10.875% due 10/15/06 1,055,450
935,000 B1* Sr. Notes, Series D, 10.875% due 10/15/06 943,181
8,865,000 B3* Sr. Sub. Notes, 12.750% due 2/1/03(e) 8,776,350
- --------------------------------------------------------------------------------------------------------------
10,774,981
- --------------------------------------------------------------------------------------------------------------
Apparel -- 0.0%
1,150,000 B- Tropical Sportswear International Corp., 11.000% due 6/15/08 1,089,625
- --------------------------------------------------------------------------------------------------------------
Auto Parts: O.E.M. -- 0.4%
5,755,000 B Collins & Aikman Products, Company Guaranteed, 11.500% due 4/15/06 5,654,287
3,130,000 B Dura Operating Corp., Sr. Sub. Notes, 9.000% due 5/1/09 2,918,725
1,440,000 B+ Tenneco Automotive Inc., 11.625% due 10/15/09 (e)(f) 1,476,000
- --------------------------------------------------------------------------------------------------------------
10,049,012
- --------------------------------------------------------------------------------------------------------------
Automotive Aftermarket -- 0.0%
270,000 B+ Exide Corp., Sr. Notes, 10.000% due 4/15/05 (e) 257,850
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(d) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Broadcasting -- 0.3%
$ 3,955,800 NR AMFM Operating Inc., Payment-in-Kind, 12.625% due 10/31/06 $ 4,549,170
1,925,000 B Capstar Broadcasting, Sr. Discount Notes, step bond to yield
11.007% due 2/1/09 1,720,469
- --------------------------------------------------------------------------------------------------------------
6,269,639
- --------------------------------------------------------------------------------------------------------------
Building Products -- 0.4%
2,480,000 B Amatek Industries Property Ltd., Sr. Sub. Notes, 12.000% due 2/15/08 (e) 2,352,900
2,510,000 B Atrium Cos. Inc., Sr. Sub. Notes, 10.500% due 5/1/09 (f) 2,409,600
2,025,000 B NCI Building Systems Inc., Sr. Sub. Notes, Series B, 9.250% due 5/1/09 1,921,219
Nortek Inc., Sr. Notes:
600,000 B+ 9.250% due 3/15/07 576,000
1,435,000 B+ 9.125% due 9/1/07(e) 1,375,806
- --------------------------------------------------------------------------------------------------------------
8,635,525
- --------------------------------------------------------------------------------------------------------------
Cable Television -- 3.5%
6,400,000 B+ Adelphia Communications Corp., 9.875% due 3/1/07 6,400,000
Century Communications Corp.:
1,970,000 BB- Sr. Discount Notes, 8.375% due 11/15/17 1,760,688
5,975,000 BB- Sr. Notes, zero coupon bond to yield 10.091% due 1/15/08 2,509,500
Charter Communications Holdings LLC:
12,505,000 B+ Sr. Discount Notes, step bond to yield 11.722% due 4/1/11 (f) 7,252,900
375,000 B+ Sr. Notes, 10.000% due 4/1/09 (f) 375,937
6,650,000 BB- CSC Holdings, Sr. Sub. Debentures, 10.500% due 5/15/16 7,348,250
5,125,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09 5,060,937
5,870,000 B- NTL Communications Corp., Sr. Notes, 11.500% due 10/1/08(e) 6,251,550
8,070,000 BB- Rogers Cablesystems Ltd., Sr. Sub. Debentures, 11.000% due 12/1/15 9,109,013
3,650,000 B+ Telewest Communications PLC, Sr. Notes, 11.250% due 11/1/08 3,869,000
26,980,000 B- United International Holdings, Sr. Discount Notes, step bond to yield
11.076% due 2/15/08 17,941,700
28,000,000 B United Pan-Europe Communications N.V., Sr. Discount Notes,
step bond to yield 13.067% due 8/1/09(e) 15,260,000
- --------------------------------------------------------------------------------------------------------------
83,139,475
- --------------------------------------------------------------------------------------------------------------
Casinos/Gambling -- 0.5%
915,000 BB+ Circus Circus Enterprises, Sr. Sub. Notes, 7.625% due 7/15/13 784,613
4,785,000 B Harvey Casinos Resorts, Sr. Sub. Notes, 10.625% due 6/1/06 4,922,569
1,375,000 B Hollywood Casino Corp., Company Guaranteed, 11.250% due 5/1/07 1,419,687
1,030,000 B Hollywood Casino Shreveport, 1st Mortgage, 13.000% due 8/1/06 (f) 1,102,100
2,105,000 NR Jazz Casino Co. LLC, Payment-in-Kind, Sr. Sub. Notes,
5.867% due 11/15/09 1,010,400
970,000 Ba3* Sun International Hotels, Sr. Sub. Notes, 8.625% due 12/15/07 914,225
935,000 B- Venetian Casino Resort LLC, Company Guaranteed,
12.250% due 11/15/04(e) 776,050
- --------------------------------------------------------------------------------------------------------------
10,929,644
- --------------------------------------------------------------------------------------------------------------
Chemicals - Major -- 0.5%
Huntsman ICI Chemicals:
3,190,000 B+ Sr. Discount Notes, 10.125% due 7/1/09 (f) 3,237,850
21,275,000 B+ Sr. Sub. Notes, zero coupon to yield 13.067% due 12/31/09 (f) 6,648,437
2,535,000 B+ Terra Industries, Sr. Notes, 10.500% due 6/15/05 2,028,000
- --------------------------------------------------------------------------------------------------------------
11,914,287
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(d) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Chemicals - Specialty -- 0.2%
Lyondell Chemical Co., Sr. Secured Notes:
$ 1,100,000 BB 9.625% due 5/1/07 $ 1,091,750
1,625,000 BB 9.875% due 5/1/07 1,610,781
2,050,000 B ZSC Specialty Chemical PLC,Sr. Notes, 11.000% due 7/1/09 (f) 2,111,500
- --------------------------------------------------------------------------------------------------------------
4,814,031
- --------------------------------------------------------------------------------------------------------------
Coal Mining -- 0.1%
4,790,000 Caa2* AEI Resources Inc., Sr. Sub. Notes, 10.500% due 12/15/05 (f) 3,281,150
- --------------------------------------------------------------------------------------------------------------
Computer Services -- 0.1%
3,440,000 NR Globix Corp., Sr. Notes, 12.500% due 2/1/10 (f) 3,465,800
- --------------------------------------------------------------------------------------------------------------
Construction/AG Equipment/Trucks -- 0.2%
4,595,000 B Columbus McKinnon Corp., Sr. Sub. Notes, 8.500% due 4/1/08 4,043,600
- --------------------------------------------------------------------------------------------------------------
Containers/Packaging -- 1.2%
2,200,000 B BWAY Corp., Sr. Sub. Notes, 10.250% due 4/15/07 2,109,250
3,490,000 B Huntsman Packaging Corp., Sr. Sub. Notes, 9.125% due 10/1/07 3,398,387
9,175,000 B Stone Container Corp., Sr. Notes, 11.500% due 8/15/06 (f) 9,748,438
3,505,000 B- Sweetheart Cup Corp., Inc., Sr. Sub. Notes, 10.500% due 9/1/03(e) 3,356,038
Tekni-Plex Inc., Sr. Sub. Notes:
6,950,000 B- 11.250% due 4/1/07 7,358,312
2,110,000 B- 9.250% due 3/1/08 2,086,263
- --------------------------------------------------------------------------------------------------------------
28,056,688
- --------------------------------------------------------------------------------------------------------------
Contract Drilling -- 0.6%
1,015,000 B+ Parker Drilling Co., Sr. Notes, 9.750% due 11/15/06 974,400
6,145,000 BB Pride International Inc., Sr. Notes, 10.000% due 6/1/09(e) 6,160,363
3,290,000 Ba3* R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06 3,569,650
3,920,000 BB- RBF Finance Co., Sr. Secured Notes, 11.375% due 3/15/09 4,155,200
- --------------------------------------------------------------------------------------------------------------
14,859,613
- --------------------------------------------------------------------------------------------------------------
Discount Stores -- 0.5%
7,870,000 B+ Ames Department Stores Inc., Sr. Notes, 10.000% due 4/15/06(e) 7,397,800
3,695,000 BB+ K-Mart Corp., 12.500% due 3/1/05 4,124,544
- --------------------------------------------------------------------------------------------------------------
11,522,344
- --------------------------------------------------------------------------------------------------------------
Diversified Commercial Services -- 0.1%
1,900,000 B- Intertek Finance PLC, Sr. Sub. Notes, 10.250% due 11/1/06 1,691,000
1,500,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes, 11.000% due 11/1/06 1,430,625
- --------------------------------------------------------------------------------------------------------------
3,121,625
- --------------------------------------------------------------------------------------------------------------
Diversified Financial Services -- 0.2%
Amresco Inc., Sr. Sub. Notes:
3,640,000 CCC- 10.000% due 3/15/04 2,384,200
1,975,000 CCC- 9.875% due 3/15/05 1,293,625
- --------------------------------------------------------------------------------------------------------------
3,677,825
- --------------------------------------------------------------------------------------------------------------
Diversified Manufacture -- 0.3%
2,530,000 B- Blount International Inc., Sr. Sub. Notes, 13.000% due 8/1/09 (e)(f) 2,688,125
4,725,000 B+ Park-Ohio Industries Inc., Sr. Sub. Notes, 9.250% due 12/1/07 4,394,250
- --------------------------------------------------------------------------------------------------------------
7,082,375
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(d) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Drugs - Generic -- 0.2%
$ 4,190,000 BB ICN Pharmaceuticals Inc., Sr. Notes, 9.250% due 8/15/05 $ 4,080,012
- --------------------------------------------------------------------------------------------------------------
Electronic Components -- 0.2%
4,235,000 B+ Celestica International Inc., Sr. Sub. Notes, 10.500% due 12/31/06 4,457,338
- --------------------------------------------------------------------------------------------------------------
Engineering & Construction -- 0.2%
1,270,000 B- American Plumbing & Mechanical, Sr. Sub. Notes, 11.625% due 10/15/08 1,200,150
420,000 B Group Maintenance America Corp., Sr. Sub. Notes, 9.750% due 1/15/09 432,600
2,210,000 BB- Integrated Electrical Services Inc., Sr. Sub. Notes, 9.375% due 2/1/09 (e) 2,151,988
- --------------------------------------------------------------------------------------------------------------
3,784,738
- --------------------------------------------------------------------------------------------------------------
Environmental Services -- 0.6%
11,205,000 B+ Allied Waste Industries Inc., Sr. Sub. Notes, 10.000% due 8/1/09 (e)(f) 9,832,388
430,000 B+ IT Group Inc., Sr. Sub. Notes, 11.250% due 4/1/09 417,100
2,315,000 CCC+ Metal Management Inc., Company Guaranteed, 10.000% due 5/15/08 1,747,825
3,165,000 B+ URS Corp., Sr. Sub. Notes, 12.250% due 5/1/09(e) 3,307,425
- --------------------------------------------------------------------------------------------------------------
15,304,738
- --------------------------------------------------------------------------------------------------------------
Food Distributors -- 0.6%
7,255,000 B- Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08 6,475,088
2,110,000 B- Premier International Foods PLC, Sr. Notes, 12.000% due 9/1/09 (e)(f) 2,112,637
4,745,000 B SC International Services Inc., Sr. Sub. Notes, 9.250% due 9/1/07 4,365,400
- --------------------------------------------------------------------------------------------------------------
12,953,125
- --------------------------------------------------------------------------------------------------------------
Food Specialty/Candy -- 0.4%
5,775,000 B- B&G Foods Inc., Sr. Sub. Notes, 9.625% due 8/1/07 5,053,125
6,550,000 B- Imperial Holly Corp., Sr. Sub. Notes, 9.750% due 12/15/07 4,552,250
- --------------------------------------------------------------------------------------------------------------
9,605,375
- --------------------------------------------------------------------------------------------------------------
Forest Products -- 0.3%
5,555,000 B Ainsworth Lumber Co. Ltd., Sr. Notes, 12.500% due 7/15/07 6,110,500
895,000 B+ Millar Western Forest Products, 9.875% due 5/15/08 888,288
- --------------------------------------------------------------------------------------------------------------
6,998,788
- --------------------------------------------------------------------------------------------------------------
Home Furnishings -- 0.1%
2,635,000 B Falcon Products Inc., Sr. Sub. Notes, 11.375% due 6/15/09(e) 2,476,900
- --------------------------------------------------------------------------------------------------------------
Homebuilding -- 0.2%
5,610,000 BB- U.S. Home Corp., Sr. Sub. Notes, 8.875% due 2/15/09 5,098,088
- --------------------------------------------------------------------------------------------------------------
Hospital/Nursing Management -- 0.3%
7,705,000 B- Magellan Health Services, Inc., Sr. Sub. Notes, 9.000% due 2/15/08 6,260,312
- --------------------------------------------------------------------------------------------------------------
Hotel/Resorts -- 0.3%
2,665,000 B- Courtyard by Marriott, Sr. Secured Notes, 10.750% due 2/1/08 2,585,050
3,715,000 B+ Intrawest Corp., Sr. Notes, 9.750% due 8/15/08 3,566,400
- --------------------------------------------------------------------------------------------------------------
6,151,450
- --------------------------------------------------------------------------------------------------------------
Insurance - Multi-Line -- 0.1%
4,350,000 B Veritas Capital Trust, Company Guaranteed, 10.000% due 1/1/28 3,045,000
- --------------------------------------------------------------------------------------------------------------
Internet Services -- 1.6%
2,095,000 Caa2* Cybernet Internet Services International, Inc., Sr. Notes,
14.000% due 7/1/09 1,770,275
4,510,000 B- Exodus Communications, Inc., Sr. Notes, 10.750% due 12/15/09 (f) 4,543,825
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(d) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Internet Services -- 1.6% (continued)
PSINet Inc., Sr. Notes:
$ 1,065,000 B- 10.500% due 12/1/06 (f) $ 1,078,313
5,765,000 B- 11.500% due 11/1/08 6,053,250
3,955,000 B- 11.000% due 8/1/09 4,083,538
6,975,000 NR Splitrock Services Inc., Sr. Sub. Notes, 11.750% due 7/15/08 7,445,813
Verio Inc.:
3,090,000 B- 10.375% due 4/1/05(e) 3,105,450
3,765,000 B- 11.250% due 12/1/08 3,934,425
3,735,000 B- 10.625% due 11/15/09 (f) 3,875,062
1,635,000 CCC+ WAM! Net Inc., Sr. Discount Notes, step bond to yield
12.827% due 3/1/05 927,862
- --------------------------------------------------------------------------------------------------------------
36,817,813
- --------------------------------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 0.4%
1,290,000 B- AMC Entertainment Inc., Sr. Sub. Notes, 9.500% due 2/1/11(e) 1,038,450
750,000 B- Premier Parks, Inc., Sr. Discount Notes, step bond to yield
10.812% due 4/1/08 502,500
9,025,000 B- SFX Entertainment, Sr. Sub. Notes, 9.125% due 2/1/08 8,415,812
- --------------------------------------------------------------------------------------------------------------
9,956,762
- --------------------------------------------------------------------------------------------------------------
Machinery - Industrial/Components -- 0.1%
- --------------------------------------------------------------------------------------------------------------
2,434,000 B- Alvey Systems Inc., Sr. Sub. Notes, 11.375% due 1/31/03 2,543,530
- --------------------------------------------------------------------------------------------------------------
Medical Specialties -- 0.1%
- --------------------------------------------------------------------------------------------------------------
2,530,000 B- Hanger Orthopedic Group, Sr. Sub. Notes, 11.250% due 6/15/09(e) 2,156,825
- --------------------------------------------------------------------------------------------------------------
Multi-Sector Companies -- 0.2%
- --------------------------------------------------------------------------------------------------------------
5,920,000 B- Triarc Consumer & Beverage, Sr. Sub. Notes, 10.250% due 2/15/09 (f) 5,690,600
- --------------------------------------------------------------------------------------------------------------
Newspapers -- 0.1%
- --------------------------------------------------------------------------------------------------------------
2,800,000 B+ Garden State Newspapers, Sr. Sub. Notes, 8.625% due 7/1/11 2,565,500
- --------------------------------------------------------------------------------------------------------------
Oil & Gas Production -- 0.8%
Belco Oil & Gas Corp., Sr. Sub. Notes:
1,500,000 B1* 10.500% due 4/1/06 1,526,250
2,780,000 B1* 8.875% due 9/15/07 2,634,050
910,000 B Canadian Forest Oil Ltd., Sr. Sub. Notes, 8.750% due 9/15/07 846,300
940,000 B Chesapeake Energy Corp., Company Guaranteed, 9.625% due 5/1/05 883,600
9,500,000 B Clark USA Inc., Sr. Notes, 10.875% due 12/1/05(e) 3,895,000
1,285,000 B Forest Oil Corp., Sr. Sub. Notes, 10.500% due 1/15/06 1,297,850
2,790,000 B+ Nuevo Energy Corp., Sr. Sub. Notes, 9.500% due 6/1/08 2,734,200
2,885,000 B Stone Energy Corp., Sr. Sub. Notes, 8.750% due 9/15/07 2,711,900
1,925,000 B+ Vintage Petroleum, Inc., Sr. Sub. Notes, 9.750% due 6/30/09 1,939,437
- --------------------------------------------------------------------------------------------------------------
18,468,587
- --------------------------------------------------------------------------------------------------------------
Oil/Gas Transmission -- 0.2%
4,645,000 BB- Leviathan Gas Pipeline Partners, LP, Sr. Sub. Notes,
10.375% due 6/1/09 4,807,575
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(d) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Paper -- 0.8%
Doman Industries Ltd., Sr. Notes:
$ 2,775,000 B 8.750% due 3/15/04 $ 2,435,063
630,000 B 9.250% due 11/15/07 511,875
2,155,000 CCC+ Repap New Brunswick, Sr. Secured Notes, 10.625% due 4/15/05 (e) 1,977,212
Riverwood International Corp.:
4,250,000 B- Company Guaranteed, 10.625% due 8/1/07 4,292,500
5,750,000 CCC+ Sr. Sub. Notes, 10.875% due 4/1/08(e) 5,541,562
231,750 NR SD Warren Co., Debentures, Payment-in-Kind, 14.000% due 12/15/06 257,242
4,275,000 BB+ Tembec Finance Corp., Sr. Notes, 9.875% due 9/30/05 4,360,500
- --------------------------------------------------------------------------------------------------------------
19,375,954
- --------------------------------------------------------------------------------------------------------------
Pharmaceuticals - Other -- 0.2%
3,305,000 B King Pharmaceuticals Inc., Sr. Sub. Notes, 10.750% due 2/15/09(e) 3,461,988
- --------------------------------------------------------------------------------------------------------------
Photographic Products -- 0.2%
3,875,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06(e) 3,875,000
- --------------------------------------------------------------------------------------------------------------
Printing Forms -- 0.1%
1,865,000 B Merrill Corp., Sr. Sub. Notes, 12.000% due 5/1/09 (g) 1,818,375
- --------------------------------------------------------------------------------------------------------------
Real Estate -- 0.2%
3,880,000 B+ Intrawest Corp., Sr. Notes, 10.500% due 2/1/10 (f) 3,841,200
- --------------------------------------------------------------------------------------------------------------
Real Estate Investment Trusts -- 0.1%
4,000,000 NR Ocwen Asset Investment, 11.500% due 7/1/05 3,400,000
- --------------------------------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.2%
4,430,000 BB- Avis Rent A Car Inc., Sr. Sub. Notes, 11.000% due 5/1/09 4,596,125
- --------------------------------------------------------------------------------------------------------------
Retail - Food Chains -- 0.1%
1,955,000 B+ Stater Brothers Holdings Inc., Sr. Notes, 10.750% due 8/15/06 1,979,437
- --------------------------------------------------------------------------------------------------------------
Retail - Other Specialty Stores -- 0.0%
875,000 B- Advance Stores Co., Sr. Sub. Notes, 10.250% due 4/15/08 756,875
- --------------------------------------------------------------------------------------------------------------
Savings & Loan Associations -- 0.2%
4,100,000 B2* Ocwen Capital Trust I, Jr. Sub. Notes, 10.875% due 8/1/27(e) 2,603,500
1,655,000 B+ Ocwen Financial Corp., Sr. Notes, 11.875% due 10/1/03(e) 1,522,600
- --------------------------------------------------------------------------------------------------------------
4,126,100
- --------------------------------------------------------------------------------------------------------------
Semiconductors -- 0.3%
7,325,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes, 10.125% due 3/15/07 7,270,063
- --------------------------------------------------------------------------------------------------------------
Steel/Iron Ore -- 0.7%
1,980,000 BB- LTV Corp., Sr. Notes, 11.750% due 11/15/09 (e)(f) 2,029,500
4,605,000 B+ Russel Metals Inc., Sr. Notes, 10.000% due 6/1/09 4,495,631
3,450,000 B+ WCI Steel Inc., Sr. Notes, 10.000% due 12/1/04 3,441,375
5,905,000 B- WHX Corp., Sr. Notes, 10.500% due 4/15/05 5,742,613
- --------------------------------------------------------------------------------------------------------------
15,709,119
- --------------------------------------------------------------------------------------------------------------
Telecommunications - Equipment -- 0.3%
8,505,000 NR World Access, Inc., 13.250% due 1/15/08(e) 7,654,500
- --------------------------------------------------------------------------------------------------------------
Telecommunications - Major -- 0.1%
1,860,000 B2* Omnipoint Corp., Sr. Notes, 11.625% due 8/15/06 1,966,950
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(d) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telecommunications - Other -- 3.5%
Call-Net Enterprises, Inc.:
$ 930,000 B+ Sr. Discount Notes, step bond to yield 12.787% due 8/15/08 $ 471,975
225,000 B+ Sr. Notes, 9.375% due 5/15/09 190,125
Esprit Telecom Group PLC, Sr. Notes:
3,950,000 B- 11.500% due 12/15/07 3,900,625
2,250,000 B- 10.875% due 6/15/08 2,199,375
Focal Communications Corp.:
1,950,000 B Sr. Discount Notes, step bond to yield 12.978% due 2/15/08 1,282,125
1,555,000 B Sr. Notes, 11.875% due 1/15/10 (f) 1,589,988
2,750,000 CCC+ GT Group Telecom, Sr. Discount Notes, step bond to yield
13.250% due 2/1/10 (f) 1,464,375
Hermes Europe Railtel BV, Sr. Notes:
7,250,000 B 11.500% due 8/15/07 7,358,750
1,745,000 B 10.375% due 1/15/09(e) 1,679,562
ICG Communications Inc.:
1,435,000 B- Company Guaranteed, step bond to yield 12.657% due 5/1/06 1,158,763
2,950,000 B- Sr. Discount Notes, step bond to yield 12.951% due 9/15/05 (e) 2,691,875
KMC Telecom Holdings Inc., Sr. Discount Notes:
1,155,000 B- 13.500% due 5/15/09 1,160,775
2,655,000 B- Step bond to yield 15.885% due 2/15/08 1,486,800
14,640,000 B Level 3 Communications, Inc., Sr. Discount Notes,
step bond to yield 11.123% due 12/1/08(e) 8,857,200
Metromedia Fiber Network, Inc., Sr. Notes:
2,140,000 B+ 10.000% due 11/15/08 2,150,700
1,605,000 B+ 10.000% due 12/15/09 1,621,050
NEXTLINK Communications, Inc.:
11,010,000 B Sr. Discount Notes, step bond to yield 12.094% due 6/1/09 6,716,100
5,095,000 B Sr. Discount Notes, step bond to yield 12.125% due 12/1/09 (f) 2,955,100
4,340,000 B Sr. Notes, 12.500% due 4/15/06 4,660,075
4,760,000 B Sr. Notes, 10.750% due 6/1/09(e) 4,819,500
8,405,000 B- Primus Telecom Group, Inc., Sr. Notes, 11.750% due 8/1/04 8,310,444
2,195,000 B- Tele1 Europe B.V., Sr. Notes, 13.000% due 5/15/09(e) 2,293,775
5,935,000 B- Versatel Telecom B.V., Sr. Notes, 13.250% due 5/15/08 6,276,262
Viatel Inc., Sr. Notes:
6,665,000 B- 11.250% due 4/15/08(e) 6,265,100
1,775,000 B- 11.500% due 3/15/09 1,677,375
- --------------------------------------------------------------------------------------------------------------
83,237,794
- --------------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 2.7%
3,080,000 B- Centennial Cellular, Sr. Sub. Notes, 10.750% due 12/15/08(e) 3,218,600
7,920,000 B Crown Castle International Corp., Sr. Discount Notes,
step bond to yield 10.772% due 5/15/11 4,752,000
2,065,000 NR Dobson/Sygnet Communications Corp., Sr. Notes,
12.250% due 12/15/08 2,261,175
2,035,000 CCC+ Dolphin Telecom PLC, Sr. Discount Notes, step bond to yield
11.576% due 6/1/08 946,275
Microcell Telecommunications, Sr. Discount Notes:
1,980,000 B3* Step bond to yield 11.843% due 6/1/06 1,782,000
3,130,000 B- Step bond to yield 11.799% due 6/1/09 2,003,200
5,665,000 B- Millicom International Cellular SA, Sr. Discount Notes,
step bond to yield 13.762% due 6/1/06 4,900,225
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(d) SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Telephone - Cellular -- 2.7% (continued)
Nextel Communications, Sr. Discount Notes:
$ 6,820,000 B1* Step bond to yield 10.779% due 9/15/07(e) $ 5,115,000
8,745,000 B1* Step bond to yield 10.759% due 2/15/08 6,099,637
6,885,000 NR Spectrasite Holdings Inc., Sr. Discount Notes, step bond to yield
11.118% due 4/15/09 4,001,906
Telesystem International Wireless, Sr. Discount Notes:
8,560,000 CCC+ Step bond to yield 12.377% due 6/30/07 2,249,600
7,180,000 CCC+ Step bond to yield 12.010% due 11/1/07 3,805,400
6,915,000 B3* Triton PCS Inc., Sr. Sub. Discount Notes, step bond to yield
11.399% due 5/1/08(e) 4,935,581
VoiceStream Wireless Corp.:
2,660,000 B2* Sr. Discount Notes, step bond to yield 11.875% due 11/15/09 (e)(f) 1,622,600
5,735,000 B2* Sr. Notes, 10.375% due 11/15/09 (f) 5,907,050
- --------------------------------------------------------------------------------------------------------------
63,600,249
- --------------------------------------------------------------------------------------------------------------
Transportation - Marine -- 0.1%
2,760,000 B- Oglebay Norton Co., Sr. Sub. Notes, 10.000% due 2/1/09 2,601,300
555,000 BB- Sea Containers Ltd., Sr. Sub. Debentures, Series A,
12.500% due 12/1/04(e) 571,650
- --------------------------------------------------------------------------------------------------------------
3,172,950
- --------------------------------------------------------------------------------------------------------------
Unregulated Power Generation -- 0.7%
AES Corp.:
1,400,000 Ba1* Sr. Notes, 9.500% due 6/1/09(e) 1,396,500
6,225,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06(e) 6,271,688
7,775,000 BB+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06(e) 8,163,750
- --------------------------------------------------------------------------------------------------------------
15,831,938
- --------------------------------------------------------------------------------------------------------------
Wholesale Distributors -- 0.2%
1,875,000 B Buhrman U.S. Inc., Sr. Sub. Notes, 12.250% due 11/1/09 (f) 1,912,500
3,910,000 B- Fisher Scientific International Inc., Sr. Sub. Notes, 9.000% due 2/1/08 3,665,625
- --------------------------------------------------------------------------------------------------------------
5,578,125
- --------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $686,497,306) 652,129,603
- --------------------------------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE BONDS AND NOTES -- 0.0%
Oil/Natural Gas -- 0.0%
500,000 B- Parker Drilling Co., 5.500% due 8/1/04
(Cost -- $364,385) 370,625
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK -- 0.1%
Hospital/Nursing Management -- 0.1%
2,995,000 Fresenius Medical Care Preferred Capital Trust, 9.000% 2,845,250
- --------------------------------------------------------------------------------------------------------------
Telephone -- 0.0%
72 Intermedia Communications, Payment-in-Kind, Series B, 13.500% 72,360
- --------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost -- $3,029,752) 2,917,610
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 0.0% (h)
Telecommunications Equipment -- 0.0%
19,250 Pagemart Nationwide Inc. $ 365,750
26,723 World Access, Inc. 460,972
- --------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $472,486) 826,722
- --------------------------------------------------------------------------------------------------------------
WARRANTS -- 0.3% (h)
Broadcasting -- 0.0%
6,775 Australis Media, Expire 10/30/01 (f) 1
12,325 UIH Australia, Expire 5/15/06 369,749
- --------------------------------------------------------------------------------------------------------------
369,750
- --------------------------------------------------------------------------------------------------------------
Cable Television -- 0.0%
6,000 Wireless One Inc., Expire 10/19/00 1,500
- --------------------------------------------------------------------------------------------------------------
Internet Services -- 0.1%
2,095 Cybernet Internet Services, Expire 7/1/09 (f) 177,028
6,975 Splitrock Services, Expire 7/15/08 1,325,250
12,450 WAM! Net Inc., Expire 3/1/05 144,731
- --------------------------------------------------------------------------------------------------------------
1,647,009
- --------------------------------------------------------------------------------------------------------------
Paper -- 0.0%
8,500 SD Warren Co., Expire 12/15/06 149,600
- --------------------------------------------------------------------------------------------------------------
Telecommunications -- 0.2%
42,090 Pagemart Nationwide Inc., Expire 12/31/03 631,350
7,800 RSL Communications Ltd., Expire 11/15/06 312,000
2,195 Tele1 Europe BV, Expire 5/15/09 (f) 428,025
5,935 Versatel Telecom, Expire 5/15/08 (f) 2,537,212
- --------------------------------------------------------------------------------------------------------------
3,908,587
- --------------------------------------------------------------------------------------------------------------
Telephone - Cellular -- 0.0%
5,000 Iridium World Communications, Expire 7/15/05 (f) 50
- --------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost -- $41,501) 6,076,496
- --------------------------------------------------------------------------------------------------------------
TOTAL HIGH YIELD SECTOR
(Cost -- $690,405,430) 662,321,056
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
FACE
AMOUNT+ SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INTERNATIONAL SECTOR -- 17.1%
BONDS -- 17.1%
Denmark -- 4.3%
500,000,000 Denmark, 4.000% due 3/15/02 64,502,603
NYKREDIT:
169,297,000 6.000% due 10/1/19 21,252,253
126,244,000 7.000% due 10/1/29 16,237,678
- --------------------------------------------------------------------------------------------------------------
101,992,534
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT+ SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Europe -- 4.8%
90,000,000EUR Buoni Poliennali Del Tes, 3.250% due 4/15/04 $ 81,636,467
2,550,000EUR Dolphin Telecom PLC, step bond to yield 11.500% due 6/1/08 1,172,609
1,250,000EUR ESAT Telecom Group PLC, 11.875% due 11/1/09 1,543,303
10,000,000EUR Export - Import Japan, 4.625% due 7/23/03 9,615,686
9,000,000EUR Republic of Italy, 6.000% due 4/2/04 9,038,481
10,000,000EUR Republic of Portugal, 6.000% due 2/16/04 10,031,994
- --------------------------------------------------------------------------------------------------------------
113,038,540
- --------------------------------------------------------------------------------------------------------------
Germany -- 3.6%
Bundesobligation:
15,000,000EUR 3.500% due 11/11/03(e) 13,959,769
25,000,000EUR 3.250% due 2/17/04 22,923,842
45,000,000EUR 4.125% due 8/27/04 42,376,820
4,000,000 Esprit Telecom, Sr. Notes, 11.500% due 12/15/07 1,950,879
5,250,000 Texon International PLC, Sr. Notes, 10.000% due 2/1/08(e) 2,311,039
- --------------------------------------------------------------------------------------------------------------
83,522,349
- --------------------------------------------------------------------------------------------------------------
Ireland -- 0.2%
4,000,000EUR Helaba Dublin, 2.950% due 2/4/00 3,913,426
- --------------------------------------------------------------------------------------------------------------
Netherlands -- 0.2%
5,180,000EUR Kappa Beheer BV, Sr. Sub. Notes, 10.625% due 7/15/09 (e)(f) 5,334,171
- --------------------------------------------------------------------------------------------------------------
United Kingdom -- 3.8%
2,925,000EUR BSN Financing Co., S.A., Company Guaranteed, 10.250% due 8/1/09 (f) 2,969,129
2,375,000 Diamond Holdings PLC, Company Guaranteed, 10.000% due 2/1/08 (e) 3,772,652
8,000,000 European Investment Bank, 8.000% due 6/10/03 13,272,603
2,075,000EUR Head Holdings GMBH, Sr. Notes, 10.750% due 7/15/06 (f) 2,116,456
International Bank Reconstruction & Development:
5,500,000 6.500% due 1/7/03 8,777,676
5,000,000 Zero coupon bond to yield 6.313% due 7/17/00 7,873,942
500,000 NTL Inc., Sr. Sub. Notes, 9.500% due 4/1/08 786,138
3,575,000 Polestar Corp. PLC, Sr. Notes, 10.500% due 5/30/08(e) 5,562,939
27,500,000 U.K. Treasury, 6.500% due 12/7/03 44,641,699
- --------------------------------------------------------------------------------------------------------------
89,773,234
- --------------------------------------------------------------------------------------------------------------
United States -- 0.2%
3,500,000EUR Exodus Communications Inc., Sr. Notes, 10.750% due 12/15/09 (f) 3,509,999
1,675,000EUR PSINet Inc., 11.000% due 8/1/09 (f) 1,687,978
2,000,000 United Mexican States - Value Recovery Rights, Expire 6/30/03 1
- --------------------------------------------------------------------------------------------------------------
5,197,978
- --------------------------------------------------------------------------------------------------------------
TOTAL BONDS
(Cost -- $443,143,132) 402,772,232
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
18 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
WARRANTS -- 0.0% (h)
Europe -- 0.0%
2,100 Tele1 Europe BV, Expire 5/15/09 (f)
(Cost -- $0) $ 400,653
- --------------------------------------------------------------------------------------------------------------
TOTAL INTERNATIONAL SECTOR
(Cost -- $443,143,132) 403,172,885
- --------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $2,467,117,994**) $2,359,274,032
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Security is segregated for open forward foreign currency contracts.
(b) Security is segregated for TBA purchases.
(c) Security is traded on a "to be announced" basis (See Note 9).
(d) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) which are rated by Moody's Investors Service,
Inc.
(e) All or a portion of this security is on loan (See Note 10).
(f) 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.
(g) Security issued with attached warrants. (h) Non-income producing security.
+ Face amount represents local currency, unless otherwise indicated.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency abbreviations used in this schedule:
---------------------------------------------
EUR -- Euro
See page 20 for definition of ratings.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") letter ratings may be
modified by the addition of a plus (+) or minus (-) sign, which is used to show
relative standing within the major rating categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for bonds in this
category than for bonds in higher rated categories.
BB, B, CCC, -- Bonds rated "BB", "B", "CCC", "CC" and "C" are regarded, on
CC and C balance, as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the
lowest degree of speculation and "C" the highest degree of
speculation. While such bonds will likely have some quality and
protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") applies the numerical modifiers 1,
2, and 3 in each generic rating classification from "Baa" through "Caa". The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic category.
Baa -- Bonds rated "Baa" are considered to be medium grade obligations;
that is they are neither highly protected nor poorly secured.
Interest payment and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time.
These bonds lack outstanding investment characteristics and may
have speculative characteristics as well.
Ba -- Bonds that are rated "Ba" are judged to have speculative
elements; their future cannot be considered as well assured.
Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good
and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B -- Bonds that are rated "B" generally lack characteristics of
desirable investments. Assurance of interest and principal
payment or of maintenance of other terms of the contract over
any long period of time may be small.
Caa -- Bonds that are rated "Caa" are of poor standing. Such issues may
be in default, or present elements of danger may exist with
respect to principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
- --------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Assets and Liabilities (unaudited) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $2,467,117,994) $2,359,274,032
Cash 3,103,845
Foreign currency, at value (Cost -- $35,754,650) 18,397,543
Collateral for securities on loan (Note 10) 102,743,125
Dividends and interest receivable 33,367,018
Receivable for open forward currency contracts 10,626,795
Receivable for securities sold 5,641,561
Receivable for Fund shares sold 1,427,540
- ------------------------------------------------------------------------------------------------------------------------------------
Total Assets 2,534,581,459
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 125,347,903
Payable for securities on loan (Note 10) 102,743,125
Investment advisory fees payable 894,300
Distribution fees payable 506,398
Administration fees payable 397,467
Payable for open forward foreign currency contracts 362,878
Payable for Fund shares purchased 225,991
Accrued expenses 612,520
- ------------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 231,090,582
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $2,303,490,877
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 317,680
Capital paid in excess of par value 2,537,082,107
Undistributed net investment income 10,509,704
Accumulated net realized loss from security transactions, futures contracts and foreign currencies (129,062,460)
Net unrealized depreciation of investments and foreign currencies (115,356,154)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Net Assets $2,303,490,877
- ------------------------------------------------------------------------------------------------------------------------------------
Shares Outstanding:
Class A 67,911,752
---------------------------------------------------------------------------------------------------------------------------------
Class B 199,643,420
---------------------------------------------------------------------------------------------------------------------------------
Class L 23,588,772
---------------------------------------------------------------------------------------------------------------------------------
Class Y 22,814,085
---------------------------------------------------------------------------------------------------------------------------------
Class Z 3,721,912
---------------------------------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 7.24
---------------------------------------------------------------------------------------------------------------------------------
Class B * $ 7.26
---------------------------------------------------------------------------------------------------------------------------------
Class L ** $ 7.25
---------------------------------------------------------------------------------------------------------------------------------
Class Y (and redemption price) $ 7.24
---------------------------------------------------------------------------------------------------------------------------------
Class Z (and redemption price) $ 7.25
---------------------------------------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $ 7.58
---------------------------------------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 7.32
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 99,090,454
Dividends 596,725
Less: Foreign withholding tax (24,306)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Investment Income 99,662,873
- ------------------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 7,515,002
Investment advisory fees (Note 2) 5,717,494
Administration fees (Note 2) 2,541,109
Shareholder and system servicing fees 793,510
Custody 217,871
Shareholder communications 83,250
Registration fees 50,546
Audit and legal fees 26,111
Pricing 15,164
Trustees' fees 9,650
Other 9,514
- ------------------------------------------------------------------------------------------------------------------------------------
Total Expenses 16,979,221
- ------------------------------------------------------------------------------------------------------------------------------------
Net Investment Income 82,683,652
- ------------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS,
FUTURES CONTRACTS AND FOREIGN CURRENCIES (NOTES 3, 4 AND 6):
Realized Loss From:
Security transactions (excluding short-term securities) (45,092,227)
Futures contracts (436,594)
Foreign currency transactions 10,447,663
- ------------------------------------------------------------------------------------------------------------------------------------
Net Realized Loss (35,081,158)
- ------------------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (74,167,739)
End of period (115,356,154)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (41,188,415)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Loss on Investments, Futures Contracts and Foreign Currencies (76,269,573)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in Assets From Operations $ 6,414,079
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
22 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended January 31, 2000 (unaudited)
and the Year Ended July 31, 1999
<TABLE>
<CAPTION>
2000 1999
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 82,683,652 $ 174,927,659
Net realized loss (35,081,158) (71,703,606)
Increase in net unrealized depreciation (41,188,415) (96,070,540)
- ----------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 6,414,079 7,153,513
- ----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (81,725,119) (173,885,347)
Net realized gains -- (2,720,960)
Capital -- (12,759,570)
- ----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (81,725,119) (189,365,877)
- ----------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 730,586,922 1,035,956,865
Net asset value of shares issued for reinvestment of dividends 42,110,343 98,091,915
Cost of shares reacquired (1,083,686,335) (1,221,161,067)
- ----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (310,989,070) (87,112,287)
- ----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (386,300,110) (269,324,651)
NET ASSETS:
Beginning of period 2,689,790,987 2,959,115,638
- ----------------------------------------------------------------------------------------------------------------
End of period* $2,303,490,877 $2,689,790,987
- ----------------------------------------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net investment income of: $ 10,509,704 $ (896,492)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 23
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Diversified Strategic Income Fund ("Fund"), a separate
investment fund of the Smith Barney Income Funds ("Trust"), a Massachusetts
business trust, is registered under the Investment Company Act of 1940, as
amended, as a diversified, open-end management investment company. The Trust
consists of 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 Premium Total Return
Fund, Smith Barney Balanced Fund and Smith Barney Total Return Bond Fund. The
financial statements and financial highlights for the other funds are presented
in separate shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded in
national securities markets are valued at the closing prices in the primary
exchange on which they are traded; securities listed or traded on certain
foreign exchanges or other markets whose operations are similar to the U.S.
over-the-counter market (including securities listed on exchanges where the
primary market is believed to be over-the-counter) and securities for which no
sales were reported on that date are valued at the mean between the bid and ask
prices. Securities which are listed or traded on more than one exchange or
market are valued at the quotations on the exchange or market determined to be
the primary market for such securities; (c) securities maturing within 60 days
are valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) dividend income is recorded on ex-dividend date; foreign
dividends are 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; (e) interest income, adjusted for accretion of
original issue discount, is recorded on an accrual basis; (f) gains or losses on
the sale of securities are calculated by using the specific identification
method; (g) dividends and distributions to shareholders are recorded on the ex-
dividend date; (h) 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 or 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; (j)
the Fund intends to comply with the applicable provisions of the Internal
Revenue Code of 1986, as amended, pertaining to regulated investment companies
and to make distributions of taxable income sufficient to relieve it from
substantially all Federal income and excise taxes; (k) the character of income
and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
July 31, 1999, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this adjustment; 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.
- --------------------------------------------------------------------------------
24 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
In addition, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked to market daily,
by recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Trust. The Fund pays SSBC, an investment advisory fee calculated
at an annual rate of 0.45% of the average daily net assets. The Fund has also
entered into a sub-advisory agreement with Smith Barney Global Capital
Management Inc. ("Global Capital Management"), a subsidiary of SSBH. From its
fee, SSBC pays Global Capital Management a sub-advisory fee calculated at an
annual rate of 0.10% of the Fund's average daily net assets. These fees are
calculated daily and paid monthly.
SSBC also acts as the Trust'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.
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Trust's transfer agent and PFPC
Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to account size
and type of account. PFPC is responsible for shareholder recordkeeping and
financial processing for all shareholder accounts. During the period October 1,
1999 through January 31, 2000, the Fund paid transfer agent fees of $475,557 to
Private Trust.
CFBDS, Inc. acts as the Fund's distributor. Salomon Smith Barney Inc. ("SSB"),
another subsidiary of SSBH, as well as certain other broker-dealers, continues
to sell Fund shares to the public as members of the selling group.
For the six months ended January 31, 2000, SSB and CFBDS received sales charges
of approximately $254,000 and $358,000 on sales of the Fund's Class A and L
shares, respectively.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B shares,
which applies if redemption occurs within one year from initial purchase. This
CDSC declines by 0.50% the first year after purchase and thereafter by 1.00% per
year until no CDSC is incurred. Class L shares also have a 1.00% CDSC, which
applies if redemption occurs within the first year of purchase. In certain
cases, Class A shares also have a 1.00% CDSC, which applies if redemption occurs
within the first year of purchase. This CDSC only applies to those purchases of
Class A shares, which when combined with current holdings of Class A shares,
equal or exceed $500,000 in the aggregate. These purchases do not incur an
initial sales charge.
In addition, CDSCs paid to SSB for the six months ended January 31, 2000 were:
Class A Class B Class L
================================================================================
CDSCs $12,000 $1,485,000 $34,000
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets for each respective class. The Fund also pays a distribution
fee with respect to Class B and
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 25
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
L shares calculated at the annual rates of 0.50% and 0.45% of the average daily
net assets of each class, respectively. For the six months ended January 31,
2000, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $618,028 $6,275,271 $621,703
================================================================================
All officers and one Trustee of the Trust are employees of SSB.
3. Investments
During the six months ended January 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $1,250,240,040
- --------------------------------------------------------------------------------
Sales 1,832,851,321
================================================================================
At January 31, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 21,587,669
Gross unrealized depreciation (129,431,631)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(107,843,962)
================================================================================
4. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contracts. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking-to-market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transactions and the Fund's basis in the contract. The Fund enters into such
contracts to hedge a portion of its portfolio. The Fund bears the market risk
that arises from changes in the value of the financial instruments and
securities indices (futures contracts) and the credit risk should a counterparty
fail to perform under such contracts.
At January 31, 2000, the Fund had no open futures contracts.
5. Fund Concentration
The Fund's investment in foreign securities may involve risks not present in
domestic investments. Since securities may be denominated in a foreign currency
and may require settlement in foreign currencies and pay interest and or
dividends in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of the
investments and earnings of the Fund. Foreign investments may also subject the
Fund to foreign government exchange restrictions, expropriation, taxation or
other political, social or economic developments, all of which could affect the
market and/or credit risk of the investments.
- --------------------------------------------------------------------------------
26 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
6. Forward Foreign Currency Contracts
At January 31, 2000, the Fund had the following open forward foreign currency
contracts:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
======================================================================================================
<S> <C> <C> <C> <C>
To Sell:
British Pound 46,890,000 $ 76,001,160 2/23/00 $ 824,589
British Pound 6,319,000 10,214,671 6/22/00 (23,262)
Danish Krone 890,000,000 117,167,161 2/23/00 4,268,232
Euro 2,163,656 2,117,208 2/2/00 (3,316)
Euro 124,490,380 121,995,432 2/23/00 4,114,568
Euro 2,866,650 2,809,339 6/15/00 189,391
Euro 1,705,657 1,671,557 6/15/00 86,975
Euro 2,000,000 1,960,016 6/15/00 69,844
Euro 24,478,575 23,989,195 6/15/00 981,399
Euro 1,515,000 1,484,712 6/15/00 91,797
- ------------------------------------------------------------------------------------------------------
10,600,217
- ------------------------------------------------------------------------------------------------------
To Buy:
Euro 1,239,000 1,214,230 6/15/00 (49,798)
Euro 1,321,875 1,295,448 6/15/00 (56,368)
Euro 1,262,500 1,237,260 6/15/00 (54,151)
Euro 1,010,000 989,808 6/15/00 (63,218)
Euro 573,330 561,868 6/15/00 (23,043)
Euro 1,318,659 1,292,296 6/15/00 (53,000)
Euro 573,330 561,868 6/15/00 (23,043)
Euro 2,106,988 2,064,865 6/15/00 (13,679)
- ------------------------------------------------------------------------------------------------------
(336,300)
- ------------------------------------------------------------------------------------------------------
Total Unrealized Gain on Open
Forward Currency Contracts $10,263,917
======================================================================================================
</TABLE>
7. 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.
8. Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreement transactions for leveraging
purposes. A reverse repurchase agreement involves a sale by the Fund of
securities that it holds with an agreement by the Fund to repurchase the same
securities at an agreed upon price and date. A reverse repurchase agreement
involves the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities. The Fund will establish a
segregated account with its custodian, in which the Fund will maintain cash,
U.S. government securities or other liquid high grade debt obligations equal in
value to its obligations with respect to reverse repurchase agreements.
During the six months ended January 31, 2000, the Fund did not have any reverse
repurchase agreements.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 27
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
9. Securities Traded on a To-Be-Announced Basis
The Fund may trade securities on a "to-be-announced" ("TBA") basis. In a TBA
transaction, the Fund commits to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly the
face amount and maturity date in FNMA/GNMA transactions. Securities purchased on
a TBA basis are not settled until they are delivered to the Fund, normally 15 to
45 days later. These transactions are subject to market fluctuations and their
current value is determined in the same manner as for other securities.
At January 31, 2000, the Fund held one TBA security with a total cost of
$119,900,009.
10. 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 January 31, 2000, the Fund loaned common stocks having a value of $97,687,921
and holds the following collateral for loaned securities:
Security Description Value
================================================================================
Time Deposits:
Banque Bruxelles Lambert London, 5.880% due 2/1/00 $ 4,744,893
Canadian Imperial Bank G.C., 5.880% due 2/1/00 4,744,893
Credit Agricole Indosuez G.C., 5.880% due 2/1/00 4,744,892
Norwest Bank Grand Cayman, 5.880% due 2/1/00 4,744,892
Sun Trust Bank Atlanta, 5.880% due 2/1/00 4,744,892
Repurchase Agreements:
Bear Stearns, 5.840% due 2/1/00 16,607,123
CS First Boston, 5.820% due 2/1/00 16,386,859
J.P. Morgan Securities, 5.870% due 2/1/00 20,640,281
Morgan Stanley Dean Witter & Co., 5.810% due 2/1/00 20,640,281
Commercial Paper:
Market Street Funding, 5.870% due 2/1/00 4,744,119
- --------------------------------------------------------------------------------
Total $102,743,125
================================================================================
Income earned by the Fund from securities loaned for the six months ended
January 31, 2000 was $88,013.
- --------------------------------------------------------------------------------
28 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
11. Shares of Beneficial Interest
At January 31, 2000, 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, including those specifically related to the distribution of its
shares.
At January 31, 2000, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y Class Z
=========================================================================================================
<S> <C> <C> <C> <C> <C>
Total Paid-in Capital $525,678,064 $1,619,823,044 $184,482,669 $177,968,004 $29,448,006
=========================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 2000 July 31, 1999
---------------------------------- ----------------------------------
Shares Amount Shares Amount
====================================================================================================================================
Class A
<S> <C> <C> <C> <C>
Shares sold 46,837,397 $ 345,660,652 49,423,427 $ 382,503,137
Shares issued on reinvestment 1,280,528 9,421,273 2,130,596 16,483,850
Shares reacquired (42,476,561) (313,466,282) (39,196,000) (302,969,796)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 5,641,364 $ 41,615,643 12,358,023 $ 96,017,191
====================================================================================================================================
Class B
Shares sold 6,985,203 $ 51,715,458 35,214,847 $ 275,802,675
Shares issued on reinvestment 3,782,840 27,936,510 9,329,090 72,489,124
Shares reacquired (58,221,685) (430,544,033) (83,241,196) (648,668,655)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Decrease (47,453,642) $(350,892,065) (38,697,259) $(300,376,856)
====================================================================================================================================
Class L
Shares sold 43,719,948 $ 323,095,616 40,377,358 $ 314,105,808
Shares issued on reinvestment 504,768 3,721,685 927,846 7,187,211
Shares reacquired (45,214,747) (334,201,242) (33,732,218) (261,860,475)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (990,031) $ (7,383,941) 7,572,986 $ 59,432,544
====================================================================================================================================
Class Y
Shares sold 1,184,935 $ 8,765,317 6,217,160 $ 48,511,994
Shares issued on reinvestment 1,448 10,661 2,732 21,163
Shares reacquired (166,643) (1,224,630) (82,339) (635,345)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase 1,019,740 $ 7,551,348 6,137,553 $ 47,897,812
====================================================================================================================================
Class Z
Shares sold 182,827 $ 1,349,879 1,914,307 $ 15,033,251
Shares issued on reinvestment 138,449 1,020,214 246,824 1,910,567
Shares reacquired (575,683) (4,250,148) (906,344) (7,026,796)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (254,407) $ (1,880,055) 1,254,787 $ 9,917,022
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 29
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.46 $ 7.96 $ 8.01 $ 7.82 $ 7.85 $ 7.76
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(3) 0.27 0.50 0.53 0.62 0.61 0.94
Net realized and unrealized gain (loss) (0.23) (0.46) 0.05 0.24 0.03 (0.18)
- ------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.04 0.04 0.58 0.86 0.64 0.76
- ------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.26) (0.49) (0.58) (0.67) (0.62) (0.48)
Net realized gains -- (0.01) (0.05) -- -- --
Capital -- (0.04) -- -- (0.05) (0.19)
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.26) (0.54) (0.63) (0.67) (0.67) (0.67)
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 7.24 $ 7.46 $ 7.96 $ 8.01 $ 7.82 $ 7.85
- ------------------------------------------------------------------------------------------------------------------------------
Total Return 0.46%++ 0.41% 7.47% 11.36% 8.39% 10.35%
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $491,377 $464,652 $397,127 $267,272 $202,700 $177,336
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 7.16%+ 6.38% 6.51% 7.75% 7.85% 8.15%
Interest expense -- -- 0.06 0.06 0.01 --
Other expenses(3) 1.03+ 1.02 1.01 1.03 1.04 1.09
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 52% 150% 128% 85% 90% 83%
==============================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) The manager waived part of its fees for the year ended July 31, 1995. If
such fees were not waived, the per share effect on net investment income
and the expense ratio would have been $0.01 and 1.14%, respectively.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
30 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995
==============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.48 $ 7.98 $ 8.03 $ 7.83 $ 7.86 $ 7.76
- ------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(3) 0.23 0.46 0.49 0.59 0.58 0.70
Net realized and unrealized gain (loss) (0.21) (0.46) 0.05 0.23 0.01 0.02
- ------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.02 0.00 0.54 0.82 0.59 0.72
- ------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.24) (0.46) (0.54) (0.62) (0.57) (0.44)
Net realized gains -- (0.01) (0.05) -- -- --
Capital -- (0.03) -- -- (0.05) (0.18)
- ------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.24) (0.50) (0.59) (0.62) (0.62) (0.62)
- ------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 7.26 $ 7.48 $ 7.98 $ 8.03 $ 7.83 $ 7.86
- ------------------------------------------------------------------------------------------------------------------------------
Total Return 0.22%++ (0.06)% 6.93% 10.89% 7.80% 10.00%
- ------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 1,449 $ 1,849 $ 2,280 $2,440 $2,380 $2,367
- ------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 6.28%+ 5.88% 6.12% 7.34% 7.36% 6.82%
Interest expense -- -- 0.06 0.06 0.01 --
Other expenses(3) 1.51+ 1.49 1.50 1.51 1.52 1.56
- ------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 52% 150% 128% 85% 90% 83%
==============================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) The manager waived part of its fees for the year ended July 31, 1995. If
such fees were not waived, the per share effect on net investment income
and the expense ratio would have been $0.00* and 1.61%, respectively.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Diversified Strategic Income Fund 31
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 2000(1)(2) 1999(2) 1998(2)(3) 1997 1996 1995(4)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.48 $ 7.97 $ 8.01 $ 7.81 $ 7.84 $ 7.76
- --------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(5) 0.24 0.47 0.49 0.58 0.52 1.16
Net realized and unrealized gain (loss) (0.23) (0.46) 0.06 0.24 0.07 (0.46)
- --------------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.01 0.01 0.55 0.82 0.59 0.70
- --------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.24) (0.46) (0.54) (0.62) (0.57) (0.44)
Net realized gains -- (0.01) (0.05) -- -- --
Capital -- (0.03) -- -- (0.05) (0.18)
Total Distributions (0.24) (0.50) (0.59) (0.62) (0.62) (0.62)
- --------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 7.25 $ 7.48 $ 7.97 $ 8.01 $ 7.81 $ 7.84
- --------------------------------------------------------------------------------------------------------------------------------
Total Return 0.08%++ 0.08% 7.08% 10.92% 7.82% 9.73%
- --------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $171,014 $183,740 $135,485 $83,543 $42,222 $12,730
- --------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 6.61%+ 6.01% 6.09% 7.19% 7.61% 10.23%
Interest expense -- -- 0.06 0.06 0.01 --
Other expenses(5) 1.47+ 1.45 1.45 1.46 1.47 1.46
- --------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 52% 150% 128% 85% 90% 83%
================================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) On November 7, 1994, the former Class D shares were renamed Class C shares.
(5) The manager waived part of its fees for the year ended July 31, 1995. If
such fees were not waived, the per share effect on net investment income
and the expense ratios would have been $0.00* and 1.51%, respectively.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
32 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class Y Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996(3)
=========================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.46 $ 7.96 $ 8.00 $ 7.82 $ 7.89
- -------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.28 0.53 0.55 0.64 0.50
Net realized and unrealized gain (loss) (0.23) (0.47) 0.06 0.24 0.01
- -------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.05 0.06 0.61 0.88 0.51
- -------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.27) (0.51) (0.60) (0.70) (0.53)
Net realized gains -- (0.01) (0.05) -- --
Capital -- (0.04) -- -- (0.05)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.56) (0.65) (0.70) (0.58)
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 7.24 $ 7.46 $ 7.96 $ 8.00 $ 7.82
- -------------------------------------------------------------------------------------------------------------------------
Total Return 0.62%++ 0.72% 7.96% 11.64% 6.65%++
- -------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $165,151 $162,674 $124,559 $80,479 $ 26,940
- -------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 7.53%+ 6.76% 6.88% 7.84% 8.54%+
Interest expense -- -- 0.06 0.06 0.01
Other expenses 0.69+ 0.67 0.66 0.70 0.69+
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 52% 150% 128% 85% 90%
=========================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from October 10, 1995 (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 Diversified Strategic Income Fund 33
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class Z Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995(3)
===========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 7.47 $ 7.96 $ 8.01 $ 7.82 $ 7.85 $ 7.76
- ---------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(4) 0.27 0.53 0.55 0.65 0.64 0.84
Net realized and unrealized gain (loss) (0.22) (0.46) 0.05 0.23 0.02 (0.06)
- ---------------------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.05 0.07 0.60 0.88 0.66 0.78
- ---------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.27) (0.51) (0.60) (0.69) (0.63) (0.49)
Net realized gains -- (0.01) (0.05) -- -- --
Capital -- (0.04) -- -- (0.06) (0.20)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.56) (0.65) (0.69) (0.69) (0.69)
- ---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 7.25 $ 7.47 $ 7.96 $ 8.01 $ 7.82 $ 7.85
- ---------------------------------------------------------------------------------------------------------------------------
Total Return 0.63%++ 0.84% 7.78% 11.69% 8.72% 10.94%
- ---------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 26,972 $29,710 $21,670 $20,397 $16,270 $14,361
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 7.33%+ 6.80% 6.85% 8.08% 8.19% 8.30%
Interest expense -- -- 0.06 0.06 0.01 --
Expenses(4) 0.69+ 0.67 0.74 0.69 0.70 0.75
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 52% 150% 128% 85% 90% 83%
===========================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On November 7, 1994, the former Class C shares were renamed Class Z shares.
(4) The manager waived part of its fees for the year ended July 31, 1995. If
such fees were not waived, the per share decrease in net investment income
and the actual expense ratios would have been $0.00* and 0.80%,
respectively.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
34 2000 Semi-Annual Report to Shareholders
<PAGE>
(This page intentionally left blank.)
<PAGE>
(This page intentionally left blank.)
<PAGE>
Smith Barney
Diversified Strategic
Income Fund
Trustees
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald Foley
Richard E. Hanson, Jr.
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
John C. Bianchi
Vice President and Investment Officer
James E. Conroy
Vice President and Investment Officer
Simon Hildreth
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
The Chase Manhattan Bank
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Transfer Agent
PFPCGlobal Fund Services P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of shareholders of Smith
Barney Diversified Strategic Income Fund, but it may also be used as sales
literature when proceeded or accompanied by the current Prospectus, which gives
details about charges, expenses, investment objectives and operating policies of
the Fund. If used as sales material after March 31, 2000, this report must be
accompanied by performance information for the most recently completed calendar
quarter.
[LOGO OF SALOMON SMITH BARNEY]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney Diversified
Strategic Income Fund
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD2174 3/00
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
SMITH BARNEY
HIGH INCOME
Fund
STYLE PURE SERIES
SEMI-ANNUAL REPORT
JANUARY 31,2000
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Smith Barney
High Income Fund
Smith Barney High Income Fund ("Fund") seeks) high current income by investing
in high-yielding corporate bonds, debentures and notes denominated in U.S.
dollars or foreign currencies.
Smith Barney High Income Fund
Average Annual Total Returns
January 31, 2000
Without Sales Charges(1)
------------------------------------
Class A Class B Class L
================================================================================
Six Months+ 1.81% 1.55% 1.68%
- --------------------------------------------------------------------------------
One-Year 1.14 0.62 0.80
- --------------------------------------------------------------------------------
Five-Year 9.02 8.49 8.58
- --------------------------------------------------------------------------------
Ten-Year N/A 9.31 N/A
- --------------------------------------------------------------------------------
Since Inception++ 8.61 8.02 7.83
================================================================================
Without Sales Charges(2)
------------------------------------
Class A Class B Class L
================================================================================
Six Months+ (2.81)% (2.82) (0.26)%
- --------------------------------------------------------------------------------
One-Year (3.40) (3.52) (1.12)
- --------------------------------------------------------------------------------
Five-Year 8.02 8.35 8.36
- --------------------------------------------------------------------------------
Ten-Year N/A 9.31 N/A
- --------------------------------------------------------------------------------
Since Inception++ 7.92 8.02 7.63
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 4.50% and 1.00%,
respectively. Class B shares reflect the deduction of a 4.50% CDSC, which
applies if shares are redeemed within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per
year until no CDSC is incurred. Class L shares also reflect the deduction
of a 1.00% CDSC, which applies if shares are redeemed within the first year
of purchase.
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 and L shares are November 6, 1992, September
2, 1986 and August 24, 1994, respectively.
- --------------------------------------------------------------------------------
FUND HIGHLIGHT
- --------------------------------------------------------------------------------
We were encouraged by our results over the past six months. Our relatively
conservative strategy enabled us to outperform the high-yield bond market as the
financial markets encountered considerable price volatility. We believe our
general cautiousness remains warranted given the increasing uncertainty over
future world economic growth and financial market performance. While no
guarantees can be made, we think that the high-yield bond market maybe
attractively valued at current levels and that we are in a strong position to
take advantage of any economic or market dislocations that may occur over the
next six months.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SHIAX
Class B SHIBX
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter ........................................................ 1
Historical Performance .................................................... 4
Smith Barney High Income Fund
at a Glance ............................................................... 7
Schedule of Investments ................................................... 8
Statement of Assets and Liabilities ....................................... 20
Statement of Operations ................................................... 21
Statements of Changes in Net Assets ....................................... 22
Notes to Financial Statements ............................................. 23
Financial Highlights ...................................................... 29
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO] [PHOTO]
HEATH B. JOHN C.
MCLENDON BIANCHI
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide you with the semi-annual)report for the Smith Barney
High Income Fund ("Fund") for the period ended January 31, 2000. Any discussion
of the Funds holdings is as of January 31, 2000. Please refer to pages eight
through eighteen for a listing of the Fund's holdings. We hope that you find
this report useful and informative.
Performance Update
For the six months ended January 31, 2000, the Fund returned 1.81%, 1.55% and
1.68% for Class A, B and L shares, respectively, excluding the effects of sales
charges. These results were above the average six month total return of 0.34%
for open-end high-yield funds as reported by Lipper, Inc. (Lipper, Inc. is a
major fund-tracking organization.) For the same period the Salomon Smith Barney
High Yield Market (7-10 year) Index ("Salomon Index")* returned a negative
1.07%. In addition, during the past six months, the Fund distributed income
dividends totaling $0.48 per Class A share. For additional performance
information please refer to pages four through six.
Market and Economic Overview
During this period of rising interest rates and declining bond prices, the Fund
benefited from having an eight-year average maturity that enabled it to better
weather the increase in overall interest rates than many other longer maturity
funds. (Maturity refers to the date on which the principal is required to be
repaid on a bond.)
We would expect to maintain the Fund's current maturity given the continued high
volatility in the bond markets. In addition, over the past six months, the U.S.
bond market continued to suffer from rising investor concerns over strong
economic growth, potentially higher inflation and a more restrictive Federal
Reserve Board ("Fed") monetary policy.
The Fed raised short-term interest rates three times in the past six months for
a total of 75 basis points (0.75%) in an effort to moderate economic growth and
help control inflation. (A basis point is equal to 0.01%.) In early February,
the Fed raised interest rates again by another 25 basis points (0.25%) and
indicated it would most likely move again to tighten monetary policy in the
first half of 2000. Given the strength in the U.S. and other global economies,
we were not surprised by the Fed's recent actions. Despite these Fed moves, we
believe that the worst of the bond market decline is behind us. We also expect
better bond market performance sometime in 2000, as the U.S. economy slows down
under the weight of higher interest rates.
1999 turned out to be one of the worst years in bond market history in terms of
performance. Not surprisingly, the high-yield bond market generated the best
performance returns in the domestic bond market given the strength of the U.S.
economy. However, because of the dramatic increase in overall interest rates,
the high-yield market was only able to generate modestly positive total returns
as high current yields offset price declines.
- ------------------
* The Salomon Index is an unmanaged broad-based index of high yield bonds
with a remaining maturity of at least seven years, but less than ten years.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 1
<PAGE>
Portfolio Strategy**
During the last six months, we continued to add to our basic industry positions
on the assumption that stronger U.S. economic growth would benefit a number of
cyclical industries. We also maintained healthy weightings in the fast-growing
telecommunications, cable and media sectors. The strongest performing industry
sectors in the high-yield market in the past six months were in basic materials
(i.e., forest products, metals, mining etc.), chemicals, cable and media, and
telecommunications.
The worst performing sectors included restaurants, healthcare and
textile/apparel. Some of our better performing investments included Ocean
Energy, a major oil company, Tembec, a paper and forest products company,
Nextel, a fast growing wireless communications company, Nextlink, a fast growing
telecommunications company, and PSINet, a major Internet telecommunications
company.
Our portfolio changes over the first half of the Fund's fiscal year benefited
the Fund's performance in the second half. Our continued emphasis on better
quality issues and our increased focus on basic industry issues contributed to
our relative outperformance versus our peer group. During the first half of
1999, the higher quality issues actually underperformed the lower quality issues
by a meaningful margin because of their higher sensitivity to rising U.S.
Treasury rates.
Given our relatively higher quality orientation versus our peer group, our total
return performance was negatively impacted in the first half of 1999. We
especially lagged our peer group since a number of our high yield-fund
competitors had emphasized a combination of lower quality issues, emerging
market debt, as well as common and preferred stock.
During the second half of 1999, we saw a sharp reversal of earlier trends. Lower
quality issues dramatically underperformed in the second half of last year
because of rising default rates. Yet, we do not think rising defaults in the
high yield market are due to a deteriorating U.S. economy. Instead, we believe
that rising defaults are a natural fallout from the massive amount of new
issuance in the past three years when a lot of merger and acquisition activity
took place. A number of defaults are occurring among the less viable companies
that are simply not competitive in today's more challenging economic
environment. Given our quality orientation, we did not have any defaults in the
Fund in 1999. In our view, this is no time to get reckless with respect to
credit risk.
We have continued to eliminate underperforming companies and selectively raised
our exposure to improving credits during the period. We will continue to
selectively add attractively priced credits in an effort to add more balance to
the Fund. In terms of quality, we have been increasing our exposure during the
period to the middle B- rated segment of the market where we have continued to
find attractive yields. And while no guarantees can be made, we believe as rates
rise, a yield-oriented strategy may be prudent. (Past performance is not
indicative of future results.)
Market Outlook
As we enter the new millennium, we would expect a continuation of solid economic
growth with only a modest upward bias towards inflation. We anticipate both the
stock market as well as the high-yield bond market to do better than U.S.
Treasuries. In this environment, we believe the middle-quality high-yield issues
should outperform as they offer the most attractive yields with more limited
default risk than lower-quality issues. In addition, they tend to be less
- ---------------
** Portfolio holdings are as of January 31, 2000 and are subject to change.
- --------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
sensitive to rising interest rates than higher-quality issues. We will also
continue to focus closely on some of the stronger companies in select commodity
sectors such as paper, energy and steel where conditions appear to be improving.
Longer term, we remain positive on the high-yield market and seek to generate
relatively strong total return performance over the near term.
Thank you for investing in the Smith Barney High Income Fund. We look forward to
continuing to help you pursue your long-term financial goals in the new century.
Sincerely,
/s/ Heath B. McLendon /s/ John C. Bianchi
Heath B. McLendon John C. Bianchi, CFA
Chairman and Vice President and
Chief Executive Officer Investment Officer
February 18, 2000
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 3
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $ 10.30 $ 10.00 $ 0.48 $ 0.00 $ 0.00 1.81%+
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/99 11.74 10.30 0.99 0.00 0.01 (3.65)
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/98 11.82 11.74 1.09 0.00 0.00 8.85
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/97 10.98 11.82 1.08 0.00 0.00 18.31
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/96 11.10 10.98 1.08 0.00 0.00 8.95
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/95 11.16 11.10 1.05 0.00 0.07 10.28
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/94 12.01 11.16 1.12 0.00 0.00 2.11
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/93 11.03 12.01 0.86 0.00 0.00 17.29+
====================================================================================================================================
Total $ 7.75 $ 0.00 $ 0.08
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $ 10.31 $ 10.01 $ 0.45 $ 0.00 $ 0.00 1.55%+
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/99 11.75 10.31 0.94 0.00 0.01 (4.15)
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/98 11.83 11.75 1.03 0.00 0.00 8.34
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/97 10.99 11.83 1.02 0.00 0.00 17.72
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/96 11.11 10.99 1.02 0.00 0.00 8.41
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/95 11.16 11.11 0.99 0.00 0.07 9.77
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/94 12.01 11.16 1.06 0.00 0.00 1.60
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/93 11.15 12.01 1.10 0.00 0.00 18.55
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/92 10.05 11.15 1.11 0.00 0.06 23.86
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/91 10.59 10.05 1.27 0.00 0.02 8.82
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/90 13.36 10.59 1.61 0.00 0.01 (8.66)
====================================================================================================================================
Total $ 11.60 $ 0.00 $ 0.17
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $10.32 $10.03 $0.46 $0.00 $0.00 1.68%+
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/99 11.76 10.32 0.94 0.00 0.01 (4.08)
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/98 11.84 11.76 1.04 0.00 0.00 8.38
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/97 11.00 11.84 1.03 0.00 0.00 17.77
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/96 11.11 11.00 1.03 0.00 0.00 8.56
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/95 10.90 11.11 0.90 0.00 0.07 11.50+
====================================================================================================================================
Total $5.40 $0.00 $0.08
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $10.33 $10.03 $0.50 $0.00 $0.00 1.98%+
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/99 11.77 10.33 1.03 0.00 0.01 (3.33)
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/98 11.84 11.77 1.11 0.00 0.00 9.18
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/97 10.99 11.84 1.11 0.00 0.00 18.68
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/96 11.10 10.99 0.92 0.00 0.00 9.32
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/95 10.88 11.10 0.03 0.00 0.07 2.91+
====================================================================================================================================
Total $4.70 $0.00 $0.08
====================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Z Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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>
1/31/00 $10.29 $ 9.84 $0.49 $0.00 $0.00 0.43%+
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/99 11.74 10.29 1.02 0.00 0.01 (3.49)
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/98 11.80 11.74 1.11 0.00 0.00 9.33
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/97 10.99 11.80 1.11 0.00 0.00 18.29
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/96 11.09 10.99 1.11 0.00 0.00 9.42
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/95 11.16 11.09 1.08 0.00 0.07 10.55
- ------------------------------------------------------------------------------------------------------------------------------------
7/31/94 12.01 11.16 1.15 0.00 0.00 2.37
- ------------------------------------------------------------------------------------------------------------------------------------
Inception* -- 7/31/93 11.03 12.01 0.88 0.00 0.00 17.47+
====================================================================================================================================
Total $7.95 $0.00 $0.08
====================================================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charge(1)
-----------------------------------------------------------------------------
Class A Class B Class L Class Y Class Z
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 1/31/00+ 1.81% 1.55% 1.68% 1.98% 0.43%
- ------------------------------------------------------------------------------------------------------------------------
Year Ended 1/31/00 1.14 0.62 0.80 1.50 (0.12)
- ------------------------------------------------------------------------------------------------------------------------
Five Years Ended 1/31/00 9.02 8.49 8.58 N/A 8.96
- ------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 9.31 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Inception* through 1/31/00 8.61 8.02 7.83 6.67 8.65
========================================================================================================================
With Sales Charge(2)
-----------------------------------------------------------------------------
Class A Class B Class L Class Y Class Z
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 1/31/00+ (2.81)% (2.82)% (0.26)% 1.98% 0.43%
- ------------------------------------------------------------------------------------------------------------------------
Year Ended 1/31/00 (3.40) (3.52) (1.12) 1.50 (0.12)
- ------------------------------------------------------------------------------------------------------------------------
Five Years Ended 1/31/00 8.02 8.35 8.36 N/A 8.96
- ------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 9.31 N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------
Inception* through 1/31/00 7.92 8.02 7.63 6.67 8.65
========================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 1/31/00) 81.77%
- --------------------------------------------------------------------------------
Class B (1/31/90 through 1/31/00) 143.58
- --------------------------------------------------------------------------------
Class L (Inception* through 1/31/00) 50.69
- --------------------------------------------------------------------------------
Class Y (Inception* through 1/31/00) 29.39++
- --------------------------------------------------------------------------------
Class Z (Inception* through 1/31/00) 82.32
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 4.50% and 1.00%,
respectively; Class B shares reflect the deduction of a 4.50% CDSC, which
applies if shares are redeemed within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per
year until no CDSC occurs. Class L shares also reflect the deduction of a
1.00% CDSC, which applies if shares are redeemed within the first year of
purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ For the purpose of calculating Class Y shares' cumulative total return, an
inception date of February 5, 1996 is recognized.
* Inception dates for Class A, B, L, Y and Z shares are November 6, 1992,
September 2, 1986, August 24, 1994, April 28, 1995 and November 6, 1992,
respectively.
- --------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney High Income Fund at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of the Smith Barney High Income
Fund vs. Salomon Smith Barney High-Yield Market (7-10 year) Index+
January 1990 -- January 2000
Smith Barney Salomon Smith Barney
High Income Fund High-Yield Market (7-10 year) Index
January 1990 10,000 10,000
July 1990 9,730 9,151
July 1991 10,692 8,418
July 1992 13,390 12,188
July 1993 16,029 14,266
July 1994 16,388 16,625
July 1995 18,099 16,189
July 1996 19,621 19,424
July 1997 23,099 21,675
July 1998 25,025 24,902
July 1999 23,987 25,232
January 2000 24,358 24,962
+ Hypothetical illustration of $10,000 invested in Class B shares on January
31, 1990, assuming reinvestment of dividends and capital gains, if any, at
net asset value through January 31, 2000. The Salomon Smith Barney
High-Yield Market (7-10 year) Index includes cash-pay and deferred-interest
bonds with a remaining maturity of at least seven years, but less than ten
years. This index is unmanaged and is not subject to the same management
and trading expenses as a mutual fund. The performance of the Fund's other
classes may be greater or less than the Class B shares' performance
indicated on this chart, depending on whether greater or lesser sales
charges and fees were incurred by shareholders investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
value may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.
[GRAPH]
Industry Diversification*
- -------------------------------------------
Telecommunications/Other 13.50%
Cable Television 11.90%
Telephone/Cellular 9.70%
Internet Services 6.20%
Container/Packaging 4.10%
Paper 3.60%
Environmental Services 2.90%
Casino/Gambling 2.80%
Oil and Gas Production 2.50%
Food Distributors 2.20%
Other 40.60%
* As a percentage of total corporate bonds and notes.
[GRAPH]
Investment Breakdown**
- -------------------------------------------
Preferred Stock and Warrants 1.2%
Cash Equivalent 3.6%
Common Stock 0.1%
Corporate Bonds and Notes 95.1%
** As a percentage
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES -- 95.1%
Aerospace -- 0.3%
<S> <C> <C> <C>
4,380,000 B- Dunlop Standard Aero Holdings PLC, Sr. Notes, 11.875% due 5/15/09 $ 4,473,075
- ------------------------------------------------------------------------------------------------------------
Airlines -- 0.5%
8,814,090 BB Airplanes Pass-Through Trust, Corporate Asset-Backed Securities,
Series 1, Class D, 10.875% due 3/15/19 7,494,356
- ------------------------------------------------------------------------------------------------------------
Aluminum -- 1.5%
Kaiser Aluminum & Chemical Corp.:
Sr. Notes:
2,090,000 B1* Series B, 10.875% due 10/15/06 2,110,900
1,640,000 B1* Series D, 10.875% due 10/15/06 1,654,350
19,955,000 B3* Sr. Sub. Notes, 12.750% due 2/1/03 19,755,450
- ------------------------------------------------------------------------------------------------------------
23,520,700
- ------------------------------------------------------------------------------------------------------------
Apparel -- 0.3%
4,550,000 B- Tropical Sportswear International Corp., Guaranteed Sr. Sub. Notes,
Series A, 11.000% due 6/15/08 4,311,125
- ------------------------------------------------------------------------------------------------------------
Auto Parts: O.E.M. -- 1.7%
8,710,000 B Collins & Aikman Products Co., Guaranteed
Sr. Sub. Notes, 11.500% due 4/15/06 8,557,575
5,410,000 B Dura Operating Corp., Guaranteed Sr. Sub. Notes, Series B,
9.000% due 5/1/09 5,044,825
Hayes Lemmerz International Inc., Guaranteed Sr. Sub Notes:
2,540,000 B Series B, 8.250% due 12/15/08 2,260,600
2,480,000 B 11.000% due 7/15/06 2,529,600
7,850,000 B+ Tenneco Automotive Inc., Sr. Sub. Notes, 11.625% due 10/15/09(b) 8,046,250
- ------------------------------------------------------------------------------------------------------------
26,438,850
- ------------------------------------------------------------------------------------------------------------
Automotive Aftermarket -- 0.2%
2,735,000 B+ Exide Corp., Sr. Exchange Notes, 10.000% due 4/15/05 2,611,925
- ------------------------------------------------------------------------------------------------------------
Broadcasting -- 0.8%
7,007,300 NR AMFM Operating Inc., Debentures, 12.625% due 10/31/06 8,058,395
4,830,000 B Capstar Broadcasting Partners, Inc., Sr. Discount Notes,
step bond to yield 11.790% due 2/1/09 4,316,813
- ------------------------------------------------------------------------------------------------------------
12,375,208
- ------------------------------------------------------------------------------------------------------------
Building Products -- 1.1%
4,135,000 B Amatek Industries Pty Ltd., Sr. Sub. Notes, 12.000% due 2/15/08 3,923,081
3,320,000 B Atrium Companies, Inc., Guaranteed Sr. Sub. Notes, Series B,
10.500% due 5/1/09 3,187,200
3,450,000 B NCI Building Systems, Inc., Sr. Sub. Notes, Series B, 9.250% due 5/1/09 3,273,187
Nortek, Inc., Sr. Notes, Series B:
680,000 B+ 9.250% due 3/15/07 652,800
6,650,000 B+ 9.125% due 9/1/07 6,375,687
- ------------------------------------------------------------------------------------------------------------
17,411,955
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
==============================================================================================================
<S> <C> <C> <C>
Cable Television -- 11.3%
Adelphia Communications Corp.:
22,845,000 BB- Sr. Discount Notes, Series B, zero coupon bond to yield
10.674% due 1/15/08 $ 9,594,900
Sr. Notes:
9,455,000 B+ Series B, 9.875% due 3/1/07 9,455,000
1,500,000 BB- 9.750% due 2/15/02 1,507,500
3,800,000 BB- 8.375% due 11/15/17 3,396,250
Charter Communications Holdings, LLC/Charter
Communications Capital Corp.:
14,930,000 B+ Sr. Discount Notes, step bond to yield 11.744% due 4/1/11(b) 8,659,400
5,905,000 B+ Sr. Notes, 10.000% due 4/1/09(b) 5,919,763
14,430,000 BB- CSC Holdings Inc., Sr. Sub. Debentures, 10.500% due 5/15/16 15,945,150
4,975,000(GBP) B- Diamond Holdings PLC, Guaranteed Notes, 10.000% due 2/1/08(c) 7,977,216
7,810,000 B Echostar DBS Corp., Sr. Notes, 9.375% due 2/1/09 7,712,375
NTL Communications Corp.:
5,500,000(EUR) B- Sr. Discount Notes, step bond to yield 13.563% due 11/15/09(b)(c) 3,147,992
15,480,000 B- Sr. Notes, Series B, 11.500% due 10/1/08 16,486,200
5,305,000 B- RCN Corp., Sr. Discount Notes, Series B,
step bond to yield 11.436% due 10/15/07 3,660,450
Rogers Cablesystems, Ltd. Guaranteed Sr. Sub. Debentures,
10,955,000 BB- 11.000% due 12/1/15 12,365,456
6,550,000 B+ TeleWest Communications PLC, Sr. Notes, 11.250% due 11/1/08 6,943,000
51,075,000 B- United International Holdings, Inc., Sr. Secured Discount Notes,
Series B, step bond to yield 12.458% due 2/15/08 33,964,875
50,000,000 B2* United Pan-Europe Communications NV, Sr. Discount Notes, Series B,
step bond to yield 12.335% due 8/1/09 27,250,000
- --------------------------------------------------------------------------------------------------------------
173,985,527
- --------------------------------------------------------------------------------------------------------------
Casinos/Gambling -- 2.6%
7,845,000 B Harveys Casino Resorts, Guaranteed Sr. Sub. Notes, 10.625% due 6/1/06 8,070,544
9,060,000 B Hollywood Casino Corp., Guaranteed Sr. Secured Notes,
11.250% due 5/1/07 9,354,450
1,855,000 B Hollywood Casino Corp./Shreveport Capital Corp., 1,984,850
First Mortgage Notes, 13.000% due 8/1/06(b)
3,080,000 NR Jazz Casino Co. LLC, Sr. Sub. Notes, 5.867% due 11/15/09 1,478,400
Las Vegas Sands, Inc./Venetian Casino Resort, LLC:
6,390,000 B- Guaranteed Mortgage Notes, 12.250% due 11/15/04 5,303,700
2,900,000 CCC+ Guaranteed Sr. Sub. Notes, 14.250% due 11/15/05 1,856,000
1,495,000 BB+ Mandalay Resort Group, Inc., Sr. Sub. Debentures, 7.625% due 7/15/13 1,281,963
4,655,000 Ba3* Sun International Hotels Ltd., Guaranteed Sr. Sub. Notes,
9.000% due 3/15/07 4,305,875
7,350,000 Ba3* Sun International Hotels Ltd./Sun International North America, Inc.,
Guaranteed Sr. Sub. Notes, 8.625% due 12/15/07 6,927,375
- --------------------------------------------------------------------------------------------------------------
40,563,157
- --------------------------------------------------------------------------------------------------------------
Chemicals - Major -- 1.7%
Huntsman ICI Chemicals LLC:
38,450,000 B+ Sr. Discount Notes, zero coupon bond to yield 13.530% due 12/31/09(b) 12,015,625
10,575,000 B+ Sr. Sub. Notes, 10.125% due 7/1/09(b) 10,733,625
4,785,000 B+ Terra Industries Inc., Sr. Notes, Series B, 10.500% due 6/15/05 3,828,000
- --------------------------------------------------------------------------------------------------------------
26,577,250
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT++ RATING(a) SECURITY VALUE
==============================================================================================================
<S> <C> <C> <C>
Chemicals - Specialty -- 0.6%
Lyondell Chemical Co., Sr. Secured Notes:
1,725,000 BB Series A, 9.625% due 5/1/07 $ 1,712,063
1,915,000 BB Series B, 9.875% due 5/1/07 1,898,244
5,100,000 B ZSC Specialty Chemicals PLC, Guaranteed Sr. Notes, 11.000% due 7/1/09(b) 5,253,000
- --------------------------------------------------------------------------------------------------------------
8,863,307
- --------------------------------------------------------------------------------------------------------------
Coal Mining -- 0.5%
7,930,000 CCC- AEI Resources Inc., Guaranteed Sr. Notes, 10.500% due 12/15/05(b) 5,432,050
3,130,000 B P&L Coal Holdings Corp., Guaranteed Sr. Sub Notes, Series B,
9.625% due 5/15/08 2,969,588
- --------------------------------------------------------------------------------------------------------------
8,401,638
- --------------------------------------------------------------------------------------------------------------
Construction/AG Equipment/Trucks -- 0.5%
8,280,000 B Columbus McKinnon Corp., Guaranteed Sr. Sub. Notes, 8.500% due 4/1/08 7,286,400
- --------------------------------------------------------------------------------------------------------------
Containers/Packaging -- 3.9%
1,885,000 B AEP Industries Inc., Sr. Sub. Notes, 9.875% due 11/15/07 1,630,525
9,600,000(EUR) B1* BSN Financing Co., Guaranteed Sr. Notes, 10.250% due 8/1/09(b)(c) 9,744,834
7,570,000 B BWAY Corp., Sr. Sub. Notes, Series B, 10.250% due 4/15/07 7,257,737
5,300,000 B Huntsman Packaging Corp., Guaranteed Sr. Sub. Notes,
9.125% due 10/1/07 5,160,875
16,125,000 B Stone Container Finance Corp., Guaranteed Sr. Notes,
11.500% due 8/15/06(b) 17,132,813
8,532,000 B- Sweetheart Cup Co., Inc., Guaranteed Sr. Sub. Notes, 10.500% due 9/1/03 8,169,390
Tekni-Plex Inc.:
5,190,000 B- Guaranteed Sr. Sub. Notes, Series B, 9.250% due 3/1/08 5,131,612
4,930,000 B- Sr. Sub. Notes, Series B, 11.250% due 4/1/07 5,219,637
- --------------------------------------------------------------------------------------------------------------
59,447,423
- --------------------------------------------------------------------------------------------------------------
Contract Drilling -- 1.9%
Parker Drilling Co.:
3,150,000 B- Convertible Sub. Notes, 5.500% due 8/1/04 2,334,938
3,970,000 B+ Guaranteed Sr. Notes, Series D, 9.750% due 11/15/06 3,811,200
6,890,000 BB Pride International, Inc., Sr. Notes,
10.000% due 6/1/09 6,907,225
7,940,000 Ba3* R&B Falcon Corp., Sr. Notes, 12.250% due 3/15/06 8,614,900
6,705,000 BB- RBF Finance Co., Guaranteed Sr. Secured Notes, 11.375% due 3/15/09 7,107,300
- --------------------------------------------------------------------------------------------------------------
28,775,563
- --------------------------------------------------------------------------------------------------------------
Discount Stores -- 1.3%
13,710,000 B+ Ames Department Stores, Inc., Sr. Notes, 10.000% due 4/15/06 12,887,400
6,205,000 BB+ Kmart Corp., Debentures, 12.500% due 3/1/05 6,926,331
- --------------------------------------------------------------------------------------------------------------
19,813,731
- --------------------------------------------------------------------------------------------------------------
Diversified Commercial Services -- 1.1%
7,950,000 B2* Intertek Finance PLC, Guaranteed Sr. Sub. Notes, Series B,
10.250% due 11/1/06 7,075,500
10,450,000 B- Outsourcing Solutions Inc., Sr. Sub. Notes, Series B,
11.000% due 11/1/06 9,966,688
- --------------------------------------------------------------------------------------------------------------
17,042,188
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- ------------------------------------------------------------------------------------------------------------
FACE
AMOUNT++ RATING(a) SECURITY VALUE
============================================================================================================
<S> <C> <C> <C>
Diversified Financial Services-- 0.5%
Amresco, Inc., Sr. Sub. Notes:
4,510,000 CCC- Series 1997-A, 10.000% due 3/15/04 $ 2,954,050
5,935,000 CCC- Series 1998-A, 9.875% due 3/15/05 3,887,425
- ------------------------------------------------------------------------------------------------------------
6,841,475
- ------------------------------------------------------------------------------------------------------------
Diversified Manufacturing -- 0.8%
4,395,000 B- Blount, Inc., Sr. Sub. Notes, 13.000% due 8/1/09(b) 4,669,688
7,440,000 B+ Park-Ohio Industries, Inc., Sr. Sub. Notes, 9.250% due 12/1/07 6,919,200
- ------------------------------------------------------------------------------------------------------------
11,588,888
- ------------------------------------------------------------------------------------------------------------
Drugs - Generic-- 1.1%
17,755,000 BB ICN Pharmaceuticals Inc., Sr. Notes, Series B, 9.250% due 8/15/05 17,288,931
- ------------------------------------------------------------------------------------------------------------
Electronic Components -- 0.5%
6,763,000 B+ Celestica International Inc., Sr. Sub. Notes, 10.500% due 12/31/06 7,118,058
- ------------------------------------------------------------------------------------------------------------
Engineering and Construction-- 1.0%
2,260,000 B- American Plumbing & Mechanical, Inc., Guaranteed
Sr. Sub. Notes, Series B, 11.625% due 10/15/08 2,135,700
7,835,000 B Group Maintenance America Corp., Exchange Sr. Sub. Notes,
9.750% due 1/15/09 8,070,050
4,515,000 BB- Integrated Electrical Services, Inc., Guaranteed Sr. Sub. Notes, Series B,
9.375% due 2/1/09 4,396,481
- ------------------------------------------------------------------------------------------------------------
14,602,231
- ------------------------------------------------------------------------------------------------------------
Environmental Services -- 2.7%
32,400,000 B+ Allied Waste North America, Sr. Sub. Notes, 10.000% due 8/1/09(b) 28,431,000
4,620,000 B+ IT Group, Inc., Guaranteed Sr. Sub. Notes, Series B, 11.250% due 4/1/09 4,481,400
820,000 CCC+ Metal Management, Inc., Guaranteed Sr. Sub. Notes,
10.000% due 5/15/08 619,100
8,225,000 B+ URS Corp., Sr. Sub. Notes, Series B, 12.250% due 5/1/09 8,595,125
- ------------------------------------------------------------------------------------------------------------
42,126,625
- ------------------------------------------------------------------------------------------------------------
Food Distributors -- 2.2%
5,605,000 B- Agrilink Foods, Inc., Guaraneed Sr. Sub. Notes, 11.875% due 11/1/08 5,541,944
12,230,000 B2* Carrols Corp., Sr. Sub. Notes, 9.500% due 12/1/08 10,915,275
6,810,000 B- Premier International Foods PLC, Sr. Notes, 12.000% due 9/1/09(b) 6,818,513
9,945,000 B SC International Services, Inc., Guaranteed Sr. Sub. Notes,
Series B, 9.250% due 9/1/07 9,149,400
- ------------------------------------------------------------------------------------------------------------
32,425,132
- ------------------------------------------------------------------------------------------------------------
Foods - Specialty/Candy-- 1.1%
7,000,000 B- B&G Foods Inc., Guaranteed Sr. Sub. Notes, 9.625% due 8/1/07 6,125,000
14,975,000 B- Imperial Holly Corp., Guaranteed Sr. Sub. Notes, 9.750% due 12/15/07 10,407,625
- ------------------------------------------------------------------------------------------------------------
16,532,625
- ------------------------------------------------------------------------------------------------------------
Forest Products-- 1.0%
9,770,000 B Ainsworth Lumber Co. Ltd., Sr. Secured Notes, 12.500% due 7/15/07 10,747,000
4,485,000 B+ Millar Western Forest Products Ltd., Sr. Notes, 9.875% due 5/15/08 4,451,362
- ------------------------------------------------------------------------------------------------------------
15,198,362
- ------------------------------------------------------------------------------------------------------------
Home Furnishings -- 0.3%
4,545,000 B Falcon Products, Inc., Guaranteed Sr. Sub. Notes, Series B,
11.375% due 6/15/09 4,272,300
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney High Income Statements. 11
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- ------------------------------------------------------------------------------------------------------------
FACE
AMOUNT++ RATING(a) SECURITY VALUE
============================================================================================================
<S> <C> <C> <C>
Homebuilding -- 0.6%
9,440,000 BB- U.S. Home Corp., Sr. Sub. Notes, 8.875% due 2/15/09 $ 8,578,600
- ------------------------------------------------------------------------------------------------------------
Hospital/Nursing Management -- 1.4%
3,993,000 Ba3* Fresenius Medical Care Capital Trust I, Guaranteed Trust Preferred Securities,
9.000% due 12/1/06 3,793,350
21,315,000 B- Magellan Health Services, Inc., Sr. Sub. Notes, Series A,
9.000% due 2/15/08 17,318,437
- ------------------------------------------------------------------------------------------------------------
21,111,787
- ------------------------------------------------------------------------------------------------------------
Hotel/Resort -- 1.1%
65,000 B- Courtyard By Marriott II LP/Courtyard Finance Co., Sr. Secured Notes,
Series B, 10.750% due 2/1/08 63,050
1,810,000 BB HMH Properties, Inc., Guaranteed Sr. Notes,
Series C, 8.450% due 12/1/08 1,633,525
Intrawest Corp., Sr. Notes:
8,485,000 B+ 9.750% due 8/15/08 8,145,600
7,340,000 B+ 10.500% due 2/1/10(b) 7,266,600
- ------------------------------------------------------------------------------------------------------------
17,108,775
- ------------------------------------------------------------------------------------------------------------
Insurance - Multi-Line-- 0.3%
6,700,000 B Veritas Capital Trust, Guaranteed Trust Preferred Securities,
10.000% due 1/1/28 4,690,000
- ------------------------------------------------------------------------------------------------------------
Internet Services -- 5.9%
3,650,000 Caa2* Cybernet Internet Services International, Inc., Sr. Notes, 14.000%
due 7/1/09 3,084,250
Exodus Communications, Inc., Sr. Notes:
9,365,000 B- 10.750% due 12/15/09(b) 9,435,238
6,000,000(EUR) B- 10.750% due 12/15/09(b)(c) 6,017,142
6,715,000 NR Globix Corp., Sr. Notes, 12.500% due 2/1/10(b) 6,765,363
PSINet Inc., Sr. Notes:
4,940,000 B- 10.500% due 12/1/06(b) 5,001,750
8,565,000 B- 11.500% due 11/1/08 8,993,250
8,860,000 B- 11.000% due 8/1/09 9,147,950
3,000,000(EUR) B- 11.000% due 8/1/09(b)(c) 3,023,247
10,705,000 NR Splitrock Services, Inc., Guaranteed Sr. Notes, Series B,
11.750% due 7/15/08 11,427,588
Verio Inc., Sr. Notes:
4,940,000 B- 10.375% due 4/1/05 4,964,700
10,185,000 B- 11.250% due 12/1/08 10,643,325
7,505,000 B- 10.625% due 11/15/09(b) 7,786,438
6,955,000 CCC+ WAM!NET Inc., Guaranteed Sr. Discount Notes, Series B,
step bond to yield 15.968% due 3/1/05 3,946,962
- ------------------------------------------------------------------------------------------------------------
90,237,203
- ------------------------------------------------------------------------------------------------------------
Leisure/Movies/Entertainment -- 1.5%
2,600,000 B- AMC Entertainment Inc., Exchange Sr. Sub. Notes, 9.500% due 2/1/11 2,093,000
7,845,000 B- Premier Parks Inc., Sr. Discount Notes,
step bond to yield 10.754% due 4/1/08 5,256,150
17,050,000 B- SFX Entertainment, Inc., Guaranteed Sr. Sub. Notes, Series B,
9.125% due 2/1/08 15,899,125
- ------------------------------------------------------------------------------------------------------------
23,248,275
- ------------------------------------------------------------------------------------------------------------
Machinery - Industrial/Components-- 0.4%
6,315,000 B- Alvey Systems, Inc., Sr. Sub. Notes, 11.375% due 1/31/03 6,599,175
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- ------------------------------------------------------------------------------------------------------------
FACE
AMOUNT++ RATING(a) SECURITY VALUE
============================================================================================================
<S> <C> <C> <C>
Medical Specialties -- 0.2%
4,360,000 B- Hanger Orthopedic Group, Inc., Sr. Sub. Notes, 11.250% due 6/15/09 $ 3,716,900
- ------------------------------------------------------------------------------------------------------------
Metal/Minerals - Other-- 0.1%
3,075,000 B- Haynes International, Inc., Sr. Notes, 11.625% due 9/1/04 1,968,000
- ------------------------------------------------------------------------------------------------------------
Multi-Sector Companies -- 0.5%
8,155,000 NR Triarc Consumer Beverage, Sr. Sub. Notes, 10.250% due 2/15/09(b) 7,838,994
- ------------------------------------------------------------------------------------------------------------
Newspapers-- 0.6%
9,905,000 B+ Garden State Newspapers, Inc., Sr. Sub. Notes, Series B,
8.625% due 7/1/11 9,075,456
- ------------------------------------------------------------------------------------------------------------
Oil and Gas Production-- 2.4%
Belco Oil & Gas Corp.:
4,700,000 B1* Guaranteed Sr. Sub. Notes, Series B, 10.500% due 4/1/06 4,782,250
4,910,000 B1* Sr. Sub. Notes, Series B, 8.875% due 9/15/07 4,652,225
1,640,000 B Chesapeake Energy Corp., Guaranteed Sr. Notes, Series B,
9.625% due 5/1/05 1,541,600
16,090,000 B Clark USA Inc., Sr. Notes, Series B, 10.875% due 12/1/05 6,596,900
2,425,000 B Forest Oil Corp., Guaranteed Sr. Sub. Notes,
10.500% due 1/15/06 2,449,250
10,710,000 B+ Nuevo Energy Co., Sr. Sub. Notes, Series B, 9.500% due 6/1/08 10,495,800
3,120,000 B Stone Energy Corp., Guaranteed Sr. Sub. Notes, 8.750% due 9/15/07 2,932,800
3,305,000 B+ Vintage Petroleum, Inc., Sr. Sub. Notes, 9.750% due 6/30/09 3,329,788
- ------------------------------------------------------------------------------------------------------------
36,780,613
- ------------------------------------------------------------------------------------------------------------
Oil and Gas Transmission-- 0.3%
4,950,000 BB- Leviathan Gas Pipeline Partners, L.P./Leviathan Finance Corp.,
Sr. Sub. Notes, Series B, 10.375% due 6/1/09 5,123,250
- ------------------------------------------------------------------------------------------------------------
Paper-- 3.4%
Doman Industries Ltd., Sr. Notes:
2,200,000 B Series B, 9.250% due 11/15/07 1,787,500
10,155,000 B 8.750% due 3/15/04 8,911,013
9,265,000(EUR) B Kappa Beheer BV, Guaranteed Sr. Sub. Notes, 10.625% due 7/15/09(b)(c) 9,540,753
5,595,000 CCC+ Repap New Brunswick Inc., Second Priority Mortgage Notes,
10.625% due 4/15/05 5,133,412
Riverwood International Corp.:
6,830,000 B- Guaranteed Sr. Notes, 10.625% due 8/1/07 6,898,300
9,310,000 CCC+ Guaranteed Sr. Sub. Notes, 10.875% due 4/1/08 8,972,513
2,317,500 NR S.D. Warren Co., Debentures, 14.000% due 12/15/06 2,572,425
8,790,000 BB+ Tembec Finance Corp., Guaranteed Sr. Notes, 9.875% due 9/30/05 8,965,800
- ------------------------------------------------------------------------------------------------------------
52,781,716
- ------------------------------------------------------------------------------------------------------------
Pharmaceuticals-- 0.4%
6,140,000 B King Pharmaceuticals, Inc., Guaranteed Sr. Sub. Notes,
10.750% due 2/15/09 6,431,650
- ------------------------------------------------------------------------------------------------------------
Photographic Products -- 0.6%
9,065,000 BB- Polaroid Corp., Sr. Notes, 11.500% due 2/15/06 9,065,000
- ------------------------------------------------------------------------------------------------------------
Printing/Forms -- 0.8%
3,775,000 B Merrill Corp., 12.000% due 5/1/09(b)# 3,680,625
5,150,000(GBP) B Polestar Corp. PLC, Sr. Notes, Series B, 10.500% due 5/30/08(c) 8,013,745
- ------------------------------------------------------------------------------------------------------------
11,694,370
- ------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 13
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- ------------------------------------------------------------------------------------------------------------
FACE
AMOUNT++ RATING(a) SECURITY VALUE
============================================================================================================
<S> <C> <C> <C>
Real Estate Investment Trusts-- 0.4%
7,500,000 NR Ocwen Asset Investment Corp., Redeemable Notes, 11.500% due 7/1/05 $ 6,375,000
- ------------------------------------------------------------------------------------------------------------
Recreational Products/Toys -- 0.4%
5,500,000(EUR) B2* Head Holding GmbH, Sr. Notes, 10.750% due 7/15/06(b)(c) 5,609,884
- ------------------------------------------------------------------------------------------------------------
Rental/Leasing Companies -- 0.7%
7,645,000 BB- Avis Rent a Car, Inc., Guaranteed Sr. Sub. Exchange Notes,
11.000% due 5/1/09 7,931,688
3,540,000 B NationsRent, Inc., Guaranteed Sr. Sub. Notes, 10.375% due 12/15/08 3,464,775
- ------------------------------------------------------------------------------------------------------------
11,396,463
- ------------------------------------------------------------------------------------------------------------
Retail - Food Chains-- 0.3%
5,135,000 B+ Stater Bros. Holdings Inc., Sr. Notes, 10.750% due 8/15/06 5,199,188
- ------------------------------------------------------------------------------------------------------------
Retail - Other Specialty Stores-- 0.7%
12,250,000 B- Advance Stores Co., Inc., Guaranteed Sr. Sub. Notes, Series B,
10.250% due 4/15/08 10,596,250
- ------------------------------------------------------------------------------------------------------------
Savings and Loan Associations-- 0.9%
8,100,000 B2* Ocwen Capital Trust I, Guaranteed Capital Securities,
10.875% due 8/1/27 5,143,500
4,000,000 B+ Ocwen Federal Bank FSB, Sub. Debentures, 12.000% due 6/15/05 3,800,000
5,835,000 B+ Ocwen Financial Corp., Notes, 11.875% due 10/1/03 5,368,200
- ------------------------------------------------------------------------------------------------------------
14,311,700
- ------------------------------------------------------------------------------------------------------------
Semiconductors -- 0.8%
12,265,000 B Fairchild Semiconductor Corp., Sr. Sub. Notes, 10.125% due 3/15/07 12,173,013
- ------------------------------------------------------------------------------------------------------------
Steel/Iron Ore -- 1.8%
3,975,000 BB- The LTV Corp., Sr. Notes, 11.750% due 11/15/09(b) 4,074,375
6,745,000 B+ Russel Metals Inc., 10.000% due 6/1/09# 6,584,806
7,595,000 B+ WCI Steel, Inc., Sr. Secured Notes, Series B, 10.000% due 12/1/04 7,576,012
9,960,000 B- WHX Corp., Sr. Exchange Notes, 10.500% due 4/15/05 9,686,100
- ------------------------------------------------------------------------------------------------------------
27,921,293
- ------------------------------------------------------------------------------------------------------------
Telecommunications - Major U.S.-- 0.3%
Omnipoint Corp., Sr. Notes:
3,810,000 B2* Series A, 11.625% due 8/15/06 4,029,075
25,000 B2* 11.500% due 9/15/09(b) 27,250
- ------------------------------------------------------------------------------------------------------------
4,056,325
- ------------------------------------------------------------------------------------------------------------
Telecommunications - Other-- 12.8%
Call-Net Enterprises, Inc.:
1,900,000 B+ Sr. Discount Notes, step bond to yield 12.522% due 8/15/08 964,250
1,050,000 B+ Sr. Notes, 9.375% due 5/15/09 887,250
4,150,000(EUR) B+ Esat Telecom Group PLC, Sr. Notes, 11.875% due 11/1/09(c) 5,116,038
Esprit Telecom Group PLC, Sr. Notes:
5,950,000 B- 11.500% due 12/15/07 5,875,625
5,000,000(DEM) B- 11.500% due 12/15/07(c) 2,438,597
1,900,000 B- 10.875% due 6/15/08 1,857,250
Focal Communications Corp.,
3,680,000 B Sr. Discount Notes, Series B, step bond to yield 12.455% due 2/15/08 2,419,600
2,930,000 B Sr. Notes, 11.875% due 1/15/10(b) 2,995,925
7,250,000(EUR) B- Global TeleSystems Group, Inc., Sr. Notes, 11.000% due 12/1/09(b)(c) 7,057,911
5,215,000 CCC+ GT Group Telecom Inc., step bond to yield 13.286% due 2/1/10# 2,776,987
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- ------------------------------------------------------------------------------------------------------------
FACE
AMOUNT++ RATING(a) SECURITY VALUE
============================================================================================================
<S> <C> <C> <C>
Telecommunications - Other-- 12.8% (continued)
Hermes Europe Railtel BV, Sr. Notes:
14,775,000 B 11.500% due 8/15/07 $ 14,996,625
2,295,000 B 10.375% due 1/15/09 2,208,937
ICG Holdings, Inc.:
5,245,000 B- Guaranteed Sr. Discount Notes, step bond to yield
13.233% due 9/15/05 4,786,063
5,475,000 B- Guaranteed Sr. Secured Discount Notes, step bond to yield
13.401% due 5/1/06 4,421,062
4,750,000(EUR) CCC+ Jazztel PLC, Sr. Notes, 13.250% due 12/15/09(b)(c) 4,786,807
KMC Telecom Holdings, Inc.:
8,340,000 B- Sr. Discount Notes, step bond to yield 15.191% due 2/15/08 4,670,400
4,080,000 B- Sr. Notes, 13.500% due 5/15/09 4,100,400
27,850,000 B Level 3 Communications, Inc., Sr. Discount Notes,
step bond to yield 11.712% due 12/1/08 16,849,250
Metromedia Fiber Network, Inc. Sr. Notes:
6,245,000 B+ Series B, 10.000% due 11/15/08 6,276,225
3,930,000 B+ 10.000% due 12/15/09 3,969,300
NEXTLINK Communications, Inc.:
Sr. Discount Notes:
17,300,000 B Step bond to yield 12.750% due 6/1/09 10,553,000
10,220,000 B Step bond to yield 12.135% due 12/1/09(b) 5,927,600
8,395,000 B Sr. Notes, 10.750% due 6/1/09 8,499,937
6,635,000 B NEXTLINK Communications, LLC/NEXTLINK Capital Inc.,
Sr. Notes, 12.500% due 4/15/06 7,124,331
10,140,000 B- Primus Telecommunications Group Inc., Sr. Notes, 11.750% due 8/1/04 10,025,925
Tele1 Europe BV, Sr. Notes:
6,855,000 B- 13.000% due 5/15/09 7,163,475
1,900,000(EUR) B- 13.000% due 5/15/09(c) 1,989,081
10,945,000 B- VersaTel Telecom International NV, Sr. Notes, 13.250% due 5/15/08 11,574,337
Viatel, Inc.:
2,825,000 B- Sr. Dollar Notes, 11.500% due 3/15/09 2,669,625
7,425,000 B- Sr. Notes, 11.250% due 4/15/08 6,979,500
9,240,000 BB- Williams Communications Group, Inc., Sr. Notes,
10.875% due 10/1/09 9,517,200
17,390,000 NR World Access, Inc., Sr. Notes, Series B, 13.250% due 1/15/08 15,651,000
- ------------------------------------------------------------------------------------------------------------
197,129,513
- ------------------------------------------------------------------------------------------------------------
Telephone - Cellular-- 9.2%
AirGate PCS, Inc.:
2,380,000 Caa1* Sr. Sub. Notes, step bond to yield 13.420% due 10/1/09 1,314,950
7,425,000 NR Step bond to yield 13.153% due 10/1/09# 5,123,250
3,170,000 B- Centennial Cellular Corp./Centennial Cellular Operating Co. LLC,
Sr. Sub. Notes, 10.750% due 12/15/08 3,312,650
11,500,000(CAD) B3* Clearnet Communications Inc., Sr. Discount Notes,
step bond to yield 14.159% due 5/15/03(c) 5,000,345
4,000,000 NR Clearnet Communications Inc./DLJ Secured Loan Trust,
Sr. Secured Certificates, Class A-1, 10.125% due 7/7/07 4,000,000
11,750,000 B Crown Castle International Corp., Sr. Discount Notes,
step bond to yield 11.525% due 5/15/11 7,050,000
4,580,000 NR Dobson/Sygnet Communications Co., Sr. Notes,
12.250% due 12/15/08 5,015,100
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 15
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- ------------------------------------------------------------------------------------------------------------
FACE
AMOUNT++ RATING(a) SECURITY VALUE
============================================================================================================
<S> <C> <C> <C>
Telephone - Cellular-- 9.2% (continued)
Dolphin Telecom PLC, Sr. Discount Notes:
9,775,000 CCC+ Step bond to yield 13.416% due 6/1/08 $ 4,545,375
5,150,000(EUR) CCC+ Step bond to yield 12.161% due 6/1/08(c) 2,368,210
Microcell Telecommunications Inc., Sr. Discount Notes:
3,470,000 B3* Series B, step bond to yield 12.386% due 6/1/06 3,123,000
10,310,000 B- Step bond to yield 12.266% due 6/1/09 6,598,400
15,840,000 B- Millicom International Cellular S.A., Sr. Discount Notes,
step bond to yield 19.107% due 6/1/06 13,701,600
Nextel Communications, Inc.:
8,620,000 B1* Sr. Redeemable Discount Notes, step bond to yield
10.995% due 9/15/07 6,465,000
27,930,000 B1* Sr. Serial Redeemable Discount Notes, step bond to yield
10.484% due 2/15/08 19,481,175
2,190,000 B3* Nextel Partners, Inc., Sr. Discount Notes,
step bond to yield 12.904% due 2/1/09 1,459,087
8,050,000 NR Spectrasite Holdings Inc., Sr. Discount Notes,
step bond to yield 11.822% due 4/15/04 4,679,063
Telesystem International Wireless Inc., Sr. Discount Notes:
23,915,000 CCC+ Series B, step bond to yield 16.265% due 6/30/07 15,783,900
14,005,000 CCC+ Series C, step bond to yield 13.640% due 11/1/07 7,422,650
13,520,000 B3* Triton PCS, Inc., Guaranteed Sr. Sub. Discount Notes,
step bond to yield 11.521% due 5/1/08 9,649,900
VoiceStream Wireless Corp./VoiceStream Wireless Holdings Corp.:
5,360,000 B2* Sr. Discount Notes, step bond to yield 11.924% due 11/15/09(b) 3,269,600
11,540,000 B2* Sr. Notes, 10.375% due 11/15/09(b) 11,886,200
- ------------------------------------------------------------------------------------------------------------
141,249,455
- ------------------------------------------------------------------------------------------------------------
Textiles-- 0.3%
11,850,000(DEM) B3* Texon International PLC, Sr. Notes, 10.000% due 2/1/08(b)(c) 5,216,347
- ------------------------------------------------------------------------------------------------------------
Transportation - Marine-- 0.3%
4,400,000 B- Oglebay Norton Co., Sr. Sub. Notes, 10.000% due 2/1/09 4,147,000
1,075,000 BB- Sea Containers Ltd., Sr. Sub. Debentures,
Series A, 12.500% due 12/1/04 1,107,250
- ------------------------------------------------------------------------------------------------------------
5,254,250
- ------------------------------------------------------------------------------------------------------------
Unregulated Power Generation-- 1.8%
AES Corp.:
8,075,000 Ba1* Sr. Notes, 9.500% due 6/1/09 8,054,812
9,635,000 Ba3* Sr. Sub. Notes, 10.250% due 7/15/06 9,707,262
9,085,000 BB+ Calpine Corp., Sr. Notes, 10.500% due 5/15/06 9,539,250
- ------------------------------------------------------------------------------------------------------------
27,301,324
- ------------------------------------------------------------------------------------------------------------
Wholesale Distributors -- 0.9%
3,780,000 B Buhrmann N.V., Sr. Sub. Notes, 12.250% due 11/1/09(b) 3,855,600
9,930,000 B- Fisher Scientific International Inc., Sr. Sub. Notes, 9.000% due 2/1/08 9,309,375
- ------------------------------------------------------------------------------------------------------------
13,164,975
- ------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost-- $1,527,528,879) 1,460,392,749
============================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- ---------------------------------------------------------------------------------------------------------------
SHARES SECURITY VALUE
===============================================================================================================
<S> <C> <C>
COMMON STOCK -- 0.1%
Telecommunications - Other -- 0.1%
18,375 Pagemart Nationwide Inc.(b)(d) $ 349,125
54,640 World Access, Inc.(d) 942,555
- ---------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost-- $949,036) 1,291,680
===============================================================================================================
PREFERRED STOCK -- 0.4%
Diversified Manufacture -- 0.1%
60,000 Eagle-Picher Holdings, Inc.,
11.750% Cumulative Redeemable Exchangeable, Series B 2,280,000
- ---------------------------------------------------------------------------------------------------------------
Electronic Components -- 0.0%
7,891 ViaSystems Inc., Series B 71,023
- ---------------------------------------------------------------------------------------------------------------
Food Distributors -- 0.0%
2,705 AmeriKing, Inc., 13.000% Cumulative Exchangeable 37,870
- ---------------------------------------------------------------------------------------------------------------
Savings and Loan Associations -- 0.3%
177,300 California Federal Preferred Capital Corp.,
9.125% Noncumulative Exchangeable, Series A 3,900,600
- ---------------------------------------------------------------------------------------------------------------
Telecommunication - Other -- 0.0%
1,790 Dobson Communications Corp., 13.000% Sr. Exchangeable 171,840
116 Intermedia Communications Inc.,
13.500% Redeemable Exchangeable, Series B 117,190
- ---------------------------------------------------------------------------------------------------------------
289,030
- ---------------------------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK
(Cost-- $8,352,313) 6,578,523
===============================================================================================================
WARRANTS(d) -- 0.8%
Broadcasting 0.1%
21,675 UIH Australia Pacific Inc., Expire 5/15/06 650,250
- ---------------------------------------------------------------------------------------------------------------
Cable -- 0.0%
5,925 Wireless One Inc., Expire 10/19/00 1,481
- ---------------------------------------------------------------------------------------------------------------
Internet Services -- 0.2%
3,650 Cybernet Internet Services, Inc., Expire 7/1/09(b) 438,000
14,405 Splitrock Services Inc., Expire 7/15/08 2,736,950
33,975 WAM!NET Inc., Expire 3/1/05(b) 394,959
- ---------------------------------------------------------------------------------------------------------------
3,569,909
- ---------------------------------------------------------------------------------------------------------------
Paper -- 0.0%
8,025 SDW Holdings Corp., Expire 12/15/06(b) 141,240
- ---------------------------------------------------------------------------------------------------------------
Telecommunications - Other-- 0.5%
9,550 RSL Communications, Ltd., Expire 11/15/06 382,000
3,555 Tele1 Europe B.V., Expire 5/15/09(b) 693,225
3,600 Tele1 Europe B.V., Expire 5/15/09(b)(c) 686,835
10,945 VersaTel Telecom International N.V., Expire 5/15/08(b) 4,678,988
37,490 WebLink Wireless, Inc., Expire 12/31/03 562,350
- ---------------------------------------------------------------------------------------------------------------
7,003,398
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 17
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- ---------------------------------------------------------------------------------------------------------------
SHARES SECURITY VALUE
===============================================================================================================
<S> <C> <C> <C>
Telephone - Cellular -- 0.0%
10,475 Iridium World Communications Ltd., Expire 7/15/05(b) $ 105
- ---------------------------------------------------------------------------------------------------------------
TOTAL WARRANTS
(Cost-- $2,414,727) 11,366,383
===============================================================================================================
<CAPTION>
FACE
AMOUNT SECURITY VALUE
===============================================================================================================
REPURCHASE AGREEMENT -- 3.6%
$55,382,000 Goldman, Sachs & Co., 5.700% due 2/1/00;
Proceeds at maturity-- $55,390,769;
(Fully collateralized by U.S. Treasury Bonds and Notes,
4.875% to 10.375% due 4/30/01 to 5/15/17;
Market value-- $56,489,792) (Cost-- $55,382,000) 55,382,000
===============================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $1,594,626,955**) $1,535,011,335
===============================================================================================================
</TABLE>
++ Face amount in U.S. dollars unless otherwise indicated.
(a) All ratings are by Standard & Poor's Ratings Service, except that those
identified by an asterisk (*) are rated by Moody's Investor Service Inc.
(b) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
(c) Security is segregated by Custodian for open forward foreign currency
contracts. (d) Non-income producing security.
# Security issued with attached warrants.
** Aggregate cost for Federal income tax purposes is substantially the same.
Currency abbreviations:
-----------------------
GBP -- British Pound
EUR -- Euro
DEM-- German Mark
CAD -- Canadian Dollar
See page 19 for definition of ratings.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
18 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Rating Service ("Standard & Poor's") -- Ratings from "BBB" to
"D" may be modified by the addition of a plus (+) or minus (-) sign, which is
used to show relative standing within the major rating categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
bonds in this category than for bonds in higher rated
categories.
BB, B and CCC -- Bonds rated "BB" and "B" are regarded, on balance, as
predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of
the obligation. BB represents a lower degree of speculation
than B, and CCC the highest degree of speculation. While such
bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
D -- Bonds rated "D" are in default, and payment of interest and/or
repayment of principal is in arrears.
Moody's Investors Services, Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3
may be applied to each generic rating from "Baa" through "Caa", where 1 is the
highest and 3 the lowest rating within its generic category.
Baa -- Bonds rated "Baa" are considered to be medium grade
obligations; that is they are neither highly protected nor
poorly secured. Interest payment and principal security appear
adequate for the present but certain protective elements may
be lacking or may be characteristically unreliable over any
great length of time. These bonds lack outstanding investment
characteristics and may have speculative characteristics as
well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate and thereby may not well characterize bonds in this
class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payment or of
maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be in
default, or present elements of danger may exist with respect
to principal or interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or
Moody's.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost-- $1,594,626,955) $1,535,011,335
Cash 499
Receivable for Fund shares sold 1,421,964
Receivable for securities sold 6,332,454
Interest receivable 36,536,514
Receivable for open forward foreign currency contracts (Note 8) 3,816,890
- -----------------------------------------------------------------------------------------
Total Assets 1,583,119,656
- -----------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 10,914,166
Payable for open forward foreign currency contracts (Note 8) 885,834
Investment advisory fees payable 633,961
Payable for Fund shares purchased 267,905
Administration fees payable 253,585
Distribution fees payable 40,531
Accrued expenses 355,521
- -----------------------------------------------------------------------------------------
Total Liabilities 13,351,503
- -----------------------------------------------------------------------------------------
Total Net Assets $1,569,768,153
=========================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 156,745
Capital paid in excess of par value 1,826,435,959
Overdistributed net investment income (1,963,739)
Accumulated net realized loss from securities transactions
and foreign currencies (198,294,049)
Net unrealized depreciation of investments and foreign currencies (56,566,763)
- -----------------------------------------------------------------------------------------
Total Net Assets $1,569,768,153
=========================================================================================
Shares Outstanding:
Class A 43,043,963
- -----------------------------------------------------------------------------------------
Class B 72,610,919
- -----------------------------------------------------------------------------------------
Class L 13,511,465
- -----------------------------------------------------------------------------------------
Class Y 27,569,829
- -----------------------------------------------------------------------------------------
Class Z 8,768
- -----------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $10.00
- -----------------------------------------------------------------------------------------
Class B * $10.01
- -----------------------------------------------------------------------------------------
Class L ** $10.03
- -----------------------------------------------------------------------------------------
Class Y (and redemption price) $10.03
- -----------------------------------------------------------------------------------------
Class Z (and redemption price) $9.84
- -----------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $10.47
- -----------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $10.13
=========================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if shares
are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME:
Interest $ 87,134,203
Dividends 1,253,238
- ---------------------------------------------------------------------------------------------------
Total Investment Income 88,387,441
- ---------------------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 4,068,592
Distribution fees (Note 2) 3,998,135
Administration fees (Note 2) 1,627,437
Shareholder and system servicing fees 523,391
Shareholder communications 422,291
Registration fees 94,818
Custody 52,972
Audit and legal 14,035
Trustees' fees 11,543
Other 11,268
- ---------------------------------------------------------------------------------------------------
Total Expenses 10,824,482
- ---------------------------------------------------------------------------------------------------
Net Investment Income 77,562,959
- ---------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTES 3 AND 8):
Realized Gain (Loss) From:
Securities transactions (excluding short-term securities) (50,070,395)
Foreign currency transactions 2,464,088
- ---------------------------------------------------------------------------------------------------
Net Realized Loss (47,606,307)
- ---------------------------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments and Foreign Currencies:
Beginning of period (55,133,719)
End of period (56,566,763)
- ---------------------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (1,433,044)
- ---------------------------------------------------------------------------------------------------
Net Loss on Investments and Foreign Currencies (49,039,351)
- ---------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 28,523,608
===================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Statements of Change in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended January 31, 2000 (unaudited)
and the Year Ended July 31, 1999
<TABLE>
<CAPTION>
2000 1999
==============================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 77,562,959 $ 146,589,832
Net realized loss (47,606,307) (100,357,309)
Increase in net unrealized depreciation (1,433,044) (104,146,218)
- ----------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 28,523,608 (57,913,695)
- ----------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (74,017,836) (147,164,256)
Capital -- (2,010,947)
- ----------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions To Shareholders (74,017,836) (149,175,203)
- ----------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 451,042,721 962,304,050
Net asset value of shares issued for
reinvestment of dividends 29,526,853 62,438,522
Cost of shares reacquired (530,683,150) (828,877,756)
- ----------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (50,113,576) 195,864,816
- ----------------------------------------------------------------------------------------------
Decrease in Net Assets (95,607,804) (11,224,082)
NET ASSETS:
Beginning of period 1,665,375,957 1,676,600,039
- ----------------------------------------------------------------------------------------------
End of period* $1,569,768,153 $1,665,375,957
==============================================================================================
* Includes overdistributed net investment income of: $ (1,963,739) $ (7,563,912)
==============================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
22 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney High Income Fund ("Fund"), a separate investment fund of the
Smith Barney Income Funds ("Trust"), a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust consists of this
Fund and seven other separate investment funds: Smith Barney Exchange Reserve
Fund, Smith Barney Premium Total Return Fund, Smith Barney Convertible Fund,
Smith Barney Municipal High Income Fund, Smith Barney Diversified Strategic
Income Fund, Smith Barney Balanced Fund and Smith Barney Total Return Bond Fund.
The financial statements and financial highlights for the other funds are
presented in separate shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing price on such markets;
securities traded in the over-the-counter market and securities for which no
sales price was reported are valued at bid price, or in the absence of a recent
bid price, at the bid equivalent obtained from one or more of the major market
makers; (c) securities that have a maturity of more than 60 days are valued at
prices based on market quotations for securities of similar type, yield and
maturity; (d) securities maturing within 60 days are valued at cost plus
accreted discount, or minus amortized premium, which approximates value; (e) 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 or expense amounts
recorded and collected or paid are adjusted when reported by the custodian bank;
(f) interest income, adjusted for amortization of premium and accretion of
discount, is recorded on an accrual basis; (g) dividend income is recorded on
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; (h) gains or losses on
the sale of securities are recorded by using the specific identification method;
(i) dividends and distributions to shareholders are recorded on the ex-dividend
date; (j) direct expenses are charged to each class; management fees and general
fund expenses are allocated on the basis of the relative net assets; (k) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At July 31, 1999, reclassifications were made to the Fund's capital
accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Accordingly, a portion
of accumulated net realized loss amounting to $84,580,052 was reclassified to
paid in capital. Net investment income, net realized gains and net assets were
not affected by this change; (l) 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 (m) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 23
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
In addition, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked to market daily
by recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled. The Fund from time to time may also enter
into options and/or futures contracts to hedge market risk.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Trust. The Fund pays SSBC an investment advisory fee calculated
at an annual rate of 0.50% of the average daily net assets. This fee is
calculated daily and paid monthly.
SSBC 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.
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through January31, 2000, the Fund paid transfer agent
fees of $295,366 to Private Trust.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B shares,
which applies if redemption occurs within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per year
until no CDSC is incurred. Class L shares also have a 1.00% CDSC, which applies
if redemption occurs within the first year of purchase. In certain cases, Class
A shares have a 1.00% CDSC, which applies if redemption occurs within the first
year of purchase. This CDSC only applies to those purchases of Class A shares,
which, when combined with current holdings of Class A shares, equal or exceed
$500,000 in the aggregate. These purchases do not incur an initial sales charge.
For the six months ended January 31, 2000, CFBDS and SSB received sales charges
of $253,000 and $143,000 on sales of the Fund's Class A and L shares,
respectively. In addition, CDSCs paid to SSB were approximately:
Class A Class B Class L
- --------------------------------------------------------------------------------
CDSCs $15,000 $921,000 $31,000
- --------------------------------------------------------------------------------
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets of each respective class. In addition, the Fund pays a
distribution fee with respect to Class B and L shares calculated at an annual
rate of 0.50% and 0.45% of the average daily net assets for each class,
respectively. For the six months ended January 31, 2000, total Distribution Plan
fees incurred were:
Class A Class B Class L
- --------------------------------------------------------------------------------
Distribution Plan Fees $584,781 $2,922,118 $491,236
- --------------------------------------------------------------------------------
All officers and one Trustee of the Trust are employees of SSB.
- --------------------------------------------------------------------------------
24 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
3. Investments
During the six months ended January 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
- --------------------------------------------------------------------------------
Purchases $529,543,911
- --------------------------------------------------------------------------------
Sales 625,966,887
- --------------------------------------------------------------------------------
At January 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
- --------------------------------------------------------------------------------
Gross unrealized appreciation $ 29,958,673
- --------------------------------------------------------------------------------
Gross unrealized depreciation (89,574,293)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(59,615,620)
- --------------------------------------------------------------------------------
4. Capital Loss Carryforward
At July 31, 1999, the Fund had, for Federal income tax purposes, capital loss
carryforwards of approximately $72,393,000 available, to offset future realized
capital gains. To the extent that these capital carryforward losses are used to
offset realized capital gains, it is probable that the gains so offset will not
be distributed. The following capital loss carryforward amounts expire on July
31 in the year indicated below:
Carryforward
Year Amounts
- --------------------------------------------------------------------------------
2000 $ 9,861,000
2003 13,404,000
2004 23,360,000
2007 25,768,000
- --------------------------------------------------------------------------------
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contracts. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking-to-market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At January 31, 2000, the Fund had no open futures contracts.
6. Option Contracts
Premiums paid when put or call options are purchased by the Fund, represent
investments, which are marked-to-market daily and are included in the schedule
of investments. When a purchased option expires, the Fund will realize a loss in
the amount of the premium paid. When the Fund enters into 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 January 31, 2000, the Fund had no open purchased call or put options
contracts.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 25
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
When a Fund writes a covered 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 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 a
loss if the market price of the underlying security declines.
For the six months ended January 31, 2000, the Fund did not write any options.
7. 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.
- --------------------------------------------------------------------------------
26 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
8. Forward Foreign Currency Contracts
At January 31, 2000, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The net unrealized gain (loss) on the contracts
reflected in the accompanying financial statements were as follows:
<TABLE>
<CAPTION>
Local Market Settlement Unrealized
Foreign Currency Currency Value Date Gain (Loss)
=========================================================================================
<S> <C> <C> <C> <C>
To Sell:
Euro (7,250,000) $ (7,105,057) 6/15/00 $ 463,146
Euro (6,879,960) (6,742,415) 6/15/00 454,539
Euro (3,500,000) (3,430,027) 6/15/00 122,228
Euro (4,750,000) (4,655,037) 6/15/00 260,738
Euro (58,945,288) (57,766,844) 6/15/00 2,363,244
Euro (2,525,000) (2,474,520) 6/15/00 152,995
British Pound (9,920,750) (16,036,905) 6/22/00 (36,521)
Canadian Dollar (7,245,000) (5,023,575) 6/8/00 (89,969)
- -----------------------------------------------------------------------------------------
3,690,400
- -----------------------------------------------------------------------------------------
To Buy:
Euro 4,904,375 4,806,326 6/15/00 (197,117)
Euro 2,115,000 2,072,717 6/15/00 (90,188)
Euro 1,262,500 1,237,260 6/15/00 (54,151)
Euro 1,262,500 1,237,260 6/15/00 (79,023)
Euro 1,296,875 1,270,948 6/15/00 (81,174)
Euro 1,971,250 1,931,840 6/15/00 (112,740)
Euro 573,330 561,868 6/15/00 (23,043)
Euro 2,436,653 2,387,939 6/15/00 (97,934)
Euro 573,330 561,868 6/15/00 (23,043)
Euro 143,333 140,467 6/15/00 (931)
- -----------------------------------------------------------------------------------------
(759,344)
- -----------------------------------------------------------------------------------------
Net Unrealized Gain on Forward
Foreign Currency Contracts $2,931,056
=========================================================================================
</TABLE>
9. Shares of Beneficial Interest
At January 31, 2000, 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 January 31, 2000, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class B Class L Class Y Class Z
==================================================================================================
<S> <C> <C> <C> <C> <C>
Total Paid-in Capital $465,431,559 $936,168,269 $143,312,693 $279,333,261 $2,346,922
==================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 27
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 2000 July 31, 1999
------------------------------ --------------------------------
Shares Amount Shares Amount
=============================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 20,367,928 $ 205,684,541 30,693,460 $ 329,457,614
Shares issued on reinvestment 1,118,463 11,254,609 2,320,067 24,728,133
Shares reacquired (26,381,700) (266,918,423) (28,694,046) (309,682,580)
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (4,895,309) $ (49,979,273) 4,319,481 $ 44,503,167
=============================================================================================================
Class B
Shares sold 5,645,068 $ 57,100,735 22,658,578 $ 243,905,277
Shares issued on reinvestment 1,428,063 14,376,340 2,881,204 30,722,603
Shares reacquired (13,782,663) (139,418,649) (19,385,138) (208,080,670)
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (6,709,532) $ (67,941,574) 6,154,644 $ 66,547,210
=============================================================================================================
Class L
Shares sold 3,364,165 $ 34,099,405 10,088,505 $ 108,547,108
Shares issued on reinvestment 320,965 3,236,469 542,331 5,780,852
Shares reacquired (3,979,185) (40,331,177) (4,726,792) (50,764,189)
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (294,055) $ (2,995,303) 5,904,044 $ 63,563,771
=============================================================================================================
Class Y
Shares sold 15,238,412 $ 154,158,040 26,317,750 $ 280,394,051
Shares issued on reinvestment 64,740 657,023 112,305 1,201,686
Shares reacquired (8,241,471) (84,004,262) (23,916,811) (260,350,270)
- -------------------------------------------------------------------------------------------------------------
Net Increase 7,061,681 $ 70,810,801 2,513,244 $ 21,245,467
=============================================================================================================
Class Z
Shares sold -- $ -- -- --
Shares issued on reinvestment 243 2,412 492 $ 5,248
Shares reacquired (1,065) (10,639) (4) (47)
- -------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (822) $ (8,227) 488 $ 5,201
=============================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
28 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 2000(1)(2) 1999(2) 1998 1997 1996 1995
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.30 $11.74 $11.82 $10.98 $11.10 $11.16
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.51 1.00 1.02 1.09 1.08 1.08
Net realized and unrealized gain (loss) (0.33) (1.44) (0.01) 0.83 (0.12) (0.02)
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.18 (0.44) 1.01 1.92 0.96 1.06
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.48) (0.99) (1.09) (1.08) (1.08) (1.05)
Capital -- (0.01) -- -- -- (0.07)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.48) (1.00) (1.09) (1.08) (1.08) (1.12)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.00 $10.30 $11.74 $11.82 $10.98 $11.10
- ---------------------------------------------------------------------------------------------------------------------
Total Return 1.81%++ (3.65)% 8.85% 18.31% 8.95% 10.28%
- ---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $430,612 $493,725 $512,294 $424,087 $341,040 $316,716
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.13%+ 1.05% 1.05% 1.06% 1.10% 1.11%
Net investment income 10.05+ 9.24 8.61 9.57 9.65 10.03
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 96% 102% 78% 72% 60%
=====================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 29
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998 1997 1996 1995
======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.31 $11.75 $11.83 $10.99 $11.11 $11.16
- ----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.49 0.95 0.96 1.03 1.02 1.03
Net realized and unrealized gain (loss) (0.34) (1.44) (0.01) 0.83 (0.12) (0.02)
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.15 (0.49) 0.95 1.86 0.90 1.01
- ----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.45) (0.94) (1.03) (1.02) (1.02) (0.99)
Capital -- (0.01) -- -- -- (0.07)
- ----------------------------------------------------------------------------------------------------------------------
Total Distributions ( 0.45) (0.95) (1.03) (1.02) (1.02) (1.06)
- ----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.01 $10.31 $11.75 $11.83 $10.99 $11.11
- ----------------------------------------------------------------------------------------------------------------------
Total Return 1.55%++ (4.15)% 8.34% 17.72% 8.41% 9.77%
- ----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $726,980 $817,382 $859,472 $680,916 $560,031 $478,499
- ----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.61%+ 1.55% 1.55% 1.55% 1.59% 1.61%
Net investment income 9.55+ 8.75 8.11 9.07 9.16 9.52
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 96% 102% 78% 72% 60%
======================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
30 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 2000(1)(2) 1999(2) 1998(3) 1997 1996 1995(4)(5)
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.32 $11.76 $11.84 $11.00 $11.11 $10.90
- -------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.49 0.96 0.97 1.04 1.03 0.95
Net realized and unrealized gain (loss) (0.32) (1.45) (0.01) 0.83 (0.11) 0.23
- -------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.17 (0.49) 0.96 1.87 0.92 1.18
- -------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.46) (0.94) (1.04) (1.03) (1.03) (0.90)
Capital -- (0.01) -- -- -- (0.07)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions ( 0.46) (0.95) (1.04) (1.03) (1.03) (0.97)
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.03 $10.32 $11.76 $11.84 $11.00 $11.11
- -------------------------------------------------------------------------------------------------------------------------
Total Return 1.68%++ (4.08)% 8.38% 17.77% 8.56% 11.50%++
- -------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $135,488 $142,477 $92,946 $44,444 $21,049 $6,011
- -------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.54%+ 1.48% 1.48% 1.48% 1.51% 1.56%+
Net investment income 9.62+ 8.84 8.15 9.14 9.23 9.58+
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 96% 102% 78% 72% 60%
=========================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) On November 7, 1994, the former Class D shares were renamed Class C shares.
(5) For the period from August 24, 1994 (inception date) to July 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 31
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class Y Shares 2000(1)(2) 1999(2) 1998 1997 1996 1995(3)
=======================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.33 $11.77 $11.84 $10.99 $11.10 $10.88
- -----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.53 1.02 1.05 1.12 0.92 0.09
Net realized and unrealized gain (loss) (0.33) (1.42) (0.01) 0.84 (0.11) 0.23
- -----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.20 (0.40) 1.04 1.96 0.81 0.32
- -----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.50) (1.03) (1.11) (1.11) (0.92) (0.03)
Capital -- (0.01) -- -- -- (0.07)
- -----------------------------------------------------------------------------------------------------------------------
Total Distributions ( 0.50) (1.04) (1.11) (1.11) (0.92) (0.10)
- -----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $10.03 $10.33 $11.77 $11.84 $10.99 $11.10
- -----------------------------------------------------------------------------------------------------------------------
Total Return 1.98%++ (3.33)% 9.18% 18.68% 9.32% 2.91%++
- -----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $276,602 $211,693 $211,781 $139,269 $35,097 $10,306
- -----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.71%+ 0.72% 0.72% 0.73% 0.76% 0.86%+
Net investment income 10.49+ 9.52 8.83 9.90 9.98 10.28+
- -----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 96% 102% 78% 72% 60%
=======================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from April 28, 1995 (inception date) to July 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
32 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class Z Shares 2000(1)(2) 1999(2) 1998(2) 1997(2) 1996 1995(2)
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $10.29 $11.74 $11.80 $10.99 $11.09 $11.16
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.53 1.01 1.04 1.12 1.11 1.11
Net realized and unrealized gain (loss) (0.49) (1.43) 0.01 0.80 (0.10) (0.03)
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.04 (0.42) 1.05 1.92 1.01 1.08
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.49) (1.02) (1.11) (1.11) (1.11) (1.08)
Capital -- (0.01) -- -- -- (0.07)
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.49) (1.03) (1.11) (1.11) (1.11) (1.15)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 9.84 $10.29 $11.74 $11.80 $10.99 $11.09
- ---------------------------------------------------------------------------------------------------------------------
Total Return 0.43%++ (3.49)% 9.33% 18.29% 9.42% 10.55%
- ---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $86 $99 $107 $104 $7,158 $9,917
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.72%+ 0.89% 0.85% 0.75% 0.77% 0.86%
Net investment income 10.43+ 9.28 8.82 9.88 9.98 10.28
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 34% 96% 102% 78% 72% 60%
=====================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney High Income Fund 33
<PAGE>
Smith Barney
High Income Fund
Trustees
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
Richard E. Hanson, Jr.
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
John C. Bianchi
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for general information of the shareholders of Smith
Barney Income Funds -- Smith Barney High Income Fund, but it may also be used as
sales literature when preceded or accompanied by the current Prospectus, which
gives details about charges, expenses, investment objectives and operating
policies of the Fund. If used as sales material after March 31, 2000, this
report must be accompanied by performance information for the most recently
completed calendar quarter.
[LOGO OF SOLOMON SMITH BARNEY]
Smith Barney
High Income Fund
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
<PAGE>
==========
[LOGO] SB
MF
==========
================================================================================
SMITH BARNEY
CONVERTIBLE
FUND
================================================================================
SPECIAL DISCIPLINE SERIES
SEMI-ANNUAL REPORT
JANUARY 31, 2000
[LOGO] SB SMITH BARNEY
MF MUTUAL FUNDS
- --------------------------------------------------------------------------------
Not FDIC Insured o Not Bank Guaranteed o May Lose Value
<PAGE>
Smith Barney
Convertible Fund
================================================================================
The Smith Barney Convertible Fund ("Fund") seeks current income and capital
appreciation by investing primarily in convertible securities. These are
securities that may be converted to common stock or other equity interests in
the issuer at a predetermined price or rate.
Smith Barney Convertible Fund
Average Annual Total Returns
January 31, 2000
Without Sales Charges(1)
------------------------------------------------------
Class A Class B Class L Class O
================================================================================
Six Months+ (3.33)% (3.59)% (3.70)% (3.65)%
- --------------------------------------------------------------------------------
One-Year (3.53) (4.05) (4.61) (4.21)
- --------------------------------------------------------------------------------
Five-Year 8.13 7.60 N/A 7.57
- --------------------------------------------------------------------------------
Ten-Year N/A 7.44 N/A N/A
- --------------------------------------------------------------------------------
Since Inception++ 7.18 7.15 (5.18) 7.03
================================================================================
With Sales Charges(2)
------------------------------------------------------
Class A Class B Class L Class O
================================================================================
Six Months+ (8.15)% (8.32)% (5.57)% (4.60)%
- --------------------------------------------------------------------------------
One-Year (8.35) (8.66) (6.48) (5.13)
- --------------------------------------------------------------------------------
Five-Year 7.02 7.45 N/A 7.57
- --------------------------------------------------------------------------------
Ten-Year N/A 7.44 N/A N/A
- --------------------------------------------------------------------------------
Since Inception++ 6.42 7.15 (5.75) 7.03
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B, L and O shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; and Class B shares reflect the deduction of a 5.00% CDSC,
which applies if shares are redeemed within one year from purchase.
Thereafter, the CDSC declines by 1.00% per year until no CDSC is incurred.
Class L and O shares reflect the deduction of a 1.00% CDSC which applies
if shares are redeemed within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ 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 9, 1986, June 15, 1998 and November 7, 1994, respectively.
================================================================================
Fund Highlight
================================================================================
During the reporting period, Salomon Brothers Asset Management ("SaBAM") was
appointed sub-advisor to the Smith Barney Convertible Fund. We believe that the
appointment of SaBAM should benefit future and existing investors. With $1.2
billion in convertible assets under management as of January 31, 2000 and a
portfolio management team led by Daniel J. Berkery and Ross S. Margolies, SaBAM
offers what has historically been a successful combination of both experience
and expertise. Of course, past performance is not a guarantee of future results.
================================================================================
NASDAQ SYMBOL
================================================================================
Class A SCRAX
Class B SCVSX
Class O SCVOX
================================================================================
What's Inside
================================================================================
Shareholder Letter........................................................... 1
Historical Performance....................................................... 5
Smith Barney Convertible Fund at a Glance.................................... 8
Schedule of Investments...................................................... 9
Statement of Assets and Liabilities.......................................... 14
Statement of Operations...................................................... 15
Statements of Changes in Net Assets.......................................... 16
Notes to Financial Statements................................................ 17
Financial Highlights......................................................... 21
<PAGE>
================================================================================
Shareholder Letter
================================================================================
[GRAPHIC] [GRAPHIC]
Heath B. Daniel J.
McLendon Berkery
Chairman Investment Officer
[GRAPHIC]
Ross S.
Margolies
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney
Convertible Fund ("Fund") for the period ended January 31, 2000. In this report,
we summarize the period's prevailing economic conditions, and outline the Fund's
strategy. Any discussion of the Fund's holdings is as of January 31, 2000.
Please refer to pages 9 through 12 for a list of the Fund's holdings. We hope
that you find this report to be useful and informative.
Performance Overview
For the six months ended January 31, 2000, the Fund returned a negative 3.33%
for its Class A shares without the effects of sales charges. For the same period
the Standard and Poor's 500 Index ("S&P 500")(1) and the Salomon Smith Barney
Broad Investment Grade Index ("SSB BIG")(2) posted a total return of 5.58% and
0.68%, respectively.
Special Shareholder Notice
During the reporting period, Salomon Brothers Asset Management ("SaBAM") was
appointed sub-advisor to the Fund. We believe that the appointment of SaBAM
should benefit future and existing investors. With $1.2 billion in convertible
assets under management as of January 31, 2000 and a portfolio management team
led by Daniel J. Berkery and Ross S. Margolies, SaBAM offers what has
historically been a successful combination of both experience and expertise. Of
course, past performance is not indicative of future results.
The Fund will continue to be managed to achieve its stated objective of current
income and capital appreciation. We believe Dan Berkery, Ross Margolies and
their portfolio management team bring to the Fund's management both stock
expertise as well as bond knowledge.
It is our view that the characteristics of the convertible market have changed
over time as evidenced by the fact that many new issues coming into the market
are in two sectors, technology and telecommunications. Also, more than half the
issues in the convertible bond market are rated below investment grade. We
believe that SaBAM's resources and analyst strength will provide the means
needed to analyze investment opportunities in today's convertible bond market.
Investment Strategy
As previously noted, the Fund seeks current income and capital appreciation by
investing primarily in convertible securities. Convertible securities are bonds
or preferred stocks that may be converted into common stock or other equity
interests in the issuer at a predetermined price or rate. In evaluating a
convertible security, we analyze the fixed income characteristics of the
security, as well as the equity characteristics of the underlying security. One
of our goals is to maxi-
- ----------
1 The S&P 500 is a market-capitalization weighted measure of 500 widely held
common stocks.
2 The SSB BIG is an unmanaged market-capitalization weighted index which
includes fixed-rate Treasury, Government-sponsored, mortgage and
investment-grade corporates (BBB-/Baa3) with a maturity of year or longer.
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 1
<PAGE>
mize return potential but also help to minimize risk for our shareholders. In
our opinion, as the convertible bond market has evolved over the past few years,
risk control has become more important for portfolio managers in this asset
class.
While no guarantees can be made, we have positioned the Fund to behave like a
classical convertible bond fund, participating in the upside potential of common
stocks while still providing some degree of downside support. We have positioned
the Fund's portfolio as less equity sensitive than the broad convertible market.
However this did not come about because of a top down(3) investment strategy but
because we seek to purchase convertibles that we think have a real investment
value floor.
Market Overview and Outlook
We expect that the Federal Reserve Board ("Fed") will continue to raise
short-term interest rates through the first half of 2000. The Fed's continuing
increases of short-term interest rates should affect the convertible market in
two ways. First, many investors in the convertible market today are leveraged
hedge funds whose cost of capital increases with interest rate hikes, decreasing
the valuations of convertibles in the market. Second, because of the high
sensitivity of the convertible market to stocks, the market may move down more
than historically if the stock market goes down. In this environment, we plan to
stick to our investment style of buying securities where we can quantify the
downside risk. (Of course, no guarantees can be made that our approach will be
successful.)
The breadth in the convertible bond market was very narrow in 1999. The
convertible bond market currently has higher than normal equity sensitivity and
this is a major risk when investing in the convertible bond market. The broad
convertible market(4) ended January with an estimated equity sensitivity of 0.70
as measured by a concept called delta. (Delta, an option term, is a measure of
the relationship between a security and the underlying stock price.)
In simple terms, that means that for every 1.00% move up or down in the stocks
underlying the convertible market, the actual convertible securities will move
up or down 0.70%. This compares to an estimated 0.52 delta for the Fund. Today,
convertibles are more sensitive to moves in common stocks than they have been in
recent years because they are trading so far above their downside support
levels.
In addition to being less equity sensitive than the broad convertible market,
currently, the Fund has only a 54% premium to investment value. This means that
on average the convertibles in the Fund are trading closer to their downside
support level as measured by investment value. Thus, our convertibles have the
potential to capture a significant portion of the stock market's moves, offer
high income, and offer better downside protection than the broad convertible
market. (Of course, no guarantees can be made that our approach will be
successful.)
Portfolio Update(5)
We have made a number of changes to the Fund's portfolio over the last five
weeks. We have invested in convertibles across all levels of credit ratings.
This has involved buying some lower- rated securities; however, we have tried to
balance these purchases by investing in some very highly-rated securities. The
portfolio-weighted credit rating has remained the same, BB+, compared to when we
began managing the Fund. This is slightly higher than the broad market's average
credit rating of BB. (Credit ratings are
- ----------
3 Top-down approach to investing is a method in which an investor looks at
trends in the general economy, and next selects industries and then
companies that should benefit from those trends.
4 As represented by the Merrill Lynch All U.S. Convertible Bond Index. The
Merrill Lynch All U.S. Convertible Bond Index is a rule-driven index,
which includes all bonds and preferreds of U.S.- registered companies
which have $50 million or more in aggregate market value, and are
convertible in U.S. dollar denominated common stocks, ADRs or cash
equivalents.
5 Please note that Portfolio holdings are as of January 31, 2000 and are
subject to change.
- --------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
supplied by Standard & Poor's Ratings Service, a major credit reporting and bond
rating agency, and other major credit and bond rating agencies.)
We have also slightly increased the Fund's weighting in common stocks. In order
to help minimize the risks in the Fund, we have kept the common stock positions
to a relatively small percentage. As of January 31, 2000, the Fund held 10% of
its assets in common stocks. Most of the common stocks in the Fund are stocks
with convertibles outstanding, and we have chosen to invest in these common
stocks because we have deemed them to be more attractive than their convertible
securities. We also invest in common stocks that have yields that approximate
the yields in the convertible market and offer attractive upside potential.
During the period, we increased the Fund's weighting in the technology sector.
As of January 31, 2000, the Fund had a 27% investment in technology companies.
This is a smaller percentage in technology than the broad convertible market but
it is two percentage points higher than the 25% technology weighting in the
Goldman Sachs Convertible 100 Index, a more narrow measure of the convertible
market. (The Goldman Sachs Convertible 100 Index is a U.S. dollar denominated
index of the 100 largest market capitalization convertible securities in the
U.S.)
Because the convertible market provides financing for growing companies, the
technology component of the Goldman Sachs Convertible 100 Index is often very
high. The downside protection of convertibles gives investors the opportunity to
invest in volatile technology companies while controlling the risk. In the
technology sector we think the Quantum Corporation 7% 8/1/04 bonds are an
attractive investment because investors are earning a 15% yield to maturity
despite Quantum Corporation's strong balance sheet.
We also added positions in Cypress Semiconductor bonds; we feel that the
fundamentals in Cypress Semiconductor's business will drive strong stock
performance over the near term. Since these bonds trade only 31% above their
investment value, we should have some downside protection if we are wrong about
Cypress stock.
We are currently overweighted in the energy sector. We have been positive on the
fundamentals of energy companies for some time. We are underweighted in
communication services versus both the Goldman Sachs Convertible 100 Index and
the broader convertible market. The main reason we have underweighted
communication services is that we have been unable to identify many securities
that have an investment value we can quantify, and therefore quantifying the
potential downside has been extremely challenging. These are the types of
convertibles that we avoid, especially in times when we think that the market
has considerable downside risk.
Thank you for your investment in the Smith Barney Convertible Fund. We look
forward to helping you pursue your financial goals in the new century.
Sincerely,
/s/ Heath B. McLendon /s/ Daniel J. Berkery
Heath B. McLendon Daniel J. Berkery
Chairman Investment Officer
/s/ Ross S. Margolies
Ross S. Margolies
Investment Officer
February 22, 2000
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 3
<PAGE>
================================================================================
Top Ten Holdings* As of January 31, 2000
================================================================================
1. Quantum Corp. 3.2%
- --------------------------------------------------------------------------------
2. NTL Inc. 2.9
- --------------------------------------------------------------------------------
3. Rogers Communications Inc. 2.6
- --------------------------------------------------------------------------------
4. Clear Channel Communications Inc. 2.1
- --------------------------------------------------------------------------------
5. Kerr-McGee Corp. 2.1
- --------------------------------------------------------------------------------
6. Wendy's Financing I 2.0
- --------------------------------------------------------------------------------
7. S3 Inc. 1.9
- --------------------------------------------------------------------------------
8. International Paper Capital Trust 1.9
- --------------------------------------------------------------------------------
9. Sunbeam Corp. 1.9
- --------------------------------------------------------------------------------
10. Alpharma Inc. 1.8
- --------------------------------------------------------------------------------
* As a percentage of total investments.
- --------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Historical Performance -- Class A Shares
================================================================================
<TABLE>
<CAPTION>
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>
1/31/00 $15.25 $14.42 $0.32 $0.00 $0.00 (3.33)%+
- ----------------------------------------------------------------------------------------------------------
7/31/99 16.90 15.25 0.66 0.44 0.00 (3.11)
- ----------------------------------------------------------------------------------------------------------
7/31/98 18.61 16.90 0.79 1.26 0.00 1.97
- ----------------------------------------------------------------------------------------------------------
7/31/97 15.66 18.61 0.75 0.36 0.00 26.94
- ----------------------------------------------------------------------------------------------------------
7/31/96 15.27 15.66 0.73 0.00 0.00 7.41
- ----------------------------------------------------------------------------------------------------------
7/31/95 14.56 15.27 0.73 0.00 0.00 10.35
- ----------------------------------------------------------------------------------------------------------
7/31/94 14.99 14.56 0.73 0.00 0.00 1.99
- ----------------------------------------------------------------------------------------------------------
Inception*-- 7/31/93 13.82 14.99 0.51 0.03 0.00 12.63+
==========================================================================================================
Total $5.22 $2.09 $0.00
==========================================================================================================
</TABLE>
================================================================================
Historical Performance - Class B Shares
================================================================================
<TABLE>
<CAPTION>
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>
1/31/00 $15.22 $14.38 $0.29 $0.00 $0.00 (3.59)%+
- ----------------------------------------------------------------------------------------------------------
7/31/99 16.89 15.22 0.60 0.44 0.00 (3.61)
- ----------------------------------------------------------------------------------------------------------
7/31/98 18.60 16.89 0.71 1.26 0.00 1.51
- ----------------------------------------------------------------------------------------------------------
7/31/97 15.66 18.60 0.67 0.36 0.00 26.29
- ----------------------------------------------------------------------------------------------------------
7/31/96 15.27 15.66 0.66 0.00 0.00 6.91
- ----------------------------------------------------------------------------------------------------------
7/31/95 14.56 15.27 0.66 0.00 0.00 9.80
- ----------------------------------------------------------------------------------------------------------
7/31/94 14.99 14.56 0.66 0.00 0.00 1.50
- ----------------------------------------------------------------------------------------------------------
7/31/93 13.84 14.99 0.62 0.04 0.00 13.40
- ----------------------------------------------------------------------------------------------------------
7/31/92 12.51 13.84 0.64 0.00 0.02 16.25
- ----------------------------------------------------------------------------------------------------------
7/31/91 12.21 12.51 0.68 0.00 0.03 8.86
==========================================================================================================
Total $6.19 $2.10 $0.05
==========================================================================================================
</TABLE>
================================================================================
Historical Performance - Class L Shares
================================================================================
<TABLE>
<CAPTION>
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>
1/31/00 $15.18 $14.34 $0.28 $0.00 $0.00 (3.70)%+
- ----------------------------------------------------------------------------------------------------------
7/31/99 16.90 15.18 0.57 0.44 0.00 (4.08)
- ----------------------------------------------------------------------------------------------------------
Inception*-- 7/31/98 17.14 16.90 0.12 0.00 0.00 (0.74)+
==========================================================================================================
Total $0.97 $0.44 $0.00
==========================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 5
<PAGE>
================================================================================
Historical Performance - Class O Shares
================================================================================
<TABLE>
<CAPTION>
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>
1/31/00 $15.19 $14.34 $0.30 $0.00 $0.00 (3.65)%+
- ----------------------------------------------------------------------------------------------------------
7/31/99 16.87 15.19 0.60 0.44 0.00 (3.66)
- ----------------------------------------------------------------------------------------------------------
7/31/98 18.58 16.87 0.71 1.26 0.00 1.53
- ----------------------------------------------------------------------------------------------------------
7/31/97 15.64 18.58 0.68 0.36 0.00 26.37
- ----------------------------------------------------------------------------------------------------------
7/31/96 15.27 15.64 0.67 0.00 0.00 6.82
- ----------------------------------------------------------------------------------------------------------
Inception*-- 7/31/95 14.09 15.27 0.49 0.00 0.00 12.17+
==========================================================================================================
Total $3.45 $2.06 $0.00
==========================================================================================================
</TABLE>
================================================================================
Historical Performance - Class Y Shares
================================================================================
<TABLE>
<CAPTION>
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>
7/31/00 $15.34 $14.51 $0.35 $0.00 $0.00 (3.12)%+
- ----------------------------------------------------------------------------------------------------------
7/31/99 16.98 15.34 0.71 0.44 0.00 (2.68)
- ----------------------------------------------------------------------------------------------------------
7/31/98 18.66 16.98 0.84 1.26 0.00 2.42
- ----------------------------------------------------------------------------------------------------------
7/31/97 15.68 18.66 0.80 0.36 0.00 27.44
- ----------------------------------------------------------------------------------------------------------
Inception*-- 7/31/96 16.15 15.68 0.39 0.00 0.00 (0.56)+
==========================================================================================================
Total $3.09 $2.06 $0.00
==========================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
================================================================================
Average Annual Total Returns
================================================================================
<TABLE>
<CAPTION>
Without Sales Charges(1)
-----------------------------------------------------------
Class A Class B Class L Class O Class Y
==========================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 1/31/00+ (3.33)% (3.59)% (3.70)% (3.65)% (3.12)%
- ------------------------------------------------------------------------------------------
Year Ended 1/31/00 (3.53) (4.05) (4.61) (4.21) (3.15)
- ------------------------------------------------------------------------------------------
Five Years Ended 1/31/00 8.13 7.60 N/A 7.57 N/A
- ------------------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 7.44 N/A N/A N/A
- ------------------------------------------------------------------------------------------
Inception* through 1/31/00 7.18 7.15 (5.18) 7.03 5.20
==========================================================================================
</TABLE>
<TABLE>
<CAPTION>
With Sales Charges(2)
-----------------------------------------------------------
Class A Class B Class L Class O Class Y
==========================================================================================
<S> <C> <C> <C> <C> <C>
Six Months Ended 1/31/00+ (8.15)% (8.32)% (5.57)% (4.60)% (3.12)%
- ------------------------------------------------------------------------------------------
Year Ended 1/31/00 (8.35) (8.66) (6.48) (5.13) (3.15)
- ------------------------------------------------------------------------------------------
Five Years Ended 1/31/00 7.02 7.45 N/A 7.57 N/A
- ------------------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 7.44 N/A N/A N/A
- ------------------------------------------------------------------------------------------
Inception* through 1/31/00 6.42 7.15 (5.75) 7.03 5.20
==========================================================================================
</TABLE>
- --------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Cumulative Total Returns
================================================================================
Without Sales Charges(1)
- --------------------------------------------------------------------------------
Class A (Inception* through 1/31/00) 65.07%
- --------------------------------------------------------------------------------
Class B (1/31/90 through 1/31/00) 105.01
- --------------------------------------------------------------------------------
Class L (Inception* through 1/31/00) (8.31)
- --------------------------------------------------------------------------------
Class O (Inception* through 1/31/00) 42.70
- --------------------------------------------------------------------------------
Class Y (Inception* through 1/31/00) 22.36
- --------------------------------------------------------------------------------
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B, L and O shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum sales charge of 5.00% and 1.00%, respectively;
Class B shares reflect the deduction of a 5.00% CDSC, which applies if
shares are redeemed within one year from purchase. Thereafter, this CDSC
declines by 1.00% per year until no CDSC is incurred. Class L and O shares
reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within the first year of purchase.
* Inception dates for Class A, B, L, O and Y shares are November 6, 1992,
September 9, 1986, June 15, 1998, November 7, 1994 and February 7, 1996,
respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 7
<PAGE>
================================================================================
Smith Barney Convertible Fund at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class B Shares of the Smith Barney Convertible
Fund vs. Standard & Poor's 500 Index and Lipper Convertible Securities Fund Peer
Group Average+
[The following table was depcited as a line graph in the printed material.]
January 2000
SB Conv. Lipper S&P
-------- ------ ---
January 1990 10000 10000 10000
July 1990 10065 10141 11016
July 1991 10957 11132 12422
July 1992 12737 13036 14011
July 1993 14444 15396 15235
July 1994 14661 15923 16021
July 1995 16098 18026 20203
July 1996 17209 19571 23549
July 1997 21734 23334 33049
July 1998 22063 24916 39428
July 1999 21266 27402 47391
January 2000 20501 32561 50035
+ Hypothetical illustration of $10,000 invested in Class B shares on January
31, 1990, assuming reinvestment of dividends and capital gains, if any, at
net asset value through January 31, 2000. The Standard & Poor's 500 Index
is composed of widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and the over-the-counter market. Figures
for the index include reinvestment of dividends. The Lipper Convertible
Securities Fund Peer Group Average is composed of the Fund's peer group of
63 mutual funds, as of January 31, 2000, investing in convertible
securities. 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 depcited as a line graph in the printed material.]
Industry Diversification*
- --------------------------------------------------------------------------------
Broadcasting 7.7%
Cable TV 6.9%
Computer Software 4.3%
Electronics - Computers 11.2%
Finance Companies - Consumer Credit 3.3%
Health Care, Drugs & Hospital Supp. 7.9%
Oil and Natural Gas 8.2%
Oil Refining and Marketing 3.5%
Retail 4.1%
Telecommunications 10.7%
Other 32.2%
[The following table was depcited as a pie chart in the printed material.]
Investment Breakdown*
- --------------------------------------------------------------------------------
Repurchase Agreement 3.0%
Convertible Bonds and Notes 52.2%
Common Stock 10.1%
Convertible Preferred Stock 34.7%
* As a percentage of total investments.
- --------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) January 31, 2000
================================================================================
SHARES SECURITY VALUE
================================================================================
COMMON STOCK - 10.1%
Computer - Memory Devices - 0.9%
30,000 Seagate Technology, Inc. (b) $ 1,201,875
- --------------------------------------------------------------------------------
Financial Services - 0.2%
10,000 FleetBoston Financial Corp. 314,375
- --------------------------------------------------------------------------------
Food - Manufacturing - 2.1%
35,000 Hormel Foods Corp. 1,421,875
100,000 Nabisco Group Holdings Corp. 862,500
40,000 Tyson Foods, Inc., Class A Shares 547,500
- --------------------------------------------------------------------------------
2,831,875
- --------------------------------------------------------------------------------
Medical - Drugs - 0.5%
15,000 Pharmacia & Upjohn, Inc. 705,000
- --------------------------------------------------------------------------------
Oil Refining and Marketing - 0.6%
75,000 Tesoro Petroleum Corp. 825,000
- --------------------------------------------------------------------------------
Retail - Dept Store - 1.2%
40,000 Federated Department Stores (b) 1,665,000
- --------------------------------------------------------------------------------
Retail - Food - 1.2%
40,000 Delhaize America, Inc. 717,500
25,000 Safeway Inc. (b) 954,687
- --------------------------------------------------------------------------------
1,672,187
- --------------------------------------------------------------------------------
Steel - Producers - 0.3%
35,000 AK Steel Holding Corp. 354,375
- --------------------------------------------------------------------------------
Telecommunications - 1.1%
20,000 GTE Corp. (b) 1,466,250
- --------------------------------------------------------------------------------
Telecommunications Equipment - 2.0%
13,000 Corning Inc. (c) 2,005,250
4,500 Comverse Technology, Inc. (b) 645,188
- --------------------------------------------------------------------------------
2,650,438
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost - $14,189,830) 13,686,375
================================================================================
CONVERTIBLE PREFERRED STOCK-- 34.7%
Broadcasting - 5.7%
22,500 Emmis Communications Corp., Series A, Exchange
6.250% 1,475,156
19,000 Entercom Communications Corp., Exchange 6.250% 1,270,625
15,000 Pegasus Communications Corp., Exchange
6.500% (d) 1,537,500
70,000 Sinclair Broadcast Group, Inc., Exchange
6.000% 2,056,250
30,000 XM Satellite Radio Holdings Inc., Series B,
Exchange 8.250% 1,357,500
- --------------------------------------------------------------------------------
7,697,031
- --------------------------------------------------------------------------------
Cable TV - 1.7%
37,500 United Global Com, Inc., Series D, Exchange
7.000% 2,325,000
- --------------------------------------------------------------------------------
Containers - Metal/Glass - 1.3%
95,000 Crown Cork & Seal Co., Inc., Exchange 4.500% 1,799,063
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 9
<PAGE>
================================================================================
Schedule of Investments (unaudited)(continued) January 31, 2000
================================================================================
SHARES SECURITY VALUE
================================================================================
Finance Companies - Consumer Credit - 3.3%
11,000 American General Delaware LLC, Series A,
Exchange 6.000% 816,063
62,500 CNB Captial Trust I, Exchange 6.000% 1,968,750
30,000 St. Paul Capital LLC, Exchange 6.000% 1,650,000
- --------------------------------------------------------------------------------
4,434,813
- --------------------------------------------------------------------------------
Financial Services - 1.2%
35,000 PLC Capital Trust II, Exchange 6.500% 1,631,875
- --------------------------------------------------------------------------------
Independent Power Producer - 0.6%
17,500 Calpine Capital Trust, Exchange 5.500% 850,937
- --------------------------------------------------------------------------------
Iron and Steel - Producers - 1.0%
25,000 LTV Corp., Exchange 8.250% (c)(d) 1,346,875
- --------------------------------------------------------------------------------
Machinery - General Industry - 1.5%
85,000 Ingersoll-Rand Co., Exchange 6.750% 1,970,938
- --------------------------------------------------------------------------------
Oil and Natural Gas - 4.5%
80,000 Kerr-Mcgee Corp., Exchange 5.500% 2,860,000
33,600 Pogo Trust I, Series A, Exchange 6.500% 1,896,300
31,500 Unocal Capital Trust, Exchange 6.250% 1,429,312
- --------------------------------------------------------------------------------
6,185,612
- --------------------------------------------------------------------------------
Oil Refining and Marketing-- 2.9%
150,000 Tesoro Petroleum Corp., Exchange 7.250% (c) 1,837,500
45,000 Tosco Financing Trust, Exchange 5.750% 2,081,250
- --------------------------------------------------------------------------------
3,918,750
- --------------------------------------------------------------------------------
Paper and Paper Products - 1.8%
50,000 International Paper Capital Trust, Exchange
5.250% 2,437,500
- --------------------------------------------------------------------------------
REITS - Lodging - 1.2%
50,000 Host Marriot Financial Trust, Exchange 6.750% 1,668,750
- --------------------------------------------------------------------------------
REITS - Regional Malls - 0.6%
11,200 Simon Property Group Inc., Series B, Exchange
6.500% 791,700
- --------------------------------------------------------------------------------
Restaurants - Food Service - 1.9%
57,500 Wendy's Financing I, Series A, Exchange
5.000% (c) 2,587,500
- --------------------------------------------------------------------------------
Telecommunications Equipment - 1.0%
30,000 Amdocs Ltd., Exchange 6.750% 1,381,875
- --------------------------------------------------------------------------------
Telecommunications Services - 3.1%
40,000 ICG Funding LLC, Exchange 6.750% 2,215,000
31,000 Sprint Corp., Exchange 8.250% 2,046,000
- --------------------------------------------------------------------------------
4,261,000
- --------------------------------------------------------------------------------
Transportation Services - 1.4%
45,000 Canadian National Railway Co., Exchange 5.250% 1,867,500
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCK
(Cost - $48,700,431) 47,156,719
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited)(continued) January 31, 2000
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
================================================================================
CONVERTIBLE BONDS AND NOTES - 52.2%
Advertising - 0.9%
$1,250,000 A The Interpublic Group of Cos., Inc., 1.870%
due 6/1/06 $ 1,235,938
- --------------------------------------------------------------------------------
Broadcasting - 2.0%
2,750,000 BBB- Clear Channel Communications, Inc., 1.500%
due 12/1/02 2,774,063
- --------------------------------------------------------------------------------
Cable TV - 5.2%
3,500,000 NR NTL Inc., 5.750% due 12/15/09 (d) 3,675,000
3,250,000 BB- Rogers Communications, Inc., 2.000% due
11/26/05 3,396,250
- --------------------------------------------------------------------------------
7,071,250
- --------------------------------------------------------------------------------
Communications - 2.3%
Bell Atlantic Financial Services Corp.:
1,750,000 A+ 5.750% due 4/1/03 (d) 1,788,281
1,000,000 A+ 4.250% due 9/15/05 (d) 1,317,500
- --------------------------------------------------------------------------------
3,105,781
- --------------------------------------------------------------------------------
Computer Software - 4.3%
5,000,000 NR Network Associates, Inc., zero coupon due
2/13/18 1,787,500
1,500,000 NR Rational Software Corp., 5.000% due 2/1/07 1,481,250
750,000 NR Siebel Systems Inc., 5.500% due 9/15/06 1,528,125
1,000,000 B- Wind River Systems Inc., 5.000% due 8/1/02 1,093,750
- --------------------------------------------------------------------------------
5,890,625
- --------------------------------------------------------------------------------
Consumer Products - 1.8%
15,000,000 Caa2* Sunbeam Corp., zero coupon due 3/25/18 2,512,500
- --------------------------------------------------------------------------------
Diversified and Conglomerate Manufacturing-- 0.9%
Mark IV Industries:
500,000 Ba2* 4.750% due 11/1/04 (d) 429,375
1,000,000 Ba2* 4.750% due 11/1/04 858,750
- --------------------------------------------------------------------------------
1,288,125
- --------------------------------------------------------------------------------
Electronics - Computers-- 11.2%
1,500,000 CCC+ Advanced Micro Devices, Inc., 6.000% due
5/15/05 1,681,875
1,000,000 B2 *ASM Lithography Holding N.V., 4.250% due
11/30/04 (d) 1,268,750
2,000,000 NR Cypress Semiconductor Corp., 4.000% due
2/1/05 (c) 2,030,000
1,500,000 B -Integrated Process Equipment Corp., 6.250%
due 9/15/04 1,145,625
1,750,000 B Micron Technology Inc., 7.000% due 7/1/04 1,995,000
500,000 B Photronics Inc., 6.000% due 6/1/04 (c) 581,250
5,500,000 B2* Quantum Corp., 7.000% due 8/1/04 4,138,750
2,500,000 NR S3 Inc., 5.750% due 10/1/03 2,378,125
- --------------------------------------------------------------------------------
15,219,375
- --------------------------------------------------------------------------------
Electronics Contract Manufacturing Services-- 0.9%
2,000,000 BBB Solectron Corp., zero coupon due 1/27/19 1,222,500
- --------------------------------------------------------------------------------
Health Care, Drugs and Hospital Supplies-- 7.9%
2,000,000 B Alpharma Inc., 3.000% due 6/1/06 2,365,000
2,000,000 BBB- Athena Neurosciences, Inc., 4.750% due
11/15/04 2,055,000
1,250,000 AAA Centocor Inc., 4.750% due 2/15/05 1,548,437
1,250,000 A+ Goldman Sachs Group, 0.500% due 2/18/06 1,098,800
1,250,000 BBB- Healthsouth Corp., 3.250% due 4/1/03 975,000
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 11
<PAGE>
================================================================================
Schedule of Investments (unaudited)(continued) January 31, 2000
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
================================================================================
Health Care, Drugs and Hospital Supplies - 7.9% (continued)
Roche Holdings Inc.:
$ 3,000,000 NR Zero coupon due 5/6/12 (d) $ 1,451,250
1,650,000 NR Zero coupon due 1/19/15 1,289,062
- --------------------------------------------------------------------------------
10,782,549
- --------------------------------------------------------------------------------
Internet - Services - 0.8%
2,100,000 BB- America Online Inc., zero coupon due 12/6/19 1,057,875
- --------------------------------------------------------------------------------
Office Equipment - 1.8%
4,500,000 A- Xerox Corp., 0.570% due 4/21/18 2,401,875
- --------------------------------------------------------------------------------
Oil and Natural Gas - 3.7%
1,750,000 BBB+ Devon Energy Corp., 4.900% due 8/15/08 1,653,750
1,750,000 BBB- Kerr-Mcgee Corp., 7.500% due 5/15/14 1,666,875
2,000,000 BB- Pogo Producing Co., 5.500% due 6/15/06 1,667,500
- --------------------------------------------------------------------------------
4,988,125
- --------------------------------------------------------------------------------
Oil Services - 3.2%
1,500,000 A- Diamond Offshore Drilling Inc., 3.750% due
2/15/07 1,455,000
2,500,000 B- Friede Goldman Halter, Inc., 4.500% due
9/15/04 1,546,875
1,500,000 BBB- Seacor Holdings Inc., 5.375% due 11/15/06 1,378,125
- --------------------------------------------------------------------------------
4,380,000
- --------------------------------------------------------------------------------
Retail - 1.7%
Costco Cos., Inc.:
1,000,000 A- Zero coupon due 8/19/17 (d) 1,140,000
1,000,000 A- Zero coupon due 8/19/17 1,140,000
- --------------------------------------------------------------------------------
2,280,000
- --------------------------------------------------------------------------------
Telecommunications Equipment-- 3.6%
750,000 B- Antec Corp., 4.500% due 5/15/03 1,301,250
3,000,000 B- Aspect Communications Corp., zero coupon due
8/10/18 1,447,500
2,000,000 A DSC Communications Corp. 7.000% due 8/1/04 2,087,500
- --------------------------------------------------------------------------------
4,836,250
- --------------------------------------------------------------------------------
TOTAL CONVERTIBLE BONDS AND NOTES
(Cost-- $69,250,208) 71,046,831
================================================================================
REPURCHASE AGREEMENT-- 3.0%
4,116,000 Goldman, Sachs & Co., 5.700% due 2/1/00;
Proceeds at maturity- $4,116,652; (Fully
collateralized by U.S. Treasury Notes and Bonds,
4.875% to 10.375% due 3/31/01 to 5/15/17;
Market value - $4,168,402) (Cost - $4,116,000) 4,116,000
================================================================================
TOTAL INVESTMENTS - 100%
(Cost - $136,256,469**) $136,005,925
================================================================================
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*) are rated by Moody's Investors Service, Inc.
(b) Non-income producing securities.
(c) All or a portion of this security is on loan (See Note 6).
(d) 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 page 13 for bond ratings.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Bond Ratings (unaudited)
================================================================================
The definition of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"B" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small
degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than for bonds
in higher rated categories.
BB, B -- Bonds rated "BB" and "B" are regarded, on balance, as predominantly
and CCC speculative with respect to capacity and CCC to pay interest and repay
principal in accordance with the terms of the obligation. "BB"
represents a lower degree of speculation than "B," and "CCC" the
highest degree of speculation. While such bonds will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3
may be applied to each generic rating from "Aa" to "B", where 1 is the highest
and 3 the lowest rating within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities, or
fluctuation of protective elements may be of greater amplitude, or
there may be other elements present which make the long-term risks
appear somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment some time
in the future.
Baa -- Bonds rated "Baa" are considered to be medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty
of position characterizes bonds in this class.
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time
may be small.
Caa -- Bonds that are rated "Caa" are of poor standing. Such issues may be in
default or present elements of danger with respect to principal or
interest.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 13
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) January 31, 2000
================================================================================
ASSETS:
Investments, at value (Cost - $136,256,469) $136,005,925
Cash 72,633
Collateral for securities on loan (Note 6) 3,826,602
Dividends and interest receivable 897,897
Receivable for Fund shares sold 25
Receivable for securities sold 994,613
- --------------------------------------------------------------------------------
Total Assets 141,797,695
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 3,826,602
Payable for securities purchased 3,654,086
Investment advisory fees payable 54,558
Administration fees payable 21,847
Accrued expenses 48,487
- --------------------------------------------------------------------------------
Total Liabilities 7,605,580
- --------------------------------------------------------------------------------
Total Net Assets $134,192,115
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 9,267
Capital paid in excess of par value 152,647,632
Undistributed net investment income 345,758
Accumulated net realized loss from security transactions (18,559,998)
Net unrealized depreciation of investments (250,544)
- --------------------------------------------------------------------------------
Total Net Assets $134,192,115
================================================================================
Shares Outstanding:
Class A 1,515,378
- --------------------------------------------------------------------------------
Class B 1,075,590
- --------------------------------------------------------------------------------
Class L 18,709
- --------------------------------------------------------------------------------
Class O 27,631
- --------------------------------------------------------------------------------
Class Y 6,629,967
- --------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 14.42
- --------------------------------------------------------------------------------
Class B * $ 14.38
- --------------------------------------------------------------------------------
Class L ** $ 14.34
- --------------------------------------------------------------------------------
Class O ** $ 14.34
- --------------------------------------------------------------------------------
Class Y (and redemption price) $ 14.51
- --------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per
share) $ 15.18
- --------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per
share) $ 14.48
================================================================================
* 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.
- --------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statement of Operations (unaudited) For the Six Months Ended January 31, 2000
================================================================================
INVESTMENT INCOME:
Interest $ 2,566,091
Dividends 1,545,690
- --------------------------------------------------------------------------------
Total Investment Income 4,111,781
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 351,337
Administration fees (Note 2) 140,535
Distribution fees (Note 2) 104,303
Registration fees 51,628
Shareholder and system servicing fees 34,671
Audit and legal 22,923
Shareholder communications 19,033
Trustees' fees 8,897
Pricing service fees 3,730
Custody 3,184
Other 4,902
- --------------------------------------------------------------------------------
Total Expenses 745,143
- --------------------------------------------------------------------------------
Net Investment Income 3,366,638
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 117,064,285
Cost of securities sold 130,492,202
- --------------------------------------------------------------------------------
Net Realized Loss (13,427,917)
- --------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period(5,738,798)
End of period (250,544)
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 5,488,254
- --------------------------------------------------------------------------------
Net Loss on Investments (7,939,663)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (4,573,025)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 15
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended January 31, 2000 (unaudited)
and the Year Ended July 31, 1999
<TABLE>
<CAPTION>
2000 1999
- ----------------------------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C>
Net investment income $3,366,638 $6,713,328
Net realized loss (13,427,917) (5,081,416)
(Increase) decrease in net unrealized depreciation 5,488,254 (5,574,411)
- ----------------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations (4,573,025) (3,942,499)
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (3,192,214) (6,407,643)
Net realized gains -- (4,074,052)
- ----------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (3,192,214) (10,481,695)
- ----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 7,959,293 34,308,284
Net asset value of shares issued for reinvestment of dividends 795,345 3,497,766
Cost of shares reacquired (11,316,226) (24,850,065)
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Fund Share Transactions (2,561,588) 12,955,985
- ----------------------------------------------------------------------------------------------------
Decrease in Net Assets (10,326,827) (1,468,209)
NET ASSETS:
Beginning of period 144,518,942 145,987,151
- ----------------------------------------------------------------------------------------------------
End of period* $134,192,115 $144,518,942
====================================================================================================
* Includes undistributed net investment income of: $345,758 $171,334
====================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Smith Barney Convertible 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 the Fund and seven other
separate investment funds: Smith Barney Exchange Reserve Fund, Smith Barney
Premium Total Return Fund, Smith Barney High Income Fund, Smith Barney Municipal
High Income Fund, Smith Barney Diversified Strategic Income Fund, Smith Barney
Balanced Fund and Smith Barney Total Return Bond Fund. The financial statements
and financial highlights for the other funds are presented in separate
shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing price on such markets;
securities for which no sales price were reported are valued at bid price, or in
the absence of a recent bid price, at the bid equivalent obtained from one or
more of the major market makers; (c) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (d) dividend income is recorded on ex-dividend date and
interest income, adjusted for accretion of original discount, is recorded on an
accrual basis; (e) gains or losses on the sale of securities are calculated
using the specific identification method; (f) dividends and distributions to
shareholders are recorded on the ex-dividend date; (g) direct expenses are
charged to each class; management fees and general fund expenses are allocated
on the basis of relative net assets; (h) 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; (i) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At July 31, 1999, reclassifications
were made to undistributed net investment income and accumulated net realized
gains to reflect book/tax differences and income and gains available for
distributions under income tax regulations. Net investment income, net realized
gains and net assets were not affected by this change; and (j) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Fund. The Fund pays SSBC an advisory fee calculated at an annual
rate of 0.50% of the average daily net assets. This fee is calculated daily and
paid monthly.
SSBC also acts as the Trust'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.
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 17
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
PFPC Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the account
size and type of account. PFPC is responsible for shareholder recordkeeping and
financial processing for all shareholder accounts and is paid by Private Trust.
During the period October 1, 1999 through January 31, 2000, the Fund paid
transfer agent fees of $17,356 to Private Trust.
CFBDS, Inc. acts as the Fund's distributor. Salomon Smith Barney Inc. ("SSB"),
another subsidiary of SSBH, as well as certain other broker-dealers, continues
to sell Fund shares to the public as members of the selling group. For the six
months ended January 31, 2000, SSB received no brokerage commissions.
For the six months ended January 31, 2000, CFBDS and SSB received sales charges
of approximately $1,000 on 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 January 31, 2000, CDSCs paid to SSB
were approximately $12,000 for Class B shares.
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 January 31, 2000, total Distribution Plan fees incurred
were:
Class A Class B Class L Class O
================================================================================
Distribution
Plan Fees $30,150 $70,274 $2,191 $1,688
================================================================================
All officers and one Trustee of the Trust are employees of SSB.
3. Investments
During the six months ended January 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $124,293,687
- --------------------------------------------------------------------------------
Sales 117,064,285
================================================================================
At January 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 6,230,371
Gross unrealized depreciation (6,480,915)
- -------------------------------------------------------------------------------
Net unrealized depreciation $ (250,544)
================================================================================
4. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. Options Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily and are included in the schedule
of investments. When a purchased option expires, the Fund will realize a loss in
the amount of
- --------------------------------------------------------------------------------
18 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
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 January 31, 2000, the Fund had no open purchased put or call options
contracts.
When a Fund writes a covered 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 if the closing purchase
transaction exceeds the premium received when the option was sold) without
regard to any unrealized gain or loss on the underlying security, and the
liability related to such option is eliminated. When a written call option is
exercised, the cost of the security sold will be decreased by the premium
originally received. When a put option is exercised, the amount of the premium
originally received will reduce the cost of the security which the 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 a
loss if the market price of the underlying security declines.
During the six months ended January 31, 2000, the Fund did not have any written
call or put options.
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 securities loaned, 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 January 31, 2000, the Fund loaned common stocks having a value of $3,796,950
and holds the following collateral for loaned securities:
Security Description Value
================================================================================
Time Deposits:
Chase Manhattan Bank, 5.880% due 2/1/00 $ 830,474
Tri-Party Repurchase Agreements:
J.P. Morgan Securities, 5.800% due 2/1/00 825,538
Morgan Stanley Dean Witter & Co.,
5.810% due 2/1/00 2,170,590
- --------------------------------------------------------------------------------
Total $ 3,826,602
================================================================================
Income earned by the Fund from securities loaned for the six months ended
January 31, 2000 was $17,506.
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 19
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
7. Capital Loss Carryforward
At July 31, 1999, the Fund had, for Federal income tax purposes, a capital loss
carryforward of approximately $2,263,000, available to offset future capital
gains through July 31, 2007. To the extent that these carryforward losses are
used to offset capital gains, it is probable that any gains so offset will not
be distributed.
8. Shares of Beneficial Interest
At January 31, 2000, 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, including those specifically related to the distribution of its
shares.
At January 31, 2000, 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 $21,449,739 $19,355,133 $329,449 $532,034 $110,990,544
===========================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 2000 July 31, 1999
---------------------------- ---------------------------
Shares Amount Shares Amount
====================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 75,616 $ 1,036,663 136,322 $ 2,095,560
Shares issued on reinvestment 28,723 496,640 121,000 1,853,157
Shares reacquired (303,612) (4,463,860) (659,488) (10,153,855)
- ----------------------------------------------------------------------------------------------------
Net Decrease (199,273) $(2,930,557) (402,166) $ (6,205,138)
====================================================================================================
Class B
Shares sold 25,744 $ 372,341 85,020 $ 1,307,023
Shares issued on reinvestment 19,343 282,456 101,749 1,556,010
Shares reacquired (386,414) (5,638,009) (876,431) (13,432,261)
- ----------------------------------------------------------------------------------------------------
Net Decrease (341,327) $(4,983,212) (689,662) $(10,569,228)
====================================================================================================
Class L
Shares sold 2,679 $ 38,702 27,844 $ 429,273
Shares issued on reinvestment 412 6,016 1,417 21,652
Shares reacquired (19,970) (289,317) (6,109) (93,180)
- ----------------------------------------------------------------------------------------------------
Net Increase (Decrease) (16,879) $ (244,599) 23,152 $ 357,745
====================================================================================================
Class O
Shares sold -- $ -- 180 $ 2,762
Shares issued on reinvestment 697 10,233 4,379 66,947
Shares reacquired (10,740) (156,446) (59,200) (915,187)
- ----------------------------------------------------------------------------------------------------
Net Decrease (10,043) $ (146,213) (54,641) $ (845,478)
====================================================================================================
Class Y
Shares sold 441,180 $ 6,511,587 1,965,698 $ 30,473,666
Shares issued on reinvestment -- -- -- --
Shares reacquired (52,106) (768,594) (16,550) (255,582)
- ----------------------------------------------------------------------------------------------------
Net Increase 389,074 $ 5,742,993 1,949,148 $ 30,218,084
====================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
<TABLE>
<CAPTION>
Class A Shares 2000(1)(2) 1999(2) 1998 1997 1996(2) 1995
=====================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.25 $16.90 $18.61 $15.66 $15.27 $14.56
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.34 0.69 0.73 0.78 0.74 0.74
Net realized and unrealized gain (loss) (0.85) (1.24) (0.39) 3.28 0.38 0.70
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.51) (0.55) 0.34 4.06 1.12 1.44
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.32) (0.66) (0.79) (0.75) (0.73) (0.73)
Net realized gains -- (0.44) (1.26) (0.36) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.32) (1.10) (2.05) (1.11) (0.73) (0.73)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.42 $15.25 $16.90 $18.61 $15.66 $15.27
- ---------------------------------------------------------------------------------------------------------------------
Total Return (3.33)%++ (3.11)% 1.97% 26.94% 7.41% 10.35%
- ---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $21,850 $26,141 $35,780 $38,803 $34,888 $35,238
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.30%+ 1.29% 1.25% 1.27% 1.40% 1.40%
Net investment income 4.56+ 4.45 4.09 4.61 4.68 5.13
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 93% 27% 49% 57% 59% 48%
=====================================================================================================================
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998 1997 1996(2) 1995
=====================================================================================================================
Net Asset Value, Beginning of Period $15.22 $16.89 $18.60 $15.66 $15.27 $14.56
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.30 0.61 0.64 0.69 0.66 0.67
Net realized and unrealized gain (loss) (0.85) (1.24) (0.38) 3.28 0.39 0.70
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.55) (0.63) 0.26 3.97 1.05 1.37
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.29) (0.60) (0.71) (0.67) (0.66) (0.66)
Net realized gains -- (0.44) (1.26) (0.36) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.29) (1.04) (1.97) (1.03) (0.66) (0.66)
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.38 $15.22 $16.89 $18.60 $15.66 $15.27
- ---------------------------------------------------------------------------------------------------------------------
Total Return (3.59)%++ (3.61)% 1.51% 26.29% 6.91% 9.80%
- ---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $15,468 $21,559 $35,570 $42,927 $42,420 $45,524
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.81%+ 1.76% 1.74% 1.77% 1.90% 1.90%
Net investment income 4.05+ 3.98 3.60 4.12 4.18 4.63
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 93% 27% 49% 57% 59% 48%
=====================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Convertible Fund 21
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
Class L Shares 2000(1)(2) 1999(2) 1998(3)
================================================================================
Net Asset Value, Beginning of Period $15.18 $16.90 $17.14
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.28 0.53 0.05
Net realized and unrealized loss (0.84) (1.24) (0.17)
- --------------------------------------------------------------------------------
Total Loss From Operations (0.56) (0.71) (0.12)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.28) (0.57) (0.12)
Net realized gains -- (0.44) --
- --------------------------------------------------------------------------------
Total Distributions (0.28) (1.01) (0.12)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $14.34 $15.18 $16.90
- --------------------------------------------------------------------------------
Total Return (3.70)%++ (4.08)% (0.74)%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $268 $540 $210
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.18%+ 2.30% 1.98%+
Net investment income 3.75+ 3.39 2.51+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 93% 27% 49%
================================================================================
<TABLE>
<CAPTION>
Class O Shares 2000(1)(2) 1999(2) 1998 1997 1996(2) 1995(5)(6)
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.19 $16.87 $18.58 $15.64 $15.27 $14.09
- --------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.29 0.61 0.63 0.67 0.67 0.50
Net realized and unrealized gain (loss) (0.84) (1.25) (0.37) 3.31 0.37 1.17
- --------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.55) (0.64) 0.26 3.98 1.04 1.67
- --------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.30) (0.60) (0.71) (0.68) (0.67) (0.49)
Net realized gains -- (0.44) (1.26) (0.36) -- --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.30) (1.04) (1.97) (1.04) (0.67) (0.49)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.34 $15.19 $16.87 $18.58 $15.64 $15.27
- --------------------------------------------------------------------------------------------------------------------------
Total Return (3.65)%++ (3.66)% 1.53% 26.37% 6.82% 12.17%++
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $396 $572 $1,557 $1,252 $641 $83
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.89%+ 1.78% 1.70% 1.74% 1.86% 1.87%+
Net investment income 3.89+ 4.00 3.63 4.14 4.17 4.77+
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 93% 27% 49% 57% 59% 48%
==========================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period from June 15, 1998 (inception date) to July 31, 1998.
(4) On June 12, 1998, Class C shares were renamed Class O shares.
(5) On November 7, 1994, the former Class D shares were renamed Class C
shares.
(6) For the period from November 7, 1994 (inception date) to July 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
22 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class Y Shares 2000(1)(2) 1999(2) 1998 1997 1996(2)(3)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $15.34 $16.98 $18.66 $15.68 $16.15
- -------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.38 0.76 0.77 0.83 0.38
Net realized and unrealized gain (loss) (0.86) (1.25) (0.35) 3.31 (0.46)
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.48) (0.49) 0.42 4.14 (0.08)
- -------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.35) (0.71) (0.84) (0.80) (0.39)
Net realized gains -- (0.44) (1.26) (0.36) --
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.35) (1.15) (2.10) (1.16) (0.39)
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $14.51 $15.34 $16.98 $18.66 $15.68
- -------------------------------------------------------------------------------------------------------------
Total Return (3.12)%++ (2.68)% 2.42% 27.44% (0.56)%++
- -------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $96,210 $95,707 $72,870 $29,080 $9,189
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.85%+ 0.83% 0.83% 0.85% 1.00%+
Net investment income 5.01+ 4.87 4.49 5.04 4.98+
- -------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 93% 27% 49% 57% 59%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) 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 Convertible Fund 23
<PAGE>
SMITH BARNEY
CONVERTIBLE FUND
TRUSTEES
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
Richard E. Hanson, Jr.
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
OFFICERS
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
Daniel J. Berkery
Investment Officer
Ross S. Margolies
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
INVESTMENT ADVISER
SSB Citi Fund Management LLC
DISTRIBUTOR
CFBDS, Inc.
CUSTODIAN
PNC Bank, N.A.
TRANSFER AGENT
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
SUB-TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of shareholders of Smith
Barney Convertible Fund, but it may also be used as sales literature when
proceeded or accompanied by the current Prospectus, which gives details about
charges, expenses, investment objectives and operating policies of the Fund. If
used as sales material after March 31, 2000, this report must be accompanied by
performance information for the most recently completed calendar quarter.
SALOMON SMITH BARNEY
- ------------------------------
A member of citigroup [GRAPHIC]
Salomon Smith Barney is a Service mark of Salomon Smith Barney Inc.
SMITH BARNEY
CONVERTIBLE FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD02170 3/00
<PAGE>
[LOGO] SB
MF
[GRAPHIC OMITTED]
SMITH BARNEY
MUNICIPAL HIGH
INCOME
Fund
STYLE PURE SERIES
SEMI-ANNUAL REPORT
JANUARY 31, 2000
SB Smith Barney [LOGO]
MF Mutual Funds
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
<PAGE>
Smith Barney Municipal
High Income Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Smith Barney Municipal High Income Fund ("Fund") seeks maximum current
income that is exempt from federal income taxes1 by investing primarily in
intermediate- and long-term municipal bonds and municipal leases, rated A, Baa
or Ba by Moody's Investors Service, Inc. or A, BBB or BB by Standard & Poor's
Ratings Service.
Smith Barney Municipal High Income Fund
Average Annual Total Returns
January 31, 2000
Without Sales Charges(2)
-------------------------------------------
Class A Class B Class L
================================================================================
Six-Month+ (5.89)% (6.14)% (6.19)%
- --------------------------------------------------------------------------------
One-Year (7.01) (7.49) (7.59)
- --------------------------------------------------------------------------------
Five-Year 5.04 4.51 4.43
- --------------------------------------------------------------------------------
Ten-Year N/A 5.54 N/A
- --------------------------------------------------------------------------------
Since Inception++ 5.01 6.92 5.57
================================================================================
Without Sales Charges(3)
-------------------------------------------
Class A Class B Class L
================================================================================
Six-Month+ (9.67)% (10.24)% (8.02)%
- --------------------------------------------------------------------------------
One-Year (10.75) (11.44) (9.39)
- --------------------------------------------------------------------------------
Five-Year 4.18 4.36 4.21
- --------------------------------------------------------------------------------
Ten-Year N/A 5.54 N/A
- --------------------------------------------------------------------------------
Since Inception++ 4.41 6.92 5.37
================================================================================
(1) Please note that a portion of the income from this Fund may be subject to
the Alternative Minimum Tax ("AMT").
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 4.00% and 1.00%,
respectively; and Class B shares reflect the deduction of a 4.50% CDSC,
which applies if shares are redeemed within one year from initial purchase
and thereafter declines by 0.50% the first year after purchase and by
1.00% per year until no CDSC is incurred. Class L shares also reflect the
deduction of a 1.00% CDSC which applies if shares are redeemed within the
first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Total return is not annualized, as it may not be representative of the
total return for year
++ Inception dates for Class A, B and L shares are November 6, 1992,
September 16, 1985 and November 17, 1994.
- --------------------------------------------------------------------------------
MUNICIPAL BOND MARKET HIGHLIGHT
- --------------------------------------------------------------------------------
We remain confident that we can achieve a high level of tax-exempt income,
consistent with prudent investing and careful assessment of credits. While we
believe municipal securities represent good value relative to inflation, we
expect some upward pressure until markets stabilize with regard to inflation and
ongoing Fed vigilance. The recent rise in interest rates has created buying
opportunities. Nevertheless, we doubt that yields will rise much above recent
levels, and we tend to use periods of market weakness to add to our positions.
We are still confident that municipal bonds should continue to do well on a
relative basis in 2000.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A STXAX
Class B SXMTX
Class L SMHLX
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter ............................................................1
Historical Performance ........................................................4
Smith Barney Municipal High
Income Fund at a Glance .......................................................6
Schedule of Investments .......................................................7
Statement of Assets and Liabilities ..........................................19
Statement of Operations ......................................................20
Statements of Changes in Net Assets ..........................................21
Notes to Financial Statements ................................................22
Financial Highlights .........................................................25
<PAGE>
- --------------------------------------------------------------------------------
Shareholder Letter
- --------------------------------------------------------------------------------
[PHOTO OMITTED] [PHOTO OMITTED]
HEATH B. PETER M.
MCLENDON COFFEY
Chairman Vice President
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Municipal
High Income Fund ("Fund") for the period ended January 31, 2000. In this report,
we summarize the period's prevailing economic and market conditions and outline
our portfolio strategy. A detailed summary of performance can be found in the
appropriate sections that follow. We hope you find this report to be useful and
informative.
Performance Update
For the six-months ended January 31, 2000, the Fund's Class A shares posted a
negative total return of 5.89%, excluding the effects of sales charges. In
comparison, its Lipper, Inc. peer group posted a return of a negative 3.82% for
the same period. (Lipper, Inc. is a major fund-tracking organization.)
Market and Economic Overview
The municipal bond market went through a challenging year in 1999. Yields moved
up all along the yield curve, causing the market value of existing holdings to
erode significantly. (The yield curve is the graphical depiction of the
relationship between the yield on bonds of the same credit quality but different
maturities.) Indeed, many investors had sufficiently large losses to justify tax
loss swaps, a key source of market activity in November and December.
The bond market has suffered in recent months from uncertainty over the outlook
for Federal Reserve Board ("Fed") policy, given the resilience of stock markets
and the apparent acceleration of consumer demand at the end of 1999. This, in
addition to the considerable momentum going into 2000, implies that there may be
less financial restraint in the economy than previously believed. The pace of
demand growth is surpassing even optimistic assessments of the economy's limits,
threatening inflation and underscoring the need for further Fed restraint.
A robust U.S. economy and three Fed interest-rate hikes negatively affected many
bond investors in 1999, the worst year for bond investing since 1994. Last year
was particularly challenging for U.S. Treasury securities. The 30-year U.S.
Treasury bond suffered its worst decline in total return on record. This poor
performance of U.S. Treasuries reflects a reversal of the "flight to quality"
that developed during the global financial turmoil at the end of 1998. The best
performing sector of the bond market in 1999 was municipal securities. Many
factors contributed to this rebound in municipal yields. Key reasons include:
o An even larger rebound in U.S. Treasury yields. 30-year U.S. Treasury
yield moved from roughly 5.05% at year-end 1998 to 6.50% at the end of
1999. In our opinion, the factors that pushed all rates up included: 1) A
far stronger global economy; 2) extraordinarily strong U.S. growth; and 3)
concerns that the Fed might have to move aggressively to forestall
inflationary pressures;
o A collapse in institutional demand for municipal bonds; and
o The problematic tax treatment of discounted municipals, which reduced
market demand for bonds trading at a significant discount from the
original offering price.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 1
<PAGE>
On February 2, 2000, the Fed raised interest rates for a fourth time in less
than eight months, aiming to keep inflationary pressures at bay and to slow the
nation's rapidly growing economy. Perhaps more significant than the Fed's
actions was its accompanying statement that rapid growth could foster
inflationary imbalances that would undermine the economy's record economic
expansion.
We believe that the Fed's cautionary statement may hint at a slightly more
aggressive approach in the months ahead. However, in our view, bond yields are
high enough to adequately reflect the risk of slightly higher inflation. Indeed,
we think that bond yields may be at or near their peak.
U.S. Treasuries have remained in a narrow trading range just above 6%, while
select long-term municipal bonds are yielding approximately 95% to 100% of
long-term U.S. Treasury bonds. Under typical market conditions, municipal bonds
yield roughly 85% of similar-maturity U.S. Treasury bonds.
Presently, the U.S. economy appears to be battling opposing forces. On the one
hand, inflation appears to be well contained. On the other hand, most economic
observers -- including most Fed officials -- want the U.S. economy to slow from
its current 4% annual growth rate in order to forestall a possible rebound in
inflation. We believe that a modest amount of additional restraint could put the
U.S. economy on a path toward sustainable, noninflationary growth.
Investment Strategy
As previously noted, the Municipal High Income Fund seeks maximum current income
that is exempt from federal income taxes(1) by investing primarily in
intermediate- and long-term municipal bonds and municipal leases, rated A, Baa
or Ba by Moody's Investors Service, Inc. or A, BBB or BB by Standard & Poor's
Ratings Service. (Standard & Poor's Corporation and Moody's Investors Service
Inc. are two major credit-reporting and bond-rating agencies.)
Preferred sectors in the Fund include hospital bonds (15.0%), transportation
bonds (13.6%), industrial development revenue bonds (12.1%) and multi-family
housing bonds (12.1%). In our view, these issues tend to represent opportunities
for higher yield at good relative values.
Municipal Bond Market Outlook
A few months into 2000, we think that the worst may be over. Many bond
investment professionals expect that yields on 30-year U.S. Treasuries may trade
between 6% and 6.7% over the next 12 months. These yields can provide investors
with a comfortable cushion against declines in bond prices.
Inflation is the main factor driving bond market returns. Concerns persist over
the acceleration in inflation in the Consumer Price Index ("CPI"), which climbed
in 1999 as oil prices doubled. The bond market is likely to remain unsettled
until worries about future Fed monetary tightenings and the rapid pace of
economic growth subside. It is a possibility that the Fed may raise rates again
in the first half of the year. Nevertheless, we doubt that yields will rise much
above recent levels, and we tend to use periods of market weakness to add to our
positions.
We are still confident that municipal bonds will continue to do well on a
relative basis in 2000. The new issue calendar seems quite manageable and the
artificial pressures created by tax swapping have abated to a significant
degree.
Our outlook for new municipal bond issue volume is for a continuation of a
steady supply for 2000, likely remaining in 1999's $225.9 billion range. We also
expect new money financings to increase as a result of rebounds in
transportation issues and education financing.
Given the higher yields and tighter conditions that already prevail in many
sectors of the bond market, the Fed's recent actions may be sufficient to slow
the
- ----------
(1) Please note that a portion of the income from this Fund may be subject to
the Alternative Minimum Tax ("AMT").
- --------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
economy without triggering higher inflation. We believe that the good news is
that the economy's "soft landing" is likely to be at a higher annual growth rate
than was previously thought possible due to the possible emergence of a "New
Economy" where technological advances can spur growth without inflationary
pressures.
Although the bond markets remain unsettled, we will continue to be gradual
buyers in the market over time for several reasons, such as:
o Real municipal yields remain very high by historical standards,
representing excellent value in our opinion;
o Longer intermediate and long maturity yields remain very high relative to
their taxable counterparts;
o The municipal yield curve remains very steeply sloped, even as the U.S.
Treasury yield curve is as flat as it has been in approximately six years.
The difference in yield between 1-year and 30-year U.S. Treasuries is
roughly 62 basis points. In municipals, the differential is over 200 basis
points (a basis point is equal to 0.01%); and
o When capital markets begin to believe that the Fed has achieved its goal
of easing growth down to non-inflationary levels, bonds could rally and
shortages of bonds with the best coupon structures and call provisions
could surface.
In closing, we thank you for your investment in the Municipal High Income Fund
Inc. We look forward to continuing to help you pursue your financial goals in
the new century.
Sincerely,
/s/ Heath B. McLendon /s/ Peter M. Coffey
Heath B. McLendon Peter M. Coffey
Chairman Vice President
February 7, 2000
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 3
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total(1)
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1/31/00 $ 16.98 $ 15.47 $ 0.47 $ 0.05 $ 0.00 (5.89)%+
- ------------------------------------------------------------------------------------------------
7/31/99 17.96 16.98 0.92 0.43 0.00 2.06
- ------------------------------------------------------------------------------------------------
7/31/98 18.07 17.96 0.98 0.27 0.00 6.54
- ------------------------------------------------------------------------------------------------
7/31/97 17.31 18.07 0.98 0.00 0.00 10.40
- ------------------------------------------------------------------------------------------------
7/31/96 17.25 17.31 1.00 0.00 0.00 6.28
- ------------------------------------------------------------------------------------------------
7/31/95 17.26 17.25 1.00 0.02 0.04 6.42
- ------------------------------------------------------------------------------------------------
7/31/94 18.24 17.26 1.06 0.13 0.00 1.14
- ------------------------------------------------------------------------------------------------
Inception*- 7/31/93 17.45 18.24 0.83 0.16 0.00 10.24+
================================================================================================
Total $ 7.24 $ 1.06 $ 0.04
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total(1)
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1/31/00 $ 16.99 $ 15.48 $ 0.43 $ 0.05 $ 0.00 (6.14)%+
- ------------------------------------------------------------------------------------------------
7/31/99 17.98 16.99 0.83 0.43 0.00 1.48
- ------------------------------------------------------------------------------------------------
7/31/98 18.09 17.98 0.89 0.27 0.00 6.01
- ------------------------------------------------------------------------------------------------
7/31/97 17.32 18.09 0.89 0.00 0.00 9.89
- ------------------------------------------------------------------------------------------------
7/31/96 17.26 17.32 0.92 0.00 0.00 5.74
- ------------------------------------------------------------------------------------------------
7/31/95 17.26 17.26 0.91 0.02 0.04 5.91
- ------------------------------------------------------------------------------------------------
7/31/94 18.24 17.26 0.96 0.13 0.00 0.60
- ------------------------------------------------------------------------------------------------
7/31/93 18.00 18.24 1.02 0.17 0.00 8.28
- ------------------------------------------------------------------------------------------------
7/31/92 16.97 18.00 1.04 0.14 0.00 13.50
- ------------------------------------------------------------------------------------------------
7/31/91 16.98 16.97 1.10 0.11 0.00 7.40
- ------------------------------------------------------------------------------------------------
7/31/90 17.31 16.98 1.12 0.03 0.00 4.95
================================================================================================
Total $ 10.11 $ 1.35 $ 0.04
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class L Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total(1)
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
================================================================================================
<S> <C> <C> <C> <C> <C> <C>
1/31/00 $ 16.96 $ 15.45 $ 0.42 $ 0.05 $ 0.00 (6.19)%+
- ------------------------------------------------------------------------------------------------
7/31/99 17.95 16.96 0.82 0.43 0.00 1.42
- ------------------------------------------------------------------------------------------------
7/31/98 18.07 17.95 0.88 0.27 0.00 5.91
- ------------------------------------------------------------------------------------------------
7/31/97 17.31 18.07 0.89 0.00 0.00 9.79
- ------------------------------------------------------------------------------------------------
7/31/96 17.25 17.31 0.91 0.00 0.00 5.69
- ------------------------------------------------------------------------------------------------
Inception*- 7/31/95 15.83 17.25 0.62 0.02 0.04 13.45+
================================================================================================
Total $ 4.54 $ 0.77 $ 0.04
================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Average Annual Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
-----------------------------------
Class A Class B Class L
================================================================================
Six Months Ended 1/31/00+ (5.89)% (6.14)% (6.19)%
- --------------------------------------------------------------------------------
Year Ended 1/31/00 (7.01) (7.49) (7.59)
- --------------------------------------------------------------------------------
Five Years Ended 1/31/00 5.04 4.51 4.43
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 5.54 N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/00 5.01 6.92 5.57
================================================================================
Without Sales Charges(2)
-----------------------------------
Class A Class B Class L
================================================================================
Six Months Ended 1/31/00+ (9.67)% (10.24)% (8.02)%
- --------------------------------------------------------------------------------
Year Ended 1/31/00 (10.75) (11.44) (9.39)
- --------------------------------------------------------------------------------
Five Years Ended 1/31/00 4.18 4.36 4.21
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/00 N/A 5.54 N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/00 4.41 6.92 5.37
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Returns
- --------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (Inception* through 1/31/00) 42.42%
- --------------------------------------------------------------------------------
Class B (1/31/90 through 1/31/00) 71.47
- --------------------------------------------------------------------------------
Class L (Inception* through 1/31/00) 32.62
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 4.00% and 1.00%
respectively; Class B shares reflect the deduction of a 4.50% CDSC, which
applies if shares are redeemed within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00%
per year until no CDSC is incurred. Class L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
* Inception dates for Class A, B and L shares are November 6, 1992,
September 16, 1985 and November 17, 1994, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 5
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of the Smith Barney Municipal High
Income Fund vs. Lehman Brothers Municipal Bond Index+
- -------------------------------------------------------------------------------
January 1990 -- January 2000
[GRAPHIC OMITTED]
[The following table was depicted as a line graph in the printed material.]
SBMuniHiInc Lehman
----------- ------
January\1990 10000 10000
July\1990 10394 10480
July\1991 11163 11395
July\1992 12670 12961
July\1993 13718 14107
July\1994 13800 14370
July\1995 14616 15502
July\1996 16454 16525
July\1997 16981 18220
July\1998 18001 19312
July\1999 18268 19869
January\2000 17147 19479
+ Hypothetical illustration of $10,000 invested in Class B shares on January
31, 1990, assuming reinvestment of dividends and capital gains, if any, at
net asset value through January 31, 2000. The Lehman Brothers Municipal
Bond Index is a broad-based, total return index comprised of bonds which
are all investment grade, fixed rate, long-term maturities (greater than
one year) and are selected from issues larger than $50 million dated since
January 1991. The index is unmanaged and is not subject to the same
management and trading expenses as a mutual fund. An investor may not
invest directly in an index. The performance of the Fund's other classes
may be greater or less than the Class B shares' performance indicated on
this chart, depending on whether greater or lesser sales charges and fees
were incurred by shareholders investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
[The following table was depicted as a bar graph in the printed material.]
Industry Diversification*
- --------------------------------------------------------------------------------
2.7% Education
2.2% General Obligation
15.0% Hospital
17.1% Housing
12.1% Industrial Development
8.9% Life Care Systems
5.8% Pollution Control
13.6% Transportation
6.3% Utility
2.3% Water & Sewer
14.0% Other
* As a percentage of total investments.
Summary of Investments by Combined Ratings*
- --------------------------------------------------------------------------------
Standard Percentage
Moody's & Poor's of Total Investments
- --------------------------------------------------------------------------------
Aaa AAA 15.4%
Aa AA 3.7
A A 9.1
Baa BBB 22.5
Ba BB 7.5
B B 2.3
Ca CC 0.6
NR NR 38.9
-----
100.0%
=====
- --------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
MUNICIPAL BONDS AND NOTES -- 100%
<S> <C> <C> <C> <C>
Alabama -- 1.4%
$ 4,000,000 Baa3* Alabama IDA, (Boise Cascade project), 6.450% due 12/1/23(b) $ 3,680,000
1,225,000 Baa1* Courtland, AL IDB, (Champion International Project), Series A,
6.700% due 11/1/29 1,203,562
2,500,000 AAA Morgan County-Decatur, AL Healthcare Authority, Hospital Revenue, Decatur
General Hospital, CONNIE LEE-Insured, 6.250% due 3/1/13 2,565,625
- ---------------------------------------------------------------------------------------------------------------------------------
7,449,187
- ---------------------------------------------------------------------------------------------------------------------------------
Alaska -- 0.5%
3,000,000 NR Juneau, AK City and Boro, (St. Ann's Care Center Inc.), Nonrecourse Revenue,
6.875% due 12/1/25 2,673,750
- ---------------------------------------------------------------------------------------------------------------------------------
Arizona -- 2.5%
2,900,000 BBB+ Arizona Health Facilities Authority Revenue, Catholic Healthcare West, Series A,
6.625% due 7/1/20 2,733,250
2,500,000 NR Flagstaff, AZ IDA, (Living Community Northern Community Project),
6.300% due 9/1/38 2,075,000
2,000,000 NR Gilbert, AZ Development Authority Non-Profit Revenue, 5.850% due 2/1/19 1,760,000
Maricopa County, AZ IDA, Multi-Family Housing Revenue:
5,325,000 NR 6.500% due 7/1/29 4,805,812
1,965,000 NR 7.400% due 7/1/29 1,842,188
- ---------------------------------------------------------------------------------------------------------------------------------
13,216,250
- ---------------------------------------------------------------------------------------------------------------------------------
Arkansas -- 0.1%
735,000 AAA Arkansas State Development Finance Authority, Single-Family Mortgage Revenue,
Series A, GNMA/FNMA-Collateralized, 6.200% due 7/1/15 740,513
- ---------------------------------------------------------------------------------------------------------------------------------
California -- 3.0%
6,000,000 NR Barona Band of Mission Indians, GO, 8.250% due 1/1/20 5,910,000
3,000,000 A- Los Angeles, CA Regional Airports Improvement, Corporate Lease Revenue, LA
International Airport, 6.800% due 1/1/27 (b) 3,048,750
3,800,000 Aaa* San Bernardino County, CA Single Family Mortgage Revenue, Series A-1,
GNMA/FNMA-Collateralized, 5.000% due 12/1/31 3,804,750
3,000,000 Ba2* Vallejo, CA COP, Lease Revenue, Touro University, 7.375% due 6/1/29 2,902,500
- ---------------------------------------------------------------------------------------------------------------------------------
15,666,000
- ---------------------------------------------------------------------------------------------------------------------------------
Colorado -- 2.3%
Colorado Health Facilities Authority Revenue:
1,100,000 NR Health and Residential Care Facilities, 6.000% due 7/1/29 (b) 891,000
2,500,000 NR Volunteers of America, Series A, 5.875% due 7/1/28 1,993,750
4,750,000 BBB+ Colorado Springs, CO Airport Revenue, Series A, 7.000% due 1/1/22 (b) 4,850,937
Denver, CO City and County Airport Revenue:
205,000 BBB+ Series A, 7.500% due 11/15/23 (b) 218,325
1,715,000 BBB+ Series C, 6.750% due 11/15/22 (b) 1,719,288
2,250,000 AAA Jefferson County, CO COP, MBIA-Insured, 6.650% due 12/1/08 2,373,750
- ---------------------------------------------------------------------------------------------------------------------------------
12,047,050
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
<S> <C> <C> <C> <C>
Connecticut -- 0.8%
$ 2,000,000 AAA Connecticut State Airport Revenue, Bradley International Airport, FGIC-Insured,
7.650% due 10/1/12 $ 2,210,000
Connecticut State Health and Educational Facilities,
University of Hartford, Series D:
640,000 BBB- 6.750% due 7/1/12 645,600
1,450,000 BBB- 6.800% due 7/1/22 1,435,500
- ---------------------------------------------------------------------------------------------------------------------------------
4,291,100
- ---------------------------------------------------------------------------------------------------------------------------------
Delaware -- 0.7%
4,000,000 NR Sussex County, DE Assisted Living Facility Revenue, (Heritage at Milford Project),
7.250% due 7/1/29 3,620,000
- ---------------------------------------------------------------------------------------------------------------------------------
District of Columbia -- 1.3%
6,500,000 BBB- District of Columbia COP, 7.300% due 1/1/13 6,849,375
- ---------------------------------------------------------------------------------------------------------------------------------
Florida -- 2.0%
4,250,000 NR Hillsborough County, FL IDA Revenue, (Lakeshore Villas Project), Series A,
6.700% due 7/1/21 3,809,063
2,800,000 A3* Hillsborough County, FL Utility Revenue, Series A, 7.000% due 8/1/14 2,905,000
2,100,000 NR Orange County, FL HFA, Multi-Family Revenue, Series C, 9.000% due 1/1/32 2,089,500
1,900,000 AAA Tampa, FL Utility Tax and Special Revenue, AMBAC-Insured, 6.900% due 10/1/09 1,997,375
- ---------------------------------------------------------------------------------------------------------------------------------
10,800,938
- ---------------------------------------------------------------------------------------------------------------------------------
Georgia -- 7.4%
4,000,000 A Atlanta, GA Airport Facilities Revenue, 7.250% due 1/1/17 (b)(c) 4,135,800
5,595,000 NR Atlanta, GA Urban Residential Finance Authority, Multi-Family Revenue, Series A,
6.750% due 3/1/31 5,035,500
5,000,000 NR Augusta, GA Housing Authority, Multi-Family Housing Revenue,
(Emerald Coast Housing II), Series A, 7.500% due 8/1/34 4,618,750
2,300,000 Baa1* Clayton County, GA Housing Authority, Multi-Family Housing Revenue,
(Magnolia Park Apartments Project), 7.500% due 12/1/30 2,147,625
1,500,000 NR Columbus, GA Housing Authority Revenue, (Gardens at Calvary Project),
7.000% due 11/15/29 1,346,250
4,840,000 NR Coweta County, GA Development Authority Revenue, 6.750% due 7/1/29 4,198,700
2,500,000 NR Fulton County, GA Residential Care Facility, 7.000% due 7/1/29 2,203,125
1,500,000 NR Gainesville & Hall County, GA Development Authority Revenue,
Senior Living Facility, Series C, 7.250% due 11/15/29 1,421,250
4,750,000 AAA George L. Smith, GA World Congress Center Authority Revenue,
(Domed Stadium Project), 7.875% due 7/1/20 (b) 4,914,350
5,000,000 AAA Medical Center Hospital Authority, GA Columbus Healthcare,
Series C, MBIA-Insured, 6.400% due 8/1/06 5,243,750
Savannah, GA Economic Development Authority Revenue:
2,000,000 BBB- College of Art and Design Project, 6.900% due 10/1/29 1,952,500
2,000,000 NR Marshview Inn, Series A, 7.125% due 7/1/29 1,780,000
- ---------------------------------------------------------------------------------------------------------------------------------
38,997,600
- ---------------------------------------------------------------------------------------------------------------------------------
Hawaii -- 0.4%
2,000,000 A Hawaii State Department of Budget and Finance, Special Purpose
Mortgage Revenue, Kapiolani Health Care Systems, 6.400% due 7/1/13 1,990,000
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
<S> <C> <C> <C> <C>
Illinois -- 3.0%
$20,000,000 AAA Chicago, IL Board of Education, Capital Appreciation, School Reform,
Series B-1, FGIC-Insured, zero coupon due 12/1/29 $ 2,875,000
1,475,000 AA Chicago, IL HDC, Section 8, Series A, FHA-Insured, 6.700% due 7/1/12 1,521,094
2,535,000 Aaa* Chicago, IL Multi-Family Housing, Hearts United Apartments, Series A,
GNMA Collateralized, 5.600% due 1/1/41 2,192,775
2,000,000 Aaa* Chicago, IL Single Family Mortgage Revenue, Series A, GNMA/FNMA Collateralized,
6.350% due 10/1/30 2,005,000
8,300,000 A- Illinois Development Finance Authority Hospital Revenue, 5.500% due 11/15/29 6,256,125
1,000,000 A- Illinois Health Facility Authority Revenue, Victory Health Services, Series A,
5.750% due 8/15/27 812,500
- ---------------------------------------------------------------------------------------------------------------------------------
15,662,494
- ---------------------------------------------------------------------------------------------------------------------------------
Indiana -- 3.8%
2,000,000 B+ East Chicago, IN Exempt Facility Revenue, (ISPAT Inland Inc. Project),
7.000% due 1/1/14 1,822,500
3,000,000 BB East Chicago, IN Pollution Control Revenue, (Inland Steel Co. Project),
6.800% due 6/1/13 2,808,750
5,000,000 Baa2* Indiana State Development Finance Authority Environmental Revenue,
(USX Corp. Project), 5.600% due 12/1/32 4,100,000
3,000,000 B+ Indiana State Development Finance Authority Revenue, (Inland Steel Project),
5.750% due 10/1/11 2,568,750
Indianapolis, IN Airport Authority Revenue, Special Facility:
3,500,000 BBB Federal Express Corporate Project, 7.100% due 1/15/17 (b) 3,574,375
2,625,000 Baa2* United Airlines Project, Series A, 6.500% due 11/15/31 (b) 2,411,719
2,925,000 NR Indianapolis, IN Multi-Family Revenue, (Lake Nora Fox Club Project), Series B,
7.500% due 10/1/29 2,742,188
- ---------------------------------------------------------------------------------------------------------------------------------
20,028,282
- ---------------------------------------------------------------------------------------------------------------------------------
Kansas -- 0.5%
2,500,000 Aaa* Sedgwick & Shawnee Counties, KS Single Family Revenue, Series A-1,
GNMA Collateralized, 5.500% due 12/1/26 2,600,000
- ---------------------------------------------------------------------------------------------------------------------------------
Kentucky -- 2.0%
4,250,000 BBB- Kenton County, KY Airport Board Revenue, Delta Airlines, Project A,
7.500% due 2/1/20(b) 4,356,250
1,500,000 BB+ Kentucky Economic Development Finance Authority, Hospital Systems Revenue,
Appalachian Regional Healthcare, 5.875% due 10/1/22 1,136,250
590,000 NR Kentucky Multi-County Residential Mortgage Revenue, 10.500% due 10/1/00 594,962
2,000,000 A Pendleton County, KY Multi-County Lease Revenue, Series A, 6.500% due 3/1/19 2,035,000
2,605,000 Aa2* Trimble County, KY PCR, Series B, 6.550% due 11/1/20 (b) 2,666,869
- ---------------------------------------------------------------------------------------------------------------------------------
10,789,331
- ---------------------------------------------------------------------------------------------------------------------------------
Louisiana -- 3.4%
5,000,000 NR Hodge, LA Utility Revenue, 9.000% due 3/1/10 (b) 5,108,150
2,600,000 A3* Lake Charles, LA Harbor and Terminal District, (Trunkline Liquid
Natural Gas Co. Project), 7.750% due 8/15/22 2,798,250
5,000,000 NR Louisiana Local Government Environmental Facilities,
Development Authority Revenue, 8.000% due 11/1/25 4,756,250
2,000,000 CC Port of New Orleans, LA IDR, (Continential Grain Co. Project), 7.500% due 7/1/13 1,957,500
3,000,000 BB+ West Feliciana Parish, LA PCR, Gulf State Utilities, 7.700% due 12/1/14 3,176,250
- ---------------------------------------------------------------------------------------------------------------------------------
17,796,400
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
<S> <C> <C> <C> <C>
Maryland -- 4.7%
$ 3,000,000 AA Baltimore County, MD Mortgage Revenue, Series A, Dunfield Townhouses,
FHA-Insured, 6.900% due 8/1/28 $ 3,127,500
Maryland State Community Development Administration, Department of
Housing & Community Development:
485,000 Aa3* Multi-Family Housing, Insured Mortgage, Series A,
FHA-Insured, 6.625% due 5/15/23 505,613
1,000,000 Aa2* Single-Family Program, Fourth Series, 6.450% due 4/1/14 1,027,500
Maryland State Economic Development Corp.:
3,500,000 NR Air Cargo Revenue, 6.500% due 7/1/24 3,268,125
7,000,000 NR Chesapeake Bay, Series A, 7.730% due 12/1/27 6,685,000
2,830,000 Baa3* Student Housing Revenue, Series A, 6.000% due 6/1/30 2,539,925
Northeast Maryland Waste Disposal Authority, Recovery Revenue,
MBIA-Insured, Southwest Resource Recovery:
3,000,000 AAA 7.200% due 1/1/06 3,266,250
3,000,000 AAA 7.200% due 1/1/07 3,262,500
2,500,000 Ca* Prince Georges County, MD Greater Southeast Healthcare System,
6.375% due 1/1/23 (d) 1,025,000
- ---------------------------------------------------------------------------------------------------------------------------------
24,707,413
- ---------------------------------------------------------------------------------------------------------------------------------
Massachusetts -- 5.6%
2,000,000 NR Massachusetts State Development Finance Agency Revenue,
Healthcare Facility, 7.100% due 7/1/32 1,815,000
Massachusetts State Health and Educational Facilities Authority Revenue:
3,500,000 AAA New England Medical Center Hospitals, Series F, FGIC-Insured,
6.625% due 7/1/25 3,565,625
3,670,000 Ba2* Saint Memorial Medical Center, Series A, 6.000% due 10/1/23 2,949,762
Massachusetts State HFA, Housing Projects, Residential Development,
FNMA-Collateralized:
2,000,000 AAA Series C, 6.875% due 11/15/11 2,105,000
3,000,000 AAA Series D, 6.800% due 11/15/12 3,142,500
Massachusetts State HFA Single Family:
1,920,000 Aa3* Series 38, 7.200% due 12/1/26 1,960,800
2,470,000 Aa3* Series 41, 6.300% due 12/1/14 2,513,225
Massachusetts State IFA Revenue:
2,345,000 B Bradford College, GO of Institution Insured, 5.625% due 11/1/28 1,876,000
Resource Recovery Revenue, (Semass Project):
2,700,000 NR Series A, 9.000% due 7/1/15 2,885,625
4,260,000 NR Series B, 9.250% due 7/1/15 (b) 4,558,200
10,870,000 Aaa* Massachusetts State Turnpike Authority, Metropolitan Highway System Revenue,
Series C, MBIA-Insured, zero coupon due 1/1/23 2,554,450
- ---------------------------------------------------------------------------------------------------------------------------------
29,926,187
- ---------------------------------------------------------------------------------------------------------------------------------
Michigan -- 4.3%
6,000,000 BB- Detroit, MI Local Development Finance Authority, Tax Increment, Series A,
5.500% due 5/1/21 5,182,500
1,500,000 AAA Detroit, MI Water Supply System Revenue, 10.000% due 7/1/22 (e) 1,530,000
Michigan State Hospital Finance Authority Revenue:
2,500,000 AAA 10.000% due 2/15/22 (e) 2,525,000
3,000,000 BBB Detroit Medical Center, Series A, 5.250% due 8/15/28 2,066,250
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
<S> <C> <C> <C> <C>
Michigan -- 4.3% (continued)
$ 3,500,000 Ba3* Michigan State Strategic Fund Limited Obligation Revenue, Michigan Sugar Co.,
Series A, 6.250% due 11/1/15 $ 3,145,625
5,000,000 NR Michigan State Strategic Fund Reserve Recovery Limited Obligation Revenue,
Central Wayne Energy, 7.000% due 7/1/27 4,450,000
3,750,000 AAA Western Townships, MI Utilities Authority, Sewer Disposal Systems, FSA-Insured,
6.750% due 1/1/15 3,853,125
- ---------------------------------------------------------------------------------------------------------------------------------
22,752,500
- ---------------------------------------------------------------------------------------------------------------------------------
Minnesota -- 1.1%
1,000,000 NR Sartell, MN Healthcare & Housing Facilities Revenue, (Foundation for
Healthcare Project), Series A, 6.625% due 9/1/29 862,500
St. Paul, MN Housing and Redevelopment Authority, (Healtheast Project), Series A:
2,250,000 BBB- 5.700% due 11/1/15 1,825,313
3,790,000 BBB- 6.625% due 11/1/17 3,354,150
- ---------------------------------------------------------------------------------------------------------------------------------
6,041,963
- ---------------------------------------------------------------------------------------------------------------------------------
Montana -- 2.2%
7,000,000 B+ Lewis & Clark County, MT Environmental Revenue Facilities, (Asarco Inc. Project),
5.850% due 10/1/33 5,503,750
6,500,000 NR Montana State Board Resource Recovery, (Yellowstone Energy LP Project),
7.000% due 12/31/19 (b) 6,061,250
- ---------------------------------------------------------------------------------------------------------------------------------
11,565,000
- ---------------------------------------------------------------------------------------------------------------------------------
Nevada -- 1.1%
Henderson, NV Health Care Facilities Revenue, Catholic Healthcare West:
4,000,000 BBB+ 5.250% due 7/1/18 3,005,000
4,500,000 BBB+ 5.125% due 7/1/28 3,060,000
- ---------------------------------------------------------------------------------------------------------------------------------
6,065,000
- ---------------------------------------------------------------------------------------------------------------------------------
New Hampshire -- 1.0%
1,250,000 BB- New Hampshire Higher Educational and Health Facilities Authority Revenue,
Littleton Hospital, Series A, 6.000% due 5/1/28 1,006,250
5,000,000 BBB- New Hampshire State Business Finance Authority, PCR, 6.000% due 5/1/21 (b) 4,493,750
- ---------------------------------------------------------------------------------------------------------------------------------
5,500,000
- ---------------------------------------------------------------------------------------------------------------------------------
New Jersey -- 3.9%
775,000 B1* Atlantic County, NJ Utilities Authority, Solid Waste Revenue, 7.125% due 3/1/16 722,687
5,000,000 NR Camden County, NJ Improvement Authority Revenue, (Health Care
Redevelopment Project), Cooper Health System,
6.000% due 2/15/27 3,406,250
Hudson County, NJ Improvement Authority, Solid Waste Revenue:
860,000 AAA 7.100% due 1/1/20 919,125
4,000,000 BBB- 6.000% due 1/1/29 3,590,000
4,000,000 NR New Jersey EDA, Healthcare Facility Revenue, (Sayreville Senior Living Project),
Series A, 6.375% due 4/1/29 3,310,000
New Jersey Healthcare Facility Financing Authority Revenue:
1,000,000 NR Raritan Bay Medical Center, 7.250% due 7/1/27 872,500
5,000,000 BBB- Trinitas Hospital Obligation Group, 7.500% due 7/1/30 4,700,000
3,000,000 AAA New Jersey State Housing & Mortgage Finance Agency, Multi-Family
Housing Revenue, Presidential Plaza, FHA-Insured, 7.000% due 5/1/30 3,138,750
- ---------------------------------------------------------------------------------------------------------------------------------
20,659,312
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
<S> <C> <C> <C> <C>
New Mexico -- 0.0%
$ 30,606 Aaa* Santa Fe, NM Single-Family Mortgage Revenue, 8.450% due 12/1/11 $ 31,945
- ---------------------------------------------------------------------------------------------------------------------------------
New York -- 5.0%
1,595,000 NR Monroe County, NY IDA, Depaul Community Facilities A, 5.875% due 2/1/28 1,317,869
5,000,000 A- New York, NY GO Bonds, Series C, 6.660% due 8/1/09 5,075,000
New York, NY IDA, Civic Facility Revenue:
3,000,000 NR Amboy Properties Corp. Project, 6.750% due 6/1/20 2,726,250
2,625,000 NR NY Community Hospital Brooklyn, 6.875% due 11/1/10 2,378,906
3,085,000 A- New York State COP, (Hanson Redevelopment Project), 8.375% due 5/1/08 3,443,631
NewYork State Energy, Research and Development
Authority, Electric Facilities Revenue, Long
Island Lighting Company:
785,000 A- Pre-Refunded, Series A, 7.150% due 6/1/20 837,006
845,000 A- Pre-Refunded, Series A, 7.150% due 12/1/20 900,981
2,215,000 A- Unrefunded Balance, Series A, 7.150% due 6/1/20 2,281,450
305,000 A- Unrefunded Balance, Series A, 7.150% due 12/1/20 314,150
2,000,000 NR Onondaga County, NY IDA, Solid Waste Disposal Facility Revenue,
(Solvay Paperboard LLC Project), 7.000% due 11/1/30 1,922,500
Suffolk County, NY IDA, Civic Facility Revenue, Southhampton Hospital Association:
3,000,000 NR Series A, 7.250% due 1/1/30 2,685,000
3,000,000 NR Series B, 7.625% due 1/1/30 2,745,000
- ---------------------------------------------------------------------------------------------------------------------------------
26,627,743
- ---------------------------------------------------------------------------------------------------------------------------------
North Carolina -- 1.9%
8,500,000 NR Charlotte, NC Special Facilities Revenue, Charlotte/Douglas International Airport,
5.600% due 7/1/27 6,523,750
North Carolina Medical Care Community Health Care Facilities Revenue,
DePaul Community Facility:
2,055,000 NR 6.125% due 1/1/28 1,664,550
2,000,000 NR 7.625% due 11/1/29 1,900,000
- ---------------------------------------------------------------------------------------------------------------------------------
10,088,300
- ---------------------------------------------------------------------------------------------------------------------------------
Ohio -- 1.0%
Ohio State Water Development Authority Revenue, PCR, Series A:
3,475,000 BB+ Cleveland Electric, 8.000% due 10/1/23 (b)(c) 3,705,219
1,500,000 BB+ Toledo Edison, 8.000% due 10/1/23 (b)(c) 1,599,375
- ---------------------------------------------------------------------------------------------------------------------------------
5,304,594
- ---------------------------------------------------------------------------------------------------------------------------------
Oklahoma -- 1.1%
2,910,000 AAA Oklahoma HFA, Single-Family Mortgage, Series B, GNMA-Collateralized,
7.997% due 8/1/18 (b) 3,204,637
2,400,000 Baa1* Tulsa, OK Municipal Airport Revenue, American Airlines, 7.350% due 12/1/11 2,508,000
- ---------------------------------------------------------------------------------------------------------------------------------
5,712,637
- ---------------------------------------------------------------------------------------------------------------------------------
Oregon -- 1.0%
1,000,000 NR Clackamas County, OR Hospital Facility Authority Revenue,
Senior Living Facility, Mary Woods at Marylhurst, 6.625% due 5/15/29 873,750
5,000,000 NR Klamath Falls, OR Electric Revenue, 6.000% due 1/1/25 4,225,000
- ---------------------------------------------------------------------------------------------------------------------------------
5,098,750
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
<S> <C> <C> <C> <C>
Pennsylvania -- 13.0%
$ 4,000,000 AAA Allegheny County, PA Airport Revenue, Greater Pittsburgh International Airport,
Series B, FSA-Insured, 6.625% due 1/1/22 (b) $ 4,160,000
2,500,000 Baa2* Allegheny County, PA IDA, Series A, 6.700% due 12/1/20 2,515,625
4,500,000 BBB Allentown, PA Hospital Authority Revenue, Sacred Heart Hospital of Allentown,
Series B, 6.750% due 11/15/15 4,291,875
2,200,000 NR Bucks County, PA IDA, Management Healthcare Facility-Chandler,
6.300% due 5/1/29 1,831,500
2,000,000 NR Chartiers Valley, PA Industrial & Commercial Development Authority Revenue,
Asbury Health Center, 6.375% due 12/1/24 1,692,500
Dauphin County, PA General Authority:
3,100,000 NR Hotel and Conference Center-- Hyatt Regency, 6.200% due 1/1/29 2,712,500
6,000,000 NR Riverfront Office, 6.000% due 1/1/25 5,212,500
2,000,000 BB- Delaware County, PA IDA, Resource Recovery Facility, Series A,
6.200% due 7/1/19 1,740,000
3,500,000 NR Harrisburg, PA Office and Packaging Revenue, 6.000% due 5/1/19 3,141,250
2,500,000 A Luzerne County, PA IDA, Exempt Facility Revenue, (Pennsylvania Gas and
Water Company Project), Series A, 7.200% due 10/1/17 (b) 2,631,250
Montgomery County, PA Higher Education & Health Authority Revenue,
Temple Continuing Care Center:
6,000,000 NR 6.625% due 7/1/19 5,370,000
5,000,000 NR 6.750% due 7/1/29 4,393,750
1,500,000 A- Montgomery County, PA IDA, Retirement Community Revenue,
5.250% due 11/15/28 1,098,750
6,750,000 NR Montgomery County, PA Redevelopment Authority, Multi-Family Housing,
(KBF Association LP Project), Series A, 6.500% due 7/1/25 6,648,750
2,560,000 NR New Morgan, PA Authority Office Revenue, (Commonwealth Office Project),
Series A, 6.500% due 6/1/25 2,281,600
5,000,000 NR Pennsylvania Economic Development Financing Authority,
Exempt Facilities Revenue, 6.250% due 11/1/27 4,406,250
Pennsylvania EDA:
6,000,000 NR Exempt Faclities Revenue, National Gypsum Co., Series B,
6.125% due 11/1/27 5,167,500
4,500,000 BBB- Resource Recovery Revenue, (Colver Project), Series D, 7.125% due 12/1/15 4,573,125
4,000,000 BBB WasteWater Treatment Revenue, Sun Co. Inc., (R & M Project),
Series A, 7.600% due 12/1/24 (b) 4,285,000
960,000 Baa* Philadelphia, PA Municipal Authority Revenue, Series B, 6.400% due 11/15/16 932,400
- ---------------------------------------------------------------------------------------------------------------------------------
69,086,125
- ---------------------------------------------------------------------------------------------------------------------------------
Rhode Island -- 1.6%
4,750,000 AA+ Rhode Island Housing & Mortgage Finance Corp., 10.000% due 4/1/24 (e) 5,023,125
5,000,000 BBB+ Rhode Island State Health & Educational Building Corp. Revenue,
Roger Williams General Hospital, 5.500% due 7/1/28 3,712,500
- ---------------------------------------------------------------------------------------------------------------------------------
8,735,625
- ---------------------------------------------------------------------------------------------------------------------------------
South Carolina -- 3.5%
1,500,000 BBB- Greenville County, SC IDR, (Lockheed Aeromod Center Inc. Project),
7.200% due 11/1/21 (b) 1,537,500
Greenville, SC Connector 2000 Association:
11,250,000 BBB- Series A, 5.375% due 1/1/38 8,451,563
20,250,000 BBB- Series B, zero coupon due 1/1/30 1,873,125
15,550,000 BBB- Series B, zero coupon due 1/1/38 758,063
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
<S> <C> <C> <C> <C>
South Carolina -- 3.5% (continued)
$ 1,475,000 BBB Loris, SC Community Hospital Revenue, Series B, 5.625% due 1/1/29 $ 1,135,750
1,135,000 BBB- Piedmont Municipal Power Agency, SC Electrical Revenue, Series A,
5.250% due 1/1/21 903,744
4,000,000 A3* Richland County, SC PCR, (Union Camp Corp. Project), Series B,
6.625% due 5/1/22 4,040,000
- ---------------------------------------------------------------------------------------------------------------------------------
18,699,745
- ---------------------------------------------------------------------------------------------------------------------------------
South Dakota -- 0.3%
1,835,000 NR Oglala Sioux, SD Tribal Revenue Bond, 7.500% due 7/1/13 1,828,119
- ---------------------------------------------------------------------------------------------------------------------------------
Tennessee -- 1.2%
3,150,000 BBB Memphis-Shelby County, TN Airport Authority, Federal Express Corp.,
6.750% due 9/1/12 3,244,500
3,500,000 NR Shelby County, TN Health Educational & Housing Facilities Revenue,
6.875% due 7/1/36 3,132,500
- ---------------------------------------------------------------------------------------------------------------------------------
6,377,000
- ---------------------------------------------------------------------------------------------------------------------------------
Texas -- 6.5%
3,000,000 NR Abilene, TX Health Facilities Development Corp., Retirement Facilities Revenue,
Sears Methodist Retirement, Series A, 5.900% due 11/15/25 2,388,750
5,000,000 NR Austin-Bergstrom Landhost Enterprises Inc., TX Airport Hotel, 6.750% due 4/1/27 4,625,000
5,970,000 NR Bexar County, TX Housing Financial Corp., Multi-Family Housing Revenue,
Continental Lady Ester, 6.875% due 6/1/29 5,350,612
2,000,000 AAA Brazos River Authority, TX PCR, Houston Lighting & Power Co., Series A,
AMBAC-Insured, 6.700% due 3/1/17 2,080,000
1,880,000 NR Denton County, TX Reclamation and Road District, 8.500% due 6/1/16 1,888,103
1,500,000 NR El Paso County, TX Housing Finance Corp., Multi-Family Housing Revenue,
Series C, 8.375% due 6/1/30 1,473,750
5,000,000 BB Harris County, TX IDC, Airport Facilities Revenue, (Continental Airlines Project),
5.375% due 7/1/19 4,087,500
3,000,000 Ba1* Houston, TX Airport Systems Revenue, Special Facilities, Series B,
5.700% due 7/15/29 2,460,000
Sam Rayburn, TX Municipal Power Agency, Power Supply System Revenue:
1,935,000 BB Series A, 6.250% due 10/1/17 1,823,737
2,000,000 BB Series B, 6.125% due 10/1/13 1,890,000
San Antonio, TX Airport System Revenue, AMBAC-Insured:
3,000,000 AAA 7.125% due 7/1/06 3,251,250
1,000,000 AAA 7.125% due 7/1/08 1,080,000
2,000,000 AAA 7.375% due 7/1/13 2,162,500
- ---------------------------------------------------------------------------------------------------------------------------------
34,561,202
- ---------------------------------------------------------------------------------------------------------------------------------
Vermont -- 0.5%
1,000,000 NR Vermont Educational & Health Buildings Financing Agency, (Copley Manor Project),
6.150% due 4/1/19 852,500
1,595,000 A+ Vermont Housing Finance Agency, Single Family Series 2, 6.875% due 5/1/25 1,612,944
- ---------------------------------------------------------------------------------------------------------------------------------
2,465,444
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
=================================================================================================================================
<S> <C> <C> <C> <C>
Virginia -- 2.7%
$ 1,750,000 NR Alexandria, VA Redevelopment & Housing Authority, Multi-Family Housing Revenue,
(Parkwood Court Apts. Project), Series C, 8.125% due 4/1/30 $ 1,686,562
2,435,000 AAA Fairfax County, VA Redevelopment and Housing Authority Multi-Family
Housing Revenue, Series A, FHA-Insured, 7.000% due 5/1/26 2,550,662
Pocahontas Parkway Association, VA Toll Road Revenue:
6,340,000 BBB- Series B, zero coupon due 8/15/29 721,175
35,500,000 BBB- Series B, zero coupon due 8/15/35 2,573,750
2,000,000 NR Virginia Beach, VA Development Authority Revenue, Ramada on the Beach,
7.000% due 12/1/15 2,002,500
Virginia Beach, VA Development Authority, Multi-Family Housing Revenue:
2,500,000 NR Residential Rental, (Hamptons Project), 7.500% due 10/1/39 2,315,625
2,500,000 NR Residential Rental, (Mayfair Project), 7.500% due 10/1/39 2,315,625
- ---------------------------------------------------------------------------------------------------------------------------------
14,165,899
- ---------------------------------------------------------------------------------------------------------------------------------
Washington -- 0.9%
2,000,000 BBB Port Moses Lake, WA PCR, Union Carbide, 7.875% due 8/1/06 (b) 2,020,000
3,315,000 BBB- Spokane, WA Downtown Foundation Parking Revenue, (River Park Square Project),
5.600% due 8/1/19 2,929,631
- ---------------------------------------------------------------------------------------------------------------------------------
4,949,631
- ---------------------------------------------------------------------------------------------------------------------------------
West Virginia -- 0.4%
2,000,000 A Beckley, WV IDR, (Water Commission Project), 7.000% due 10/1/17 (b) 2,090,000
- ---------------------------------------------------------------------------------------------------------------------------------
Wisconsin -- 0.2%
1,600,000 NR Wisconsin State Health and Educational Facilities Authority Revenue,
(Benchmark Healthcare Inc. Project), Series A, 6.750% due 12/1/28 1,288,000
- ---------------------------------------------------------------------------------------------------------------------------------
Wyoming -- 0.2%
1,250,000 AA Wyoming Community Development Authority Housing Revenue, Series 1,
7.100% due 6/1/17 1,293,750
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $569,628,008**) $530,840,154
==================================================================================================================================
</TABLE>
(a) All ratings are by Standard & Poor's Ratings Service, except those
identified by an asterisk (*), which are rated by Moody's Investors
Service, Inc.
(b) Income from this issue is considered a preference item for purposes of
calculating the alternative minimum tax.
(c) Security segregated by custodian for open purchase committments.
(d) Security is in default.
(e) Variable rate municipal bonds and notes are payable upon not more than
seven business days notice.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 16 through 18 for definition of ratings and certain security
descriptions.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited)
- --------------------------------------------------------------------------------
The definitions of the applicable ratings symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"CC" may be modified by the addition of a plus (+) or a minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is
extremely strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest
and repay principal and differ from the highest rated issue
only in a small degree.
A -- Bonds rated "A" have a strong capacity to pay interest and
repay principal although it is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity
to pay interest and repay principal. Whereas they normally
exhibit adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead
to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
BB, B, -- Bonds rated "BB" and "B" are regarded, on balance, as
CCC predominantly speculative and with respect to capacity to pay
and CC interest and repay principal in accordance with the terms of
the obligation. "BB" represents a lower degree of speculation
than "B", and "CC" the highest degree of speculation. While
such bonds will likely have some quality and protective
characteristics, these are outweighed by large uncertainties
or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") -- Numerical modifiers 1, 2 and 3
may be applied to each generic rating from "Aa" to "Ca," where 1 is the highest
and 3 the lowest rating within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by
a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to
change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all
standards. Together with the "Aaa" group they comprise what
are generally known as high grade bonds. They are rated lower
than the best bonds because margins of protection may not be
as large in "Aaa" securities or fluctuation of protective
elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear
somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes
and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are
considered adequate but elements may be present which suggest
a susceptibility to impairment some time in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for
the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics
and in fact have speculative characteristics as well.
Ba -- Bonds rated "Ba" are judged to have speculative elements;
their future cannot be considered as well assured. Often the
protection of interest and principal payments may be very
moderate thereby not well safeguarded during both good and bad
times over the future. Uncertainty of position characterizes
bonds in this class.
- --------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Bond Ratings (unaudited) (continued)
- --------------------------------------------------------------------------------
B -- Bonds rated "B" generally lack characteristics of desirable
investments. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long
period of time may be small.
Caa -- Bonds rated "Caa" are of poor standing. These issues may be in
default, or present elements of danger may exist with respect
to principal or interest.
Ca -- Bonds rated "Ca" represent obligations which are speculative
in a high degree. Such issues are often in default or have
other marked shortcomings.
Fitch Investors Services, Inc. ("Fitch") -- Rating may be modified by the
addition of a plus (+) or minus (-) sign to show relative standings with the
major ratings categories.
BBB -- Bonds rated "BBB" are considered to be investment grade and of
satisfactory credit quality. The obligor's ability to pay
interest or dividends and repay principal is considered to be
adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact
on these securities and, therefore, impair timely payment. The
likelihood that the ratings of these bonds will fall below
investment grade is higher than for securities with higher
ratings.
NR -- Indicates that the bond is not rated by Standard & Poor's,
Moody's or Fitch.*
- --------------------------------------------------------------------------------
Short-Term Security Ratings (unaudited)
- --------------------------------------------------------------------------------
SP-1 -- Standard & Poor's highest rating indicating very strong or
strong capacity to pay principal and interest; those issues
determined to possess overwhelming safety characteristics are
denoted with a plus (+) sign.
A-1 -- Standard & Poor's highest commercial paper and variable-rate
demand obligation (VRDO) rating indicating that the degree of
safety regarding timely payment is either overwhelming or very
strong; those issues determined to possess overwhelming safety
characteristics are denoted with a plus (+) sign.
VMIG 1 -- Moody's highest rating for issues having demand feature --
VRDO.
P-1 -- Moody's highest rating for commercial paper and for VRDOprior
to the advent of the VMIG1 rating.*
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Security Descriptions (unaudited)
- --------------------------------------------------------------------------------
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBAC Indemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan Insurance
CONNIE LEE -- College Construction Loan Association
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed to Maturity
FAIRS -- Floating Adjustable Interest Rate Securities
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Agency
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
IFA -- Industrial Finance Authority
INFLOS -- Inverse Floaters
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Securities
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax-Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VA -- Veterans Administration
VRWE -- Variable Rate Wednesday Demand*
- --------------------------------------------------------------------------------
18 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
ASSETS:
<S> <C> <C>
Investments, at value (Cost -- $569,628,008) $ 530,840,154
Interest receivable 7,726,777
Receivable for securities sold 367,333
Receivable for Fund shares sold 35,002
- ----------------------------------------------------------------------------------------
Total Assets 538,969,266
- ----------------------------------------------------------------------------------------
LIABILITIES:
Payable to bank 2,891,323
Investment advisory fees payable 223,130
Administration fees payable 98,690
Distribution fees payable 26,801
Payable for Fund shares redeemed 8,346
Accrued expenses 167,576
- ----------------------------------------------------------------------------------------
Total Liabilities 3,415,866
- ----------------------------------------------------------------------------------------
Total Net Assets $ 535,553,400
========================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 34,613
Capital paid in excess of par value 575,030,787
Overdistributed net investment income (620,867)
Accumulated net realized loss from security transactions (103,279)
Net unrealized depreciation of investments (38,787,854)
- ----------------------------------------------------------------------------------------
Total Net Assets $ 535,553,400
- ----------------------------------------------------------------------------------------
Shares Outstanding:
Class A 17,815,938
-----------------------------------------------------------------------------------
Class B 16,517,108
-----------------------------------------------------------------------------------
Class L 279,476
-----------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 15.47
-----------------------------------------------------------------------------------
Class B * $ 15.48
-----------------------------------------------------------------------------------
Class L ** $ 15.45
-----------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.17% of net asset value per share) $ 16.11
-----------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 15.61
========================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if
shares are redeemed within one year from purchase (See Note 3).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if
shares are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended January 31, 2000
- --------------------------------------------------------------------------------
<TABLE>
INVESTMENT INCOME:
<S> <C>
Interest $ 20,097,397
- ------------------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 3) 1,228,250
Investment advisory fees (Note 3) 1,200,039
Administration fees (Note 3) 600,020
Shareholder and system servicing fees 115,438
Shareholder communications 32,018
Audit and legal 23,808
Pricing service fees 16,376
Custody 15,164
Trustees' fees 14,153
Other 22,239
- ------------------------------------------------------------------------------------------
Total Expenses 3,267,505
- ------------------------------------------------------------------------------------------
Net Investment Income 16,829,892
- ------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE4):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 166,821,922
Cost of securities sold 166,502,459
- ------------------------------------------------------------------------------------------
Net Realized Gain 319,463
- ------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of Investments:
Beginning of period 15,132,767
End of period (38,787,854)
- ------------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (53,920,621)
- ------------------------------------------------------------------------------------------
Net Loss on Investments (53,601,158)
- ------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (36,771,266)
==========================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended January 31, 2000 (unaudited)
and the Year Ended July 31, 1999
<TABLE>
<CAPTION>
2000 1999
=======================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 16,829,892 $ 34,814,939
Net realized gain 319,463 4,718,930
Increase in net unrealized depreciation (53,920,621) (26,281,421)
- -------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations (36,771,266) 13,252,448
- -------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 2):
Net investment income (16,205,721) (34,767,118)
Net realized gains (1,971,761) (17,476,059)
- -------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (18,177,482) (52,243,177)
- -------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 67,901,318 92,025,984
Net asset value of shares issued for reinvestment of dividends 10,371,781 30,791,548
Cost of shares reacquired (133,516,941) (179,315,600)
- -------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (55,243,842) (56,498,068)
- -------------------------------------------------------------------------------------------------------
Decrease in Net Assets (110,192,590) (95,488,797)
NET ASSETS:
Beginning of period 645,745,990 741,234,787
- -------------------------------------------------------------------------------------------------------
End of period* $ 535,553,400 $ 645,745,990
=======================================================================================================
* Includes overdistributed net investment income of: $ (620,867) $ (1,245,038)
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Municipal High Income Fund ("Fund"), a separate investment fund
of the Smith Barney Income Funds ("Trust"), a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust consists of this
Fund and seven other separate investment funds: Smith Barney Exchange Reserve
Fund, Smith Barney Premium Total Return Fund, Smith Barney High Income Fund,
Smith Barney Convertible Fund, Smith Barney Diversified Strategic Income Fund,
Smith Barney Balanced Fund and Smith Barney Total Return Bond Fund. The
financial statements and financial highlights for the other funds are presented
in separate shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities are valued
at the mean between the bid and asked price provided by an independent pricing
service that are based on transactions in municipal obligations, quotations from
municipal bond dealers, market transactions in comparable securities and various
relationships between securities; (c) securities for which market quotations are
not available will be valued in good faith at fair value by or under the
direction of the Board of Trustees; (d) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (e) interest income, adjusted for amortization of premium
and accretion of original issue discount, is recorded on an accrual basis; (f)
gains or losses on the sale of securities are calculated by using the specific
identification method; (g) direct expenses are charged to each class; management
fees and general Fund expenses are allocated on the basis of relative net assets
of each class; (h) dividends and distributions to shareholders are recorded on
the ex-dividend date; (i) the character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles; (j) the Fund intends to comply with
the applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (k) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. Exempt-Interest Dividends and Other Distributions
The Fund intends to satisfy requirements that allow interest from municipal
securities, which is exempt from regular Federal income tax and from certain
states' income taxes, to retain its exempt-interest status when distributed to
the shareholders of the Fund.
Capital gain distributions, if any, are taxable to shareholders, and are
declared and paid at least annually. Additional taxable distributions may be
made if necessary to avoid a Federal excise tax.
3. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Fund. The Fund pays SSBC an advisory fee calculated at an annual
rate of 0.40% of the average daily net assets. This fee is calculated daily and
paid monthly.
SSBC 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.
- --------------------------------------------------------------------------------
22 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Trust's transfer agent and PFPC
Global Fund Services ("PFPC") became the subtransfer agent. Private Trust
receives account fees and asset-based fees that vary according to account size
and type of account. PFPC is responsible for shareholder recordkeeping and
financial processing for all shareholders accounts. During the period October 1,
1999 through January 31, 2000, the Fund paid transfer agent fees of $57,759 to
Private Trust.
CFBDS, Inc. ("CFBDS") acts as the Trust's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker- dealers,
continues to sell Trust shares to the public as a member of the selling group.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B shares,
which applies if redemption occurs within one year from purchase and thereafter
declines by 0.50% the first year after purchase and by 1.00% per year until no
CDSC is incurred. Class L shares also have a 1.00% CDSC, which applies if
redemption occurs within the first year of purchase. In certain cases, Class A
shares also have a 1.00% CDSC, which applies if redemption occurs within the
first year of purchase. This CDSC only applies to those purchases of Class A
shares, which, when combined with current holdings of Class A shares, equal or
exceed $500,000 in the aggregate. These purchases do not incur an initial sales
charge.
For the six months ended January 31, 2000, CFBDS and SSB received sales charges
of approximately $34,000 and $8,000 on sales of the Fund's Class A and Class L
shares, respectively. In addition, CDSCs paid to CFBDS and SSB were
approximately:
Class A Class B Class L
================================================================================
CDSCs $2,000 $96,000 --
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and L shares calculated at the annual rate of 0.15% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B and L shares calculated at the annual rates of 0.50% and
0.55% of the average daily net assets of each class, respectively. For the six
months ended January 31, 2000, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $216,824 $998,347 $13,079
================================================================================
All officers and one Trustee of the Trust are employees of SSB.
4. Investments
During the six months ended January 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $106,711,426
- --------------------------------------------------------------------------------
Sales 166,821,922
================================================================================
At January 31, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 8,746,056
Gross unrealized depreciation (47,533,910)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(38,787,854)
================================================================================
5. Shares of Beneficial Interest
At January 31, 2000, 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, including those specifically related to the distribution of its
shares.
At January 31, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L
================================================================================
Total Paid-in Capital $308,050,536 $262,195,993 $4,818,871
================================================================================
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 23
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 2000 July 31, 1999
--------------------------- -----------------------------
Shares Amount Shares Amount
==============================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 3,045,383 $ 49,523,477 3,963,217 $ 70,039,058
Shares issued on reinvestment 338,199 5,451,828 746,907 13,127,610
Shares reacquired (2,594,778) (41,925,345) (2,605,804) (45,921,802)
- ----------------------------------------------------------------------------------------------
Net Increase 788,804 $ 13,049,960 2,104,320 $ 37,244,866
==============================================================================================
Class B
Shares sold 1,011,633 $ 16,356,904 1,121,035 $ 19,803,946
Shares issued on reinvestment 300,608 4,855,737 995,292 17,532,725
Shares reacquired (5,600,804) (91,056,464) (7,522,522) (132,503,062)
- ----------------------------------------------------------------------------------------------
Net Decrease (4,288,563) $(69,843,823) (5,406,195) $ (95,166,391)
==============================================================================================
Class L
Shares sold 124,802 $ 2,020,937 123,749 $ 2,182,980
Shares issued on reinvestment 4,001 64,216 7,478 131,213
Shares reacquired (33,386) (535,132) (51,280) (890,736)
- ----------------------------------------------------------------------------------------------
Net Increase 95,417 $ 1,550,021 79,947 $ 1,423,457
==============================================================================================
</TABLE>
- --------------------------------------------------------------------------------
24 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 2000(1)(2) 1999(2) 1998 1997 1996 1995
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 16.98 $ 17.96 $ 18.07 $ 17.31 $ 17.25 $ 17.26
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.49 0.92 0.95 0.97 1.00 1.04
Net realized and unrealized gain (loss) (1.48) (0.55) 0.19 0.77 0.06 0.01*
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.99) 0.37 1.14 1.74 1.06 1.05
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.47) (0.92) (0.98) (0.98) (1.00) (1.00)
Net realized gains (0.05) (0.43) (0.27) -- -- (0.02)
Capital -- -- -- -- -- (0.04)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.52) (1.35) (1.25) (0.98) (1.00) (1.06)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.47 $ 16.98 $ 17.96 $ 18.07 $ 17.31 $ 17.25
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (5.89)%++ 2.06% 6.54% 10.40% 6.28% 6.42%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 276 $ 289 $ 268 $ 254 $ 232 $ 238
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.83%+ 0.82% 0.83% 0.83% 0.84% 0.84%
Net investment income 5.89+ 5.21 5.24 5.52 5.74 6.04
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 18% 50% 84% 51% 44% 38%
====================================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* Includes the per share effect of shareholder sales and redemption activity
during the period, most of which occurred at net asset values less than
the beginning of the period.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 25
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998 1997 1996 1995
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 16.99 $ 17.98 $ 18.09 $ 17.32 $ 17.26 $ 17.26
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.44 0.83 0.86 0.89 0.92 0.95
Net realized and unrealized gain (loss) (1.47) (0.56) 0.19 0.77 0.06 0.02*
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.03) 0.27 1.05 1.66 0.98 0.97
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.43) (0.83) (0.89) (0.89) (0.92) (0.91)
Net realized gains (0.05) (0.43) (0.27) -- -- (0.02)
Capital -- -- -- -- -- (0.04)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.48) (1.26) (1.16) (0.89) (0.92) (0.97)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.48 $ 16.99 $ 17.98 $ 18.09 $ 17.32 $ 17.26
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (6.14)%++ 1.48% 6.01% 9.89% 5.74% 5.91%
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 256 $ 353 $ 471 $ 562 $ 653 $ 737
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.33%+ 1.31% 1.32% 1.32% 1.33% 1.35%
Net investment income 5.37+ 4.70 4.75 5.04 5.23 5.61
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 18% 50% 84% 51% 44% 38%
===================================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* Includes the per share effect of shareholder sales and redemption activity
during the period, most of which occurred at net asset values less than
the beginning of the period.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
26 2000 Semi-Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 2000(1)(2) 1999(2) 1998(3) 1997 1996 1995(4)
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 16.96 $ 17.95 $ 18.07 $ 17.31 $ 17.25 $ 15.83
- -----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.43 0.81 0.87 0.88 0.89 0.60
Net realized and unrealized gain (loss) (1.47) (0.55) 0.16 0.77 0.08 1.50*
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (1.04) 0.26 1.03 1.65 0.97 2.10
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.42) (0.82) (0.88) (0.89) (0.91) (0.62)
Net realized gains (0.05) (0.43) (0.27) -- -- (0.02)
Capital -- -- -- -- -- (0.04)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.47) (1.25) (1.15) (0.89) (0.91) (0.68)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 15.45 $ 16.96 $ 17.95 $ 18.07 $ 17.31 $ 17.25
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (6.19)%++ 1.42% 5.91% 9.79% 5.69% 13.45%++
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 4,318 $ 3,122 $ 1,869 $ 752 $ 546 $ 211
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.42%+ 1.44% 1.42% 1.40% 1.39% 1.18%+
Net investment income 5.33+ 4.62 4.64 4.94 5.18 5.56+
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 18% 50% 84% 51% 44% 38%
===================================================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) For the period from November 17, 1994 (inception date) to July 31, 1995.
* Includes the per share effect of shareholder sales and redemption activity
during the period, most of which occurred at net asset values less than
the beginning of the period.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Municipal High Income Fund 27
<PAGE>
Smith Barney
Municipal High
Income Fund
Trustees
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
Richard E. Hanson, Jr.
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
Peter M. Coffey
Vice President
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Adviser
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of the shareholders of
Smith Barney Municipal High Income Fund, but it may also be used as sales
literature when proceeded or accompanied by the current Prospectus, which gives
details about charges, expenses, investment objectives and operating policies of
the Fund. If used as sales material after March 31, 2000, this report must be
accompanied by performance information for the most recently completed calendar
quarter.
SOLOMON SMITH BARNEY
--------------------
A member of citigroup[LOGO]
Solomon Smith Barney is a Service mark of Solomon Smith Barney Inc.
Smith Barney Municipal
High Income Fund
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD02173 3/00
<PAGE>
==========
[LOGO] SB
MF
==========
================================================================================
Smith Barney
Total Return
Bond Fund
================================================================================
CLASSIC INVESTOR SERIES
SEMI-ANNUAL REPORT
JANUARY 31, 2000
[LOGO] SB SMITH BARNEY
MF MUTUAL FUNDS
- --------------------------------------------------------------------------------
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
<PAGE>
Smith Barney Total
Return Bond Fund
================================================================================
The Smith Barney Total Return Bond Fund ("Fund") seeks to maximize total return
consisting of income and capital appreciation by investing in a diversified
portfolio of U.S. fixed-income securities of varying maturities.
Smith Barney Total Return Bond Fund
Average Annual Total Returns
January 31, 2000
Without Sales Charges(1)
--------------------------------------
Class A Class B Class L
================================================================================
Six-Months+ (1.15)% (1.53)% (1.50)%
- --------------------------------------------------------------------------------
One-Year (6.88) (7.48) (7.43)
- --------------------------------------------------------------------------------
Since Inception++ (0.18) (0.73) (0.68)
================================================================================
With Sales Charges(2)
--------------------------------------
Class A Class B Class L
================================================================================
Six-Months+ (5.58)% (5.83)% (3.45)%
- --------------------------------------------------------------------------------
One-Year (11.07) (11.42) (9.24)
- --------------------------------------------------------------------------------
Since Inception++ (2.54) (2.61) (1.22)
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 4.50% and 1.00%,
respectively; and Class B shares reflect the deduction of a 4.50% CDSC,
which applies if shares are redeemed within one year from purchase. This
CDSC declines by 0.50% the first year after purchase and thereafter by
1.00% per year until no CDSC is incurred. Class L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase. All figures represent past performance and are not
a guarantee of future results. Investment returns and principal value will
fluctuate, and redemption value may be more or less than the original
cost.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
++ Inception date for Class A, B and L shares is February 27, 1998.
================================================================================
BOND MARKET HIGHLIGHT
================================================================================
There is currently something for everyone in the bond market, conservative and
aggressive investors alike. The two-year U.S. Treasury note now yields more than
the 30-year U.S. Treasury bond. This means that conservative, income-oriented
investors do not need to take on the added risks associated with very long-term
maturities to capture the high yields that the market has to offer. (Of course
past performance is not indicative of future results.) Similarly, more
aggressive investors can take advantage of the potential price appreciation that
longer-term securities would afford if yields were to decline.
================================================================================
NASDAQ SYMBOL
================================================================================
Class A TRBAX
Class B TRBBX
Class L SBTLX
================================================================================
WHAT'S INSIDE
================================================================================
Shareholder Letter........................................................... 1
Historical Performance....................................................... 3
Smith Barney Total Return Bond Fund
at a Glance.................................................................. 5
Schedule of Investments...................................................... 6
Statement of Assets and Liabilities.......................................... 11
Statement of Operations...................................................... 12
Statements of Changes in Net Assets.......................................... 13
Notes to Financial Statements................................................ 14
Financial Highlights......................................................... 18
<PAGE>
================================================================================
Shareholder Letter
================================================================================
[PHOTO OMITTED] [PHOTO OMITTED]
Heath B. Joseph P.
McLendon Deane
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Total
Return Bond Fund ("Fund"). In this report, we discuss general bond market
conditions and briefly 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.
Performance Overview
For the six months ended January 31, 2000, the Fund generated a negative total
return of 1.15% for its Class A shares without sales charges. In comparison the
Merrill Lynch U.S. Corporate & Government 10+ Years Bond Index posted a total
return of negative 0.20% for the same period. (The Merrill Lynch U.S. Corporate
& Government 10+ Years Bond Index is a broad measure of the performance of U.S.
government and corporate fixed-rate debt issues with maturities greater than ten
years.)
Market Overview
In our view, bond yields are high enough to adequately reflect the risk of
slightly higher inflation. The period covered by this report was marked by
continued robust U.S. economic growth, historically low inflation and low
unemployment.
On February 2, 2000, the Federal Reserve Board ("Fed") raised interest rates for
a fourth time in less than eight months, aiming to keep inflation at bay and to
curb the nation's rapidly growing economy. Perhaps more significant than the
Fed's actions was its accompanying statement that rapid growth could foster
inflationary imbalances that would undermine the economy's record economic
expansion. We believe that this cautionary statement may hint at a slightly more
aggressive approach by the Fed in the months ahead. However, in our view, bond
yields are high enough to adequately reflect the risk of slightly higher
inflation. Indeed, we think that bond yields may be near their peak.
We believe performance in the fixed-income markets has been a direct result of
Fed monetary policy actions. While presumably aimed at stock market exuberance,
it is the bond market that has taken the brunt of any correction on fears of
further Fed interest rate increases. We think the current lack of inflationary
evidence defies a historically tight labor market and reinforces the influence
of technology and the power of global pricing constraints.
To be sure, the bond market experienced a tough year in 1999. Yields moved up
all along the yield curve, causing the market value of existing holdings to
erode significantly. Additionally, the bond market has suffered in recent months
from uncertainty over the outlook of future Fed monetary policy, given the
resilience of stock markets and the apparent acceleration of consumer demand at
the end of 1999. This, in addition to the considerable momentum going into 2000,
may mean that there is less financial restraint in the economy than previously
believed. The pace of demand growth is surpassing even optimistic assessments of
the economy's speed limits, threatening to reignite inflation and underscoring
the need for Fed vigilance and restraint.
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 1
<PAGE>
Investment Strategy
Our aim is to provide our shareholders with high total return potential by
investing primarily in taxable U.S. bonds. Our investment process involves:
1. Reflecting on key market factors such as:
o U.S. economic indicators
o Inflation
o Federal Reserve Board policy
o The relative strength of the U.S. dollar;
2. Attempting to project the direction of interest rates as a foundation for
structuring the Fund's portfolio's average maturity; and
3. Attempting to select bonds likely to either experience significant price
appreciation when interest rates fall or sustain less-than-average price
depreciation when interest rates rise.
As of January 31, 2000, 96.1% of the Fund's holdings were rated investment-grade
(BBB/Baa and higher) by either Standard & Poor's Ratings Service ("Standard &
Poor's") or Moody's Investors Service Inc. ("Moody's"), with 51.7% of the Fund
invested in AAA/Aaa-rated bonds, the highest possible rating. (Standard & Poor's
and Moody's are two major credit-reporting and bond-rating agencies).
Market Outlook
We think the U.S. economy should remain stable this year, as low unemployment
and strong consumer confidence will likely support demand for goods.
Additionally, we think that the Fed has engineered a good balance between strong
economic growth and an "acceptable" rate of inflation.
Regarding further Fed tightenings, we think that such a move would not be
detrimental to the bond market, particularly as the U.S. Treasury continues to
pay down debt and inflation remains moderate. Given the higher yields and
tighter conditions that already exist in many sectors of the bond market, the
Fed's recent actions may be sufficient to slow the U.S. economy without
triggering higher inflation. We believe the good news is that the economy's
"soft landing" is likely to be at a higher annual growth rate than was
previously thought possible due to the potential emergence of a "New Economy,"
where technological advances can spur economic growth without inflationary
pressures because of higher productivity.
Inflation is the main factor in driving bond market returns. However, we have
concerns over the acceleration in inflation in the Consumer Price Index ("CPI"),
which climbed in 1999 as oil prices doubled. The bond market is likely to remain
unsettled until worries about future Fed monetary tightenings and the rapid pace
of economic growth subside. We think that the Fed may raise rates again in the
first half of the year. Nevertheless, we doubt that yields will rise much above
recent levels, and we tend to use periods of market weakness to add to our
positions.
Thank you for your investment in Smith Barney Total Return Bond Fund. We look
forward to continuing to help you pursue your financial goals in the new
century.
Sincerely,
/s/ Heath B. McLendon /s/ Joseph P. Deane
Heath B. McLendon Joseph P. Deane
Chairman Vice President and
Investment Officer
February 11, 2000
- --------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Historical Performance -- Class A Shares
================================================================================
Net Asset Value
------------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
===============================================================================
1/31/00 $10.67 $10.22 $0.33 (1.15)%+
- --------------------------------------------------------------------------------
7/31/99 11.53 10.67 0.68 (1.79)
- --------------------------------------------------------------------------------
Inception* through 7/31/98 11.46 11.53 0.23 2.64+
===============================================================================
Total $1.24
===============================================================================
================================================================================
Historical Performance -- Class B Shares
================================================================================
Net Asset Value
------------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
===============================================================================
1/31/00 $10.67 $10.21 $0.30 (1.53)%+
- --------------------------------------------------------------------------------
7/31/99 11.53 10.67 0.62 (2.29)
- --------------------------------------------------------------------------------
Inception* through 7/31/98 11.46 11.53 0.21 2.48+
===============================================================================
Total $1.13
===============================================================================
================================================================================
Historical Performance -- Class L Shares
================================================================================
Net Asset Value
------------------------
Beginning End Income Total
Period Ended of Period of Period Dividends Returns(1)
===============================================================================
1/31/00 $10.67 $10.21 $0.31 (1.50)%+
- --------------------------------------------------------------------------------
7/31/99 11.53 10.67 0.62 (2.24)
- --------------------------------------------------------------------------------
Inception* through 7/31/98 11.46 11.53 0.21 2.49+
===============================================================================
Total $1.14
===============================================================================
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
================================================================================
Average Annual Total Returns
================================================================================
Without Sales Charges(1)
--------------------------------------
Class A Class B Class L
================================================================================
Six Months Ended 1/31/00+ (1.15)% (1.53)% (1.50)%
- --------------------------------------------------------------------------------
Year Ended 1/31/00 (6.88) (7.48) (7.43)
- --------------------------------------------------------------------------------
Inception* through 1/31/00 (0.18) (0.73) (0.68)
================================================================================
With Sales Charges(2)
--------------------------------------
Class A Class B Class L
================================================================================
Six Months Ended 1/31/00+ (5.58)% (5.83)% (3.45)%
- --------------------------------------------------------------------------------
Year Ended 1/31/00 (11.07) (11.42) (9.24)
- --------------------------------------------------------------------------------
Inception* through 1/31/00 (2.54) (2.61) (1.22)
================================================================================
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 3
<PAGE>
================================================================================
Cumulative Total Returns
================================================================================
Without Sales Charges(1)
================================================================================
Class A (Inception* through 1/31/00) (0.35)%
- --------------------------------------------------------------------------------
Class B (Inception* through 1/31/00) (1.40)
- --------------------------------------------------------------------------------
Class L (Inception* through 1/31/00) (1.31)
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum sales charge of 4.50% and 1.00%, respectively.
Class B shares reflect the deduction of a 4.50% CDSC, which applies if
shares are redeemed within one year from initial purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00%
per year until no CDSC is incurred. Class L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
* Inception date for Class A, B and L shares is February 27, 1998.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
- --------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Smith Barney Total Return Bond Fund at a Glance (unaudited)
================================================================================
Growth of $10,000 Invested in Class A, B and L Shares of the Smith Barney Total
Return Bond vs. Merrill Lynch U.S. Corporate & Government 10+ Years Index+
[The Following table was depicted as a bar graph the printed material.]
February 1998 -- January 2000
Class A Class B Class C Merrill
------- ------- ------- -------
2/27/98 9550 10000 9896 10000
7/98 9803 9798 10044 10521
1/99 10220 10207 10452 11303
7/99 9628 9640 9916 9915
1/31/2000 9516 9503 9766 9884
+ The chart above represents a hypothetical illustration of $10,000 invested
in Class A, B and L shares on February 27, 1998 (inception date), assuming
deduction of the maximum 4.50% and 1.00% sales charge at the time of
investment for Class A and L shares, respectively; the deduction of the
maximum 4.50% for Class B shares and the deduction of the 1.00% CDSC for
Class L shares. It also assumes reinvestment of dividends and capital
gains, if any, at the net asset value through January 31, 2000. The
Merrill Lynch U.S. Corporate & Government 10+ Years Index is a total
return index consisting of U.S. Government agencies, Treasury securities
and all investment grade corporate debt securities with maturities of ten
years or more. The index is unmanaged and is not subject to the same
management and trading expenses as a mutual fund. An investor may not
invest directly in an index.
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 depicted as a pie chart the printed material.]
Industry Diversification*
- --------------------------------------------------------------------------------
Auto Parts 12.5%
Chemicals 9.0%
Diversified Manufacturers 14.9%
Electronic Components 7.4%
Food Distributors 9.4%
Insurance 23.1%
Investment Bankers 3.2%
Oil & Gas Production 10.8%
Retail 9.7%
* As a percentage of total corporate bonds and notes.
[The Following table was depicted as a bar chart in the printed material.]
Investment Breakdown**
- --------------------------------------------------------------------------------
Municipal Bonds 50.5%
Asset-Backed Securities 2.9%
Corporate Bonds and Notes 43.2%
Collateralized Mortgage-Backed Securities 3.4%
** As a percentage of total investments.
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 5
<PAGE>
================================================================================
Schedule of Investments (unaudited) January 31, 2000
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
================================================================================
ASSET-BACKEDSECURITIES -- 2.9%
$4,000,000 AAA Emergent Home Equity Loan Trust, Series
1997-4, Class A5, 7.080% due 12/15/28
(Cost -- $4,021,875) $ 3,747,680
================================================================================
COLLATERALIZED MORTGAGE-BACKED SECURITIES -- 3.4%
5,000,000 AAA Residential Accredit Loans, Inc., Series
1998-QSIO, Class A9, 6.750% due 6/25/28
(Cost -- $4,900,038) 4,361,500
================================================================================
CORPORATE BONDS AND NOTES - 43.2%
Auto Parts -- 5.4%
4,775,000 A+ Ford Motor Co., Debentures, 8.875% due 1/15/22 5,216,687
1,480,000 A General Motors Corp., Debentures, 9.400% due
7/15/21 1,702,000
- --------------------------------------------------------------------------------
6,918,687
- --------------------------------------------------------------------------------
Chemicals -- 3.9%
5,000,000 BB ARCO Chemical Co., Debentures, 9.800% due
2/1/20 4,956,250
- --------------------------------------------------------------------------------
Diversified Manufacturers -- 6.4%
6,670,000 Baa2* FMC Corp., Medium-Term Notes, Series A, 7.000%
due 5/15/08 6,003,000
2,475,000 A Philip Morris Cos. Inc., Debentures, 7.750% due
1/15/27 2,208,937
- --------------------------------------------------------------------------------
8,211,937
- --------------------------------------------------------------------------------
Electronic Components -- 3.2%
4,775,000 A+ Motorola, Inc., Debentures, 6.500% due 11/15/28 4,082,625
- --------------------------------------------------------------------------------
Food Distributors -- 4.1%
5,775,000 A- Tyson Foods, Inc., Notes, 7.000% due 5/1/18 5,204,719
- --------------------------------------------------------------------------------
Insurance -- 10.0%
6,425,000 A Aetna Services, Inc., Guaranteed Debentures,
7.625% due 8/15/26 5,710,219
7,775,000 A- CNA Financial Corp., Notes, 6.950% due 1/15/18 6,647,625
475,000 A Hartford Financial Services Group, Inc.,
Debentures, 7.300% due 11/1/15 434,625
- --------------------------------------------------------------------------------
12,792,469
- --------------------------------------------------------------------------------
Investment Bankers -- 1.4%
2,075,000 AA- Merrill Lynch & Co., Inc., Notes, 6.750% due
6/1/28 1,776,719
- --------------------------------------------------------------------------------
Oil & Gas Production -- 4.6%
4,775,000 Aa1* Northern Illinois Gas Co., First Mortgage Bonds,
7.375% due 10/15/27 4,416,875
1,775,000 A ONEOK, Inc., Debentures, 6.875% due 10/1/28 1,524,281
- --------------------------------------------------------------------------------
5,941,156
- --------------------------------------------------------------------------------
Retail -- 4.2%
750,000 A3* J.C. Penney Co., Inc., Debentures, 7.650% due
8/15/16 658,125
5,300,000 A- Sears Roebuck Acceptance Corp., Notes, 7.500%
due 10/15/27 4,710,375
- --------------------------------------------------------------------------------
5,368,500
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $63,559,834) 55,253,062
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited)(continued) January 31, 2000
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
================================================================================
MUNICIPAL BONDS 50.5%
Arizona -- 3.3%
$ 4,700,000 AAA Phoenix, AZ IDA Revenue, America West Arena,
AMBAC-Insured, 7.125% due 12/1/21 $ 4,253,500
- --------------------------------------------------------------------------------
California -- 21.4%
California Housing Finance Agency Revenue:
5,500,000 AAA Single-Family Mortgage, FHA-Insured, Series B-4
Class I, 6.970% due 8/1/29 4,840,000
810,000 AAA Taxable Home Mortgage, MBIA-Insured, Series H,
7.250% due 8/1/22 723,938
1,000,000 AAA California Rural Home Mortgage Finance Authority,
Single-Family Mortgage Revenue, GNMA/FNMA/FHLMC-
Collateralized, Series B-3, 7.000% due 6/1/21 875,000
6,200,000 AAA Los Angeles, CA Convention and Exhibition Center
Authority Lease Revenue, MBIA-Insured, Series A,
7.125% due 8/15/24 5,572,250
7,980,000 AAA Monrovia, CA Redevelopment Agency, Tax Allocation
(Center Redevelopment Project), AMBAC-Insured,
Series A, 7.050% due 5/1/29 7,062,300
5,000,000 AAA Oakland, CA Revenue, 1800 Harrison Foundation,
AMBAC-Insured, Series A, 8.500% due 1/1/29 4,975,000
2,040,000 AAA Pinole, CA Redevelopment Agency, Tax Allocation,
MBIA-Insured, Series B, 6.750% due 8/1/17 1,797,750
1,625,000 AAA San Dieguito, CA Public Facilities Authority
Revenue, AMBAC-Insured, Series B, 7.000% due
8/1/18 1,464,531
- --------------------------------------------------------------------------------
27,310,769
- --------------------------------------------------------------------------------
Georgia -- 3.1%
4,500,000 AAA De Kalb County, GA Development Authority Revenue
(Regional Office Project), MBIA-Insured, 6.875%
due 3/1/20 3,965,625
- --------------------------------------------------------------------------------
Maryland -- 1.3%
2,000,000 Aa2* Montgomery County, MD Housing Opportunities,
Community Single-Family Mortgage Revenue,
Series C, 7.000% due 7/1/30 1,707,500
- --------------------------------------------------------------------------------
Massachusetts - 4.5%
6,500,000 AAA Northeastern University, MA Revenue, MBIA-
Insured, Series A, 7.040% due 10/1/28 5,752,500
- --------------------------------------------------------------------------------
New York -- 3.8%
New York State Housing Finance Agency
Revenue, Multi-Family SONYMA-Insured,
Series A:
1,730,000 Aa1* 6.875% due 8/15/18 1,507,263
3,845,000 Aa1* 6.920% due 8/15/29 3,325,925
- --------------------------------------------------------------------------------
4,833,188
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 7
<PAGE>
================================================================================
Schedule of Investments (unaudited) January 31, 2000
================================================================================
FACE
AMOUNT RATING(a) SECURITY VALUE
================================================================================
Pennsylvania - 5.7%
$ 5,000,000 AAA Delaware River Port Authority, District
Project, FSA-Insured, Series A, 7.630% due
1/1/21 $ 4,793,750
York County, PA IDA, Economic Development Revenue,
FGIC-Insured:
2,295,000 AAA 6.875% due 10/1/18 2,025,337
525,000 AAA 7.000% due 10/1/23 459,375
- --------------------------------------------------------------------------------
7,278,462
- --------------------------------------------------------------------------------
Texas -- 7.4%
2,500,000 AAA Dallas-Fort Worth, TX International Airport
Facilities Improvement Corp. Revenue, MBIA-
Insured, 7.070% due 11/1/24 2,231,250
7,530,000 AAA Tyler, TX Health Facilities Development Corp.,
Hospital Revenue, East Texas, FSA Insured,
Series E, Remarketed 2/17/99,
7.830% due 11/1/27 7,209,975
- --------------------------------------------------------------------------------
9,441,225
- --------------------------------------------------------------------------------
TOTAL MUNICIPAL BONDS
(Cost -- $71,160,124) 64,542,769
================================================================================
TOTAL INVESTMENTS - 100%
(Cost -- $143,641,871**) $127,905,011
================================================================================
(a) All ratings are by Standard & Poor's Ratings Service except those
identified by an asterisk (*) which are rated by Moody's Investors Service
Inc.
** Aggregate cost for Federal income tax purposes is substantially the same.
See pages 9 and 10 for definition of ratings and certain security
descriptions.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Bond Ratings (unaudited)
================================================================================
The definitions of the applicable rating symbols are set forth below:
Standard & Poor's Ratings Service ("Standard & Poor's") -- Ratings from "AA" to
"BB" may be modified by the addition of a plus (+) or minus (-) sign to show
relative standings within the major rating categories.
AAA -- Bonds rated "AAA" have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA -- Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small
degree.
A -- Bonds rated "A" have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB -- Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for bonds in this category than in higher
rated categories.
BB -- Bonds rated "BB" have less near-term vulnerability to default than
other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
Moody's Investors Service Inc. ("Moody's") -- Numerical modifiers 1, 2, and 3
may be applied to each generic rating from "Aa" to "Baa", where 1 is the highest
and 3 the lowest rating within its generic category.
Aaa -- Bonds rated "Aaa" are judged to be of the best quality. They carry the
smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa -- Bonds rated "Aa" are judged to be of high quality by all standards.
Together with the "Aaa" group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in "Aaa" securities or
fluctuation of protective elements may be of greater amplitude or there
may be other elements present which make the long-term risks appear
somewhat larger than in "Aaa" securities.
A -- Bonds rated "A" possess many favorable investment attributes and are to
be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment some time
in the future.
Baa -- Bonds rated "Baa" are considered as medium grade obligations, i.e.,
they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 9
<PAGE>
Security Descriptions (unaudited)
- --------------------------------------------------------------------------------
ABAG -- Association of Bay Area Governments
AIG -- American International Guaranty
AMBAC -- AMBACIndemnity Corporation
BAN -- Bond Anticipation Notes
BIG -- Bond Investors Guaranty
CGIC -- Capital Guaranty Insurance Company
CHFCLI -- California Health Facility Construction Loan Insurance
COP -- Certificate of Participation
EDA -- Economic Development Authority
ETM -- Escrowed To Maturity
FAIRS -- Floating Adjustable Interest Rate Securities
FGIC -- Financial Guaranty Insurance Company
FHA -- Federal Housing Administration
FHLMC -- Federal Home Loan Mortgage Corporation
FNMA -- Federal National Mortgage Association
FRTC -- Floating Rate Trust Certificates
FSA -- Federal Savings Association
GIC -- Guaranteed Investment Contract
GNMA -- Government National Mortgage Association
GO -- General Obligation
HDC -- Housing Development Corporation
HFA -- Housing Finance Authority
IDA -- Industrial Development Authority
IDB -- Industrial Development Board
IDR -- Industrial Development Revenue
INFLOS -- Inverse Floaters
ISD -- Independent School District
LOC -- Letter of Credit
MBIA -- Municipal Bond Investors Assurance Corporation
MVRICS -- Municipal Variable Rate Inverse Coupon Security
PCR -- Pollution Control Revenue
PSFG -- Permanent School Fund Guaranty
RAN -- Revenue Anticipation Notes
RIBS -- Residual Interest Bonds
RITES -- Residual Interest Tax-Exempt Security
SONYMA -- State of New York Mortgage Agency
SYCC -- Structured Yield Curve Certificate
TAN -- Tax Anticipation Notes
TECP -- Tax Exempt Commercial Paper
TOB -- Tender Option Bonds
TRAN -- Tax and Revenue Anticipation Notes
VAN -- Veterans Administration
VRDD -- Variable Rate Daily Demand
VRWE -- Variable Rate Wednesday Demand
- --------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) January 31, 2000
================================================================================
ASSETS:
Investments, at value (Cost - $143,641,871) $ 127,905,011
Receivable for Fund shares sold 130,505
Receivable for securities sold 40,000
Interest receivable 2,877,949
- --------------------------------------------------------------------------------
Total Assets 130,953,465
- --------------------------------------------------------------------------------
LIABILITIES:
Payable to bank 1,404,494
Management fees payable 72,722
Distribution fees payable 20,885
Accrued expenses 120,800
- --------------------------------------------------------------------------------
Total Liabilities 1,618,901
- --------------------------------------------------------------------------------
Total Net Assets $ 129,334,564
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 12,662
Capital paid in excess of par value 149,191,617
Undistributed net investment income 461,633
Accumulated net realized loss on security transactions (4,594,488)
Net unrealized depreciation of investments (15,736,860)
- --------------------------------------------------------------------------------
Total Net Assets $ 129,334,564
================================================================================
Shares Outstanding:
Class A 3,582,385
- --------------------------------------------------------------------------------
Class B 7,152,371
- --------------------------------------------------------------------------------
Class L 1,927,258
- --------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 10.22
- --------------------------------------------------------------------------------
Class B * $ 10.21
- --------------------------------------------------------------------------------
Class L ** $ 10.21
- --------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value
per share) $ 10.70
- --------------------------------------------------------------------------------
Class B (net asset value plus 1.01% of net asset value
per share) $ 10.31
================================================================================
* Redemption price is NAV of Class B shares reduced by a 4.50% CDSC if
shares are redeemed within one year from purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if
shares are redeemed within the first year of purchase.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 11
<PAGE>
================================================================================
Statement of Operations (unaudited) For the Six Months Ended January 31, 2000
================================================================================
INVESTMENT INCOME:
Interest $ 5,743,093
- --------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 488,923
Distribution fees (Note 2) 444,250
Shareholder and system servicing fees 59,442
Registration fees 50,546
Shareholder communications 35,888
Audit and legal 24,363
Trustees' fees 7,481
Pricing fees 4,853
Custody 3,639
Other 2,791
- --------------------------------------------------------------------------------
Total Expenses 1,122,176
- --------------------------------------------------------------------------------
Net Investment Income 4,620,917
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 33,740,465
Cost of securities sold 36,261,608
- --------------------------------------------------------------------------------
Net Realized Loss (2,521,143)
- --------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation of Investments:
Beginning of period (11,735,933)
End of period (15,736,860)
- --------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (4,000,927)
- --------------------------------------------------------------------------------
Net Loss on Investments (6,522,070)
- -------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (1,901,153)
================================================================================
See Notes to Financial Statements.
- -------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statements of Changes in Net Assets
================================================================================
For the Six Months Ended January 31, 2000 (unaudited)
and for the Year Ended July 31, 1999
<TABLE>
<CAPTION>
2000 1999
====================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 4,620,917 $ 10,001,622
Net realized loss (2,521,143) (1,586,644)
Increase in net unrealized depreciation (4,000,927) (12,619,508)
- ----------------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations (1,901,153) (4,204,530)
- ----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (4,356,733) (10,075,382)
- ----------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (4,356,733) (10,075,382)
- ----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 8,441,640 59,560,712
Net asset value of shares issued for reinvestment of dividends 3,177,644 7,474,258
Cost of shares reacquired (38,372,292) (47,266,874)
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Fund Share Transactions (26,753,008) 19,768,096
- ----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (33,010,894) 5,488,184
NET ASSETS:
Beginning of period 162,345,458 156,857,274
- ----------------------------------------------------------------------------------------------------
End of period* $ 129,334,564 $ 162,345,458
====================================================================================================
* Includes undistributed net investment income of: $ 461,633 $ 197,449
====================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 13
<PAGE>
================================================================================
Notes to Financial Statements (unaudited)
================================================================================
1. Significant Accounting Policies
The Smith Barney Total Return Bond Fund ("Fund"), a separate investment fund of
the Smith Barney Income Funds ("Trust"), a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust consists of this
Fund and seven other separate investment funds: Smith Barney Diversified
Strategic Income Fund, Smith Barney Exchange Reserve Fund, Smith Barney
Convertible Fund, Smith Barney High Income Fund, Smith Barney Municipal High
Income Fund, Smith Barney Premium Total Return Fund and Smith Barney Balanced
Fund. The financial statements and financial highlights for the other funds are
presented in separate shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing price on such markets;
securities for which no sales price were reported are valued at bid price, or in
the absence of a recent bid price, at the bid equivalent obtained from one or
more of the major market makers; (c) securities for which market quotations are
not available will be valued in good faith at fair value by or under the
direction of the Board of Trustees; (d) securities that have a maturity of more
than 60 days are valued at prices based on market quotations for securities of
similar type, yield and maturity; (e) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (f) dividend income is recorded on ex-dividend date and
interest income is recorded on an accrual basis; (g) gains or losses on the sale
of securities are calculated by using the specific identification method; (h)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (i) direct expenses are charged to each class; management fees and general
portfolio expenses are allocated on the basis of relative net assets; (j) the
character of income and gains to be distributed are determined in accordance
with income tax regulations which may differ from generally accepted accounting
principles. At July 31, 1999, reclassifications were made to the Fund's capital
accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment income,
net realized gains and net assets were not affected by this change; (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.
2. Investment Management Agreement and Other Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
manager to the Trust. The Fund pays SSBC a management fee calculated at an
annual rate of 0.65% of the average daily net assets. This fee is calculated
daily and paid monthly.
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPC is responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through January 31, 2000, the Fund paid transfer agent
fees of $28,794 to Private Trust.
- --------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
CFBDS, Inc. ("CFBDS") acts as the Trust's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH as well as certain other broker-dealers,
continues to sell Trust shares to the public as a member of the selling group.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B shares,
which applies if redemption occurs within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter by 1.00% per year
until no CDSC is incurred. Class L shares also have a 1.00% CDSC, which applies
if redemption occurs within the first year of purchase. In certain cases, Class
A shares also have a 1.00% CDSC, which applies if redemption occurs within the
first year of purchase. This CDSC only applies to those purchases of Class A
shares, which, when combined with current holdings of Class A shares, equal or
exceed $500,000 in the aggregate. These purchases do not incur an initial sales
charge.
For the six months ended January 31, 2000, CFBDS and SSB received sales charges
of approximately $8,000 and $13,000 on sales of the Fund's Class A and Class L
shares, respectively. In addition, CDSCs paid to CFBDS were approximately:
Class A Class B Class L
================================================================================
CDSCs $1,000 $211,000 $6,000
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets for each respective class. The Fund also pays a distribution
fee with respect to Class B and L shares calculated at an annual rate of 0.50%
and 0.45% of the average daily net assets for each class, respectively. For the
six months ended January 31, 2000, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $57,089 $307,141 $80,020
================================================================================
All officers and one Trustee of the Trust are employees of SSB.
3. Investments
During the six months ended January 31, 2000, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $10,774,874
- --------------------------------------------------------------------------------
Sales 33,740,465
================================================================================
At January 31, 2000, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $ 58,985
Gross unrealized depreciation (15,795,845)
- --------------------------------------------------------------------------------
Net unrealized depreciation $(15,736,860)
================================================================================
4. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. The initial margin is segregated by the custodian and is noted in the
schedule of investments. During the period the futures contract is open, changes
in the value of the contract are recognized as unrealized gains or losses by
"marking to market" on a daily basis to reflect the market value of the contract
at the end of each day's trading. Variation margin payments are made or received
and recognized as assets due from or liabilities due to broker, depending upon
whether unrealized gains or losses are incurred. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
proceeds from (or cost of) the closing transactions and the Fund's basis in the
contract.
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 15
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
The Fund enters into such contracts to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At January 31, 2000, the Fund had no open futures contracts.
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 securities loaned, 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 January 31, 2000, the Fund had no securities on loan.
7. Reverse Repurchase Agreements
The Fund may enter into reverse repurchase agreement transactions for leveraging
purposes. A reverse repurchase agreement involves a sale by the Fund of
securities that it holds with an agreement by the Fund to repurchase the same
securities at an agreed upon price and date. A reverse repurchase agreement
involves the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities. The Fund will establish a
segregated account with its custodian, in which the Fund will maintain cash,
U.S. government securities or other liquid high-grade debt obligations.
At January 31, 2000, the Fund had no open reverse repurchase agreements.
8. When-Issued Securities and Delayed Delivery Transactions
The Fund may purchase or sell securities offered on a when-issued or
delayed-delivery basis. In such transactions, delivery of the securities occurs
beyond the normal settlement period but no payment or delivery is made by the
Fund prior to the actual delivery or payment by the other party to the
transaction. Due to fluctuations in the value of the securities purchased or
sold on a when-issued or delayed delivery basis, the yields obtained on such
securities may be higher or lower than the yields available in the market on the
dates when the investments are actually delivered to the buyers. The Fund will
establish a segregated account with the Fund's custodian consisting of cash,
U.S. government securities, debt securities of any grade or equity securities
having a value equal to or greater than the Fund's purchase commitments.
At January 31, 2000, the Fund had no when-issued securities and had not entered
into any delayed delivery transactions.
9. Capital Loss Carryforward
At July 31, 1999, the Fund had, for Federal income tax purposes, a capital loss
carryforward of approximately $1,372,200, available to offset future capital
gains through July 31, 2007. To the extent that these carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed.
10. Shares of Beneficial Interest
At January 31, 2000, 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, including those specifically related to the distribution of its
shares.
- --------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (unaudited) (continued)
================================================================================
At January 31, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L
================================================================================
Total Paid-in Capital $42,877,900 $83,591,600 $22,734,779
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
January 31, 2000 July 31, 1999
---------------------------- ---------------------------
Shares Amount Shares Amount
====================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 189,693 $ 1,979,085 1,553,323 $ 18,008,777
Shares issued on reinvestment 102,224 1,078,341 238,783 2,703,100
Shares reacquired (1,592,012) (16,709,109) (1,649,788) (18,589,705)
- ----------------------------------------------------------------------------------------------------
Net Increase (Decrease) (1,300,095) $(13,651,683) 142,318 $ 2,122,172
====================================================================================================
Class B
Shares sold 403,796 $ 4,248,505 2,436,732 $ 28,251,213
Shares issued on reinvestment 147,674 1,556,187 314,514 3,558,412
Shares reacquired (1,459,855) (15,296,456) (1,785,496) (20,175,965)
- ----------------------------------------------------------------------------------------------------
Net Increase (Decrease) (908,385) $(9,491,764) 965,750 $ 11,633,660
====================================================================================================
Class L
Shares sold 209,978 $ 2,214,050 1,149,639 $ 13,300,722
Shares issued on reinvestment 51,530 543,116 107,281 1,212,746
Shares reacquired (607,662) (6,366,727) (751,724) (8,501,204)
- ----------------------------------------------------------------------------------------------------
Net Increase (Decrease) (346,154) $(3,609,561) 505,196 $ 6,012,264
====================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 17
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
Class A Shares 2000(1)(2) 1999(2) 1998(3)
================================================================================
Net Asset Value, Beginning of Period $10.67 $11.53 $11.46
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(4) 0.35 0.67 0.25
Net realized and unrealized gain (loss) (0.47) (0.85) 0.05
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.12) (0.18) 0.30
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.33) (0.68) (0.23)
- --------------------------------------------------------------------------------
Total Distributions (0.33) (0.68) (0.23)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $10.22 $10.67 $11.53
- --------------------------------------------------------------------------------
Total Return (1.15)%++ (1.79)% 2.64%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $36,598 $52,101 $54,674
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 1.12%+ 1.02% 1.00%+
Net investment income 6.52+ 5.88 5.39+
- -----------------------------------------------------------------------------
Portfolio Turnover Rate 7% 32% 0%
================================================================================
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the average shares method.
(3) For the period from February 27, 1998 (inception date) to July 31, 1998.
(4) The manager waived part of its fees for the year ended July 31, 1999 and
the period ended July 31, 1998. If such fees were not waived, the per
share effect on net investment income and the expense ratios would have
been as follows:
Per Share Decreases Expense Ratios
in Net Investment Income Without Fee Waivers
- ------------------------- --------------------------
1999 1998 1999 1998+
---- ---- ---- -----
$0.01 $0.01 1.11% 1.21%
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
18 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
Class B Shares 2000(1)(2) 1999(2) 1998(3)
================================================================================
Net Asset Value, Beginning of Period $10.67 $11.53 $11.46
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(4) 0.32 0.62 0.23
Net realized and unrealized gain (loss) (0.48) (0.86) 0.05
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.16) (0.24) 0.28
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.30) (0.62) (0.21)
- --------------------------------------------------------------------------------
Total Distributions (0.30) (0.62) (0.21)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $10.21 $10.67 $11.53
- --------------------------------------------------------------------------------
Total Return (1.53)%++ (2.29)% 2.48%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $73,053 $85,991 $81,797
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 1.67%+ 1.52% 1.50%+
Net investment income 5.99+ 5.39 4.90+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 7% 32% 0%
================================================================================
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the average shares method.
(3) For the period from February 27, 1998 (inception date) to July 31, 1998.
(4) The manager waived part of its fees for the year ended July 31, 1999 and
the period ended July 31, 1998. If such fees were not waived, the per
share effect on net investment income and the expense ratios would have
been as follows:
Per Share Decreases Expense Ratios
in Net Investment Income Without Fee Waivers
- ------------------------- --------------------------
1999 1998 1999 1998+
---- ---- ---- -----
$0.01 $0.01 1.61% 1.71%
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Total Return Bond Fund 19
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
Class L Shares 2000(1)(2) 1999(2) 1998(3)
================================================================================
Net Asset Value, Beginning of Period $10.67 $11.53 $11.46
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income(4) 0.32 0.62 0.22
Net realized and unrealized gain (loss) (0.47) (0.86) 0.06
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.15) (0.24) 0.28
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.31) (0.62) (0.21)
- --------------------------------------------------------------------------------
Total Distributions (0.31) (0.62) (0.21)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $10.21 $10.67 $11.53
- --------------------------------------------------------------------------------
Total Return (1.50)%++ (2.24)% 2.49%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $19,684 $24,253 $20,386
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses(4) 1.62%+ 1.47% 1.45%+
Net investment income 6.03+ 5.44 4.97+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 7% 32% 0%
================================================================================
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the average shares method.
(3) For the period from February 27, 1998 (inception date) to July 31, 1998.
(4) The manager waived part of its fees for the year ended July 31, 1999 and
the period ended July 31, 1998. If such fees were not waived, the per
share effect on net investment income and the expense ratios would have
been as follows:
Per Share Decreases Expense Ratios
in Net Investment Income Without Fee Waivers
- ------------------------- --------------------------
1999 1998 1999 1998+
---- ---- ---- -----
$0.01 $0.01 1.56% 1.66%
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders*
<PAGE>
Smith Barney
Total Return Bond Fund
Trustees
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
Richard E. Hanson, Jr.
Paul Hardin
Heath B. McLendon, Chairman
Roderick C. Rasmussen
John P. Toolan
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
Joseph P. Deane
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
SSBC Fund Management Inc.
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
NewYork, NY 10013
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, RI 02940-9699
This report is submitted for the general information of shareholders of Smith
Barney Total Return Bond Fund, but it may also be used as sales literature when
proceeded or accompanied by the current Prospectus, which gives details about
charges, expenses, investment objectives and operating policies of the Fund. If
used as sales material after March 31, 2000, this report must be accompanied by
performance information for the most recently completed calendar quarter.
SALOMON SMITH BARNEY
- ---------------------------
A member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney
Total Return Bond Fund
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD01627 3/00
<PAGE>
[SBMF LOGO]
SMITH BARNEY
EXCHANGE RESERVE
FUND
SEMI-ANNUAL REPORT
JANUARY 31, 2000
[SBMF LOGO] Smith Barney
Mutual Funds
NOT FDIC INSURED O NOT BANK GUARANTEED O MAY LOSE VALUE
<PAGE>
Smith Barney [PHOTO] [PHOTO]
Exchange
Reserve Fund HEATH B. MCLENDON PHYLLIS M. ZAHORODNY
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Exchange
Reserve Fund ("Fund") for the period ended January 31, 2000. We hope that you
find this report to be useful and informative. In this report, we summarize the
period's prevailing economic and market conditions and outline our portfolio
strategy. Any discussion of the Fund's holdings is as of January 31, 2000.
Please refer to pages three and four for the Fund's holdings.
Please note that an investment in the Fund is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. Although
the Fund seeks to preserve the value of your invest ment at $1.00 per share, it
is possible to lose money by investing in the Fund.
Performance Summary
The chart below provides the yields for the Fund's Class B shares as of January
31, 2000.
Seven-Day 30-Day
Current Yield Yield
------------- ------
4.45% 4.54%
Market Update and Outlook
Strength in growth is nothing new for the U.S. economy, now in its ninth year of
economic expansion.* Over the past year, Federal Reserve Board ("Fed") Chairman
Alan Greenspan has raised concerns that excessive demand growth is fueling
imbalances that could ultimately threaten the current expansion. The latest
economic data from the U.S. Department of Commerce shows no signs of the ecomomy
slowing down. Gross Domestic Product ("GDP"), the broadest measure of economic
activity and the principal indicator of economic performance, is growing at 4.5%
year-over-year and 5.8% growth was reported for the fourth quarter of 1999.
All-time highs of consumer confidence, record levels of home sales and a
30-year-low unemployment rate point
- --------------
* Source: U.S. Department of Commerce
- --------------------------------------------------------------------------------
Smith Barney Exchange Reserve Fund 1
<PAGE>
to continued strength for the coming year. As a result, the Fed has changed its
monetary stance to "tightening bias" and raised short-term interest rates from
5.25% to 5.50% on the overnight federal-funds rate.**
Our outlook in 2000 is for a continuation of U.S. economic growth coupled with
increased momentum from a global expansion. In our opinion, rising inflation
expectations and a labor market that continues to tighten should lead the Fed to
raise interest rates throughout the year to put the economy back on a more
sustainable growth path.
Investment Strategy
The Fund seeks to maximize current income to the extent consistent with the
preservation of capital. The Fund invests in high quality,
U.S.-dollar-denominated short-term debt securities.
During the reporting period and in anticipation of higher rates, we lowered our
average maturity to a target of 10 to 20 days. We anticipate keeping the Fund's
average maturity in this range over the next several months in expectation of
further rate increases at upcoming Federal Open Market Committee meetings.
The Fund had 38 different issuers and as of January 31, 2000 the Fund's assets
were invested 7.6% in government agencies, 48.1% in bank obligations and 44.3%
in corporate commercial paper.
Due to a strong U.S. economy and a high-quality approved list of issuers, the
credit quality of our investments remains strong. During the period under
review, we have added several large entities, such as BMW U.S. Capital Corp. and
Aegon Funding Corp., to our approved list of issuers.
Thank you for investing in the Smith Barney Exchange Reserve Fund. We look
forward to continuing to help you pursue your financial goals in the new
century.
Sincerely,
/s/ Heath B. McLendon /s/ Phyllis M. Zahorodny
Heath B. McLendon Phyllis M. Zahorodny
Chairman Vice President and
Investment Officer
February 1, 2000
- --------------
** On February 2, 2000 after this letter was written, the Fed raised interest
rates by 0.25%, to 5.75%. The federal-funds rate is the interest rate
banks charge each other for overnight loans and a closely watched
indicator of the direction of interest rates.
- --------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (unaudited) January 31, 2000
================================================================================
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
========================================================================================================
<S> <C> <C> <C>
FEDERAL AGENCY DISCOUNT NOTES -- 7.6%
$6,539,000 Federal Farm Credit Bank matures 2/15/00 5.52% $ 6,525,014
8,000,000 Federal National Mortgage Association
mature 2/10/00 to 2/17/00 5.51 to 5.71 7,983,525
- --------------------------------------------------------------------------------------------------------
TOTAL FEDERAL AGENCY DISCOUNT NOTES
(Cost -- $14,508,539) 14,508,539
========================================================================================================
COMMERCIAL PAPER -- 72.4%
2,100,000 A.I. Credit Corp. matures 2/9/00 5.76 2,097,317
4,000,000 American Express Credit Corp. matures 2/7/00 5.73 3,996,187
5,000,000 Associates First Capital Corp. matures 2/18/00 5.70 4,986,612
1,350,000 Bank Austria Finance matures 2/4/00 5.62 1,349,370
5,000,000 Bank Brussels Lambert matures 2/23/00 5.72 4,982,614
5,000,000 Banque Nationale de Paris matures 2/7/00 5.68 4,995,283
2,200,000 Barclays US Funding matures 2/29/00 5.78 2,190,161
3,000,000 Baus Funding LLC matures 2/15/00 5.69 2,993,385
5,000,000 BCI Funding Corp. matures 2/11/00 5.66 4,992,167
5,000,000 Bell Atlantic Network Funding matures 2/29/00 5.73 4,977,833
5,000,000 BMW U.S. Capital Corp. matures 2/1/00 5.60 5,000,000
5,000,000 CADES matures 2/7/00 5.62 4,995,333
4,000,000 Canadian Imperial Hldgs. Inc. matures 2/3/00 5.69 3,998,742
5,000,000 CIT Group Holdings Inc.matures 2/4/00 5.58 4,997,679
4,000,000 Cregem North America Inc. matures 2/7/00 5.80 3,996,140
5,000,000 DaimlerChrysler North America Holdings Corp.
matures 2/28/00 5.71 4,978,700
5,000,000 Deutsche Bank Financial Inc. matures 2/11/00 5.67 4,992,167
5,000,000 Ford Motor Credit matures 2/3/00 5.53 4,998,467
6,000,000 General Electric Capital Corp.
matures 2/3/00 to 2/10/00 5.56 to 5.60 5,994,890
3,356,000 GTE Funding Inc. matures 2/7/00 5.62 3,352,868
3,000,000 International Nederlanden US Funding matures 2/4/00 5.70 2,998,582
6,000,000 J.P. Morgan & Co. matures 2/16/00 to 2/18/00 5.65 to 5.69 5,984,607
5,000,000 Merrill Lynch matures 2/8/00 5.78 4,994,390
5,000,000 Nationwide Building Society matures 2/14/00 5.66 4,989,835
2,700,000 Pfizer Inc. matures 2/7/00 5.58 2,697,498
5,000,000 Procter & Gamble Co. matures 2/18/00 5.65 4,986,731
5,000,000 Province de Quebec matures 2/14/00 5.65 4,989,835
5,000,000 Sara Lee Corp. matures 2/24/00 5.70 4,981,872
3,700,000 SBC Communications matures 2/16/00 5.62 3,691,367
5,000,000 Toronto Dominion Holdings matures 2/24/00 5.71 4,981,856
5,000,000 Transamerica Finance Corp. matures 2/24/00 5.69 4,981,903
2,500,000 Wal-Mart Stores, Inc. matures 2/14/00 5.65 2,494,917
- --------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER
(Cost -- $137,639,308) 137,639,308
========================================================================================================
</TABLE>
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Exchange Reserve Fund 3
<PAGE>
================================================================================
Schedule of Investments (unaudited) (continued) January 31, 2000
================================================================================
<TABLE>
<CAPTION>
FACE ANNUALIZED
AMOUNT SECURITY YIELD VALUE
========================================================================================================
<S> <C> <C> <C>
TIME DEPOSITS -- 20.0%
$8,046,000 Banc One Corp. matures 2/1/00 5.80% $ 8,046,000
8,000,000 Chase Manhattan Bank matures 2/1/00 5.81 8,000,000
8,000,000 Paribas S.A. matures 2/1/00 5.81 8,000,000
8,000,000 Societe Generale matures 2/1/00 5.81 8,000,000
6,000,000 WestDeutsche Landesbank matures 2/1/00 5.81 6,000,000
- --------------------------------------------------------------------------------------------------------
TOTAL TIME DEPOSITS
(Cost -- $38,046,000) 38,046,000
========================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $190,193,847*) $190,193,847
========================================================================================================
</TABLE>
* Aggregate cost for Federal income taxes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Statement of Assets and Liabilities (unaudited) January 31, 2000
================================================================================
ASSETS:
Investments, at amortized cost $190,193,847
Cash 874
Interest receivable 5,271
Prepaid registration fees 280,070
Receivable from manager 52,796
- --------------------------------------------------------------------------------
Total Assets 190,532,858
- --------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 302,795
Advisory fees payable 46,116
Administration fees payable 30,744
Distribution fees payable 28,075
Accrued expenses 39,576
- --------------------------------------------------------------------------------
Total Liabilities 447,306
- --------------------------------------------------------------------------------
Total Net Assets $190,085,552
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 190,105
Capital paid in excess of par value 189,895,447
- --------------------------------------------------------------------------------
Total Net Assets $190,085,552
================================================================================
Shares Outstanding:
Class B 149,753,827
- --------------------------------------------------------------------------------
Class L 40,351,563
- --------------------------------------------------------------------------------
Net Asset Value, Per Class $ 1.00
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Exchange Reserve Fund 5
<PAGE>
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Statement of Operations (unaudited)
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For the Six Months Ended January 31, 2000
INVESTMENT INCOME:
Interest $4,524,602
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EXPENSES:
Distribution fees (Note 3) 411,061
Investment advisory fees (Note 3) 246,637
Administration fees (Note 3) 164,424
Shareholder and system servicing fees 60,786
Registration fees 59,335
Audit and legal 23,994
Shareholder communications 17,438
Custody 14,171
Trustees' fees 5,618
Other 4,870
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Total Expenses 1,008,334
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Net Investment Income 3,516,268
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Increase in Net Assets From Operations $3,516,268
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See Notes to Financial Statements.
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6 2000 Semi-Annual Report to Shareholders
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Statements of Changes in Net Assets
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For the Six Months Ended January 31, 2000 (unaudited)
and the Year Ended July 31, 1999
2000 1999
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OPERATIONS:
Net investment income $ 3,516,268 $ 5,620,510
Net realized gain -- 14,111
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Increase in Net Assets From Operations 3,516,268 5,634,621
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DIVIDENDS TO SHAREHOLDERS (NOTE 2) (3,516,268) (5,620,510)
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FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 683,273,264 952,335,299
Net asset value of shares issued for
reinvestment of dividends 2,894,712 4,687,823
Cost of shares reacquired (643,546,270) (893,074,660)
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Increase in Net Assets From
Fund Share Transactions 42,621,706 63,948,462
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Increase in Net Assets 42,621,706 63,962,573
NET ASSETS:
Beginning of period 147,463,846 83,501,273
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End of period $ 190,085,552 $ 147,463,846
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See Notes to Financial Statements.
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Smith Barney Exchange Reserve Fund 7
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Notes to Financial Statements (unaudited)
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1. Significant Accounting Policies
The Smith Barney Exchange Reserve Fund ("Fund"), a separate investment fund of
the Smith Barney Income Funds ("Trust"), a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust consists of this
Fund and seven other separate investment funds: Smith Barney Convertible Fund,
Smith Barney Diversified Strategic Income Fund, Smith Barney High In come Fund,
Smith Barney Premium Total Return Fund, Smith Barney Mu nici pal High Income
Fund, Smith Barney Balanced Fund and Smith Barney Total Return Bond Fund. The
financial statements and financial highlights for the other Funds are presented
in separate shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) the Fund uses the
amortized cost method for valuing investments; accordingly, the cost of
securities plus accreted discount, or minus amortized premium, approxi mates
value; (c) interest income is recorded on an accrual basis; (d) direct expenses
are charged to each class; management fees and general Fund expenses are
allocated on the basis of the relative net assets of each class; (e) dividends
and distributions to shareholders are recorded on the ex-dividend date; (f)
gains or losses on the sale of securities are calculated by using the specific
identification method; (g) the character of income and gains to be distributed
are determined in accordance with income tax regulations which may differ from
generally accepted accounting principles. At July 31, 1999, reclassifications
were made to the Fund's capital accounts to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Accordingly, a portion of accumulated net realized loss amounting
to $19,838 was reclassified to paid-in capital. Net investment income, net
realized gains and net assets were not affected by this change; (h) the Fund
intends to comply with the applicable provisions of the Internal Revenue Code of
1986, as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (i) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
2. Dividends
The Fund declares and records a dividend of substantially all of its net
investment income on each business day. Such dividends are paid or reinvested
monthly on the payable date. Net realized gains, if any, are distributed
annually.
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8 2000 Semi-Annual Report to Shareholders
<PAGE>
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Notes to Financial Statements (unaudited) (continued)
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3. Investment Advisory Agreement, Administration Agreement and Other
Transactions
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in
turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as investment
adviser to the Fund. The Fund pays SSBC an advisory fee calculated at an annual
rate of 0.30% of the average daily net assets. SSBC also acts as the Fund's
administrator for which the Fund pays a fee calculated at an annual rate of
0.20% of the average daily net assets. These fees are calculated daily and paid
monthly.
Effective October 1999, Smith Barney Private Trust Company ("Private Trust"),
another subsidiary of Citigroup, became the Fund's transfer agent and PFPC
Global Fund Services ("PFPC") became the sub-transfer agent. Private Trust
receives account fees and asset-based fees that vary according to the size and
type of account. PFPCis responsible for shareholder recordkeeping and financial
processing for all shareholder accounts and is paid by Private Trust. During the
period October 1, 1999 through January 31, 2000, the Fund paid transfer agent
fees of $38,002 to Private Trust.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
There is a contingent deferred sales charge ("CDSC") of 4.50% on Class B shares,
which applies if redemption occurs within one year from purchase. This CDSC
declines by 0.50% the first year after purchase and thereafter declines by 1.00%
per year until no CDSC is incurred. Class L shares have a 1.00% CDSC, which
applies if redemption occurs within the first year from the date such investment
was made. For the six months ended January 31, 2000, CDSCs paid to SSB were
approximately:
Class B Class L
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CDSCs $302,000 $18,000
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Pursuant to a Distribution plan, the Fund pays a distribution fee with respect
to Class B and L shares calculated at an annual rate of 0.50% of the average
daily net assets for each class, respectively. For the six months ended January
31, 2000, total Distribution Plan fees incurred were:
Class B Class L
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Distribution Plan Fees $334,960 $76,101
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All officers and one Trustee of the Trust are employees of SSB.
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Smith Barney Exchange Reserve Fund 9
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Notes to Financial Statements (unaudited) (continued)
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4. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. Shares of Beneficial Interest
The Fund may issue an unlimited number of shares of beneficial interest with a
par value of $0.001 per share. The Fund has the ability to issue multiple
classes of shares. Each share of a class represents an identical interest and
has the same rights, except that each class bears certain direct expenses,
including those specifically related to the distribution of its shares. Because
the Fund has sold shares, issued shares as reinvestments of dividends and
redeemed shares only at a constant net asset value of $1.00 per share, the
number of shares represented by such sales, reinvestments and redemptions is the
same as the amounts shown below for such transactions.
Transactions in shares of beneficial interest of the Fund were as follows:
Six Months Ended Year Ended
January 31, 2000 July 31, 1999
================================================================================
Class B
Shares sold 403,263,549 665,571,157
Shares issued on reinvestment 2,465,752 4,157,911
Shares reacquired (376,125,383) (623,800,133)
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Net Increase 29,603,918 45,928,935
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Class L
Shares sold 280,009,715 286,764,142
Shares issued on reinvestment 428,960 529,912
Shares reacquired (267,420,887) (269,274,527)
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Net Increase 13,017,788 18,019,527
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10 2000 Semi-Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of beneficial interest outstanding throughout each
year ended July 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998 1997 1996 1995
=================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------
Net investment
income 0.022 0.040 0.044 0.043 0.044 0.044
Dividends from
net investment
income (0.022) (0.040) (0.044) (0.043) (0.044) (0.044)
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Net Asset Value,
End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------
Total Return 2.17%++ 4.05% 4.51% 4.43% 4.53% 4.49%
- -------------------------------------------------------------------------------------------------
Net Assets,
End of
Period (000s) $149,738 $120,127 $ 74,186 $116,915 $150,421 $160,432
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Ratios to Average
Net Assets:
Expenses 1.22%+ 1.18% 1.21% 1.16% 1.17% 1.24%
Net investment
income 4.28+ 3.98 4.43 4.34 4.45 4.35
=================================================================================================
Class L Shares 2000(1)(2) 1999(2) 1998(3) 1997 1996 1995(4)
=================================================================================================
Net Asset Value,
Beginning of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------
Net investment
income 0.021 0.040 0.044 0.043 0.044 0.035
Dividends from
net investment
income (0.021) (0.040) (0.044) (0.043) (0.044) (0.035)
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Net Asset Value,
End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------------------------------------------------------------------
Total Return 2.19%++ 4.04% 4.52% 4.42% 4.51% 3.52%++
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Net Assets,
End of
Period (000s) $ 40,348 $ 27,337 $ 9,315 $ 5,808 $ 9,444 $ 2,850
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Ratios to Average
Net Assets:
Expenses 1.24%+ 1.21% 1.21% 1.16% 1.17% 1.21%+
Net investment
income 4.26+ 3.95 4.43 4.34 4.39 4.76+
=================================================================================================
</TABLE>
(1) For the six months ended January 31, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) For the period from November 7, 1994 (inception date) to July 31, 1995.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
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Smith Barney Exchange Reserve Fund 11
<PAGE>
[SOLOMONSMITHBARNEY]
-------------------------------
A member of citigroup[LOGO]
Trustees
Lee Abraham
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley
Richard E. Hanson, Jr.
Paul Hardin
Heath B. McLendon
Roderick C. Rasmussen
John P. Toolan
Officers
Heath B. McLendon
President and Investment Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Phyllis M. Zahorodny
Vice President and
Investment Officer
Michele Mirabella
Investment Officer
Irving P. David
Controller
Christina T. Sydor
Secretary
Investment Adviser
and Administrator
SSBC Fund Management Inc.
Distributor
CFBDS, Inc.
Custodian
PNC Bank, N.A.
Transfer Agent
Smith Barney Private Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general
information of the shareholders of Smith
Barney Income Funds -- Smith Barney
Exchange Reserve Fund, but it may also
be used as sales literature when pro-
ceeded or accompanied by the current
Prospectus, which gives details about
charges, expenses, investment objectives
and operating policies of the Fund. If
used as sales material after March 31,
2000, this report must be accompanied
by performance information for the most
recently completed calendar quarter.
Salomon Smith Barney is a service mark
of Salomon Smith Barney Inc.
Smith Barney
Exchange Reserve Fund
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD2388 3/00
