<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
LARGE CAP VALUE FUND
--------------------------------------------------------------------------------
STYLE PURE SERIES | SEMI-ANNUAL REPORT | JUNE 30, 2000
[LOGO] Smith Barney
Mutual Funds
Your Serious Money Professionally Managed.(SM)
--------------------------------------------------------------------------------
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
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<PAGE>
[LOGO] Style Pure Series
Semi-Annual Report . June 30, 2000
SMITH BARNEY
LARGE CAP VALUE FUND
[PHOTO]
ELLEN CARDOZO SONSINO, PORTFOLIO MANAGER
ELLEN CARDOZO SONSINO
Ellen Cardozo Sonsino has 22 years of securities business experience.
Education: BA from Smith College; MBA from Columbia University Graduate School
of Business
[PHOTO]
FRANCES A. ROOT, CFA
Frances A. Root has more than 20 years of securities business experience.
Education: BA from Sweet Briar College
FUND OBJECTIVE
Seeks current income and long-term growth of capital by identifying stocks of
large, established companies that are undervalued relative to their fundamental
value. The managers look for positive catalysts to accelerate earnings.
FUND FACTS
FUND INCEPTION*
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May 18, 1967
MANAGER'S INVESTMENT INDUSTRY EXPERIENCE
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22 Years (Ellen Cardozo Sonsino)
20 Years (Frances A. Root)
MANAGER TENURE
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* On February 26, 1972, an affiliate of Salomon Smith Barney assumed management
of the Smith Barney Large Cap Value Fund.
SYMBOLS Class A Class B Class L
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NASDAQ SBCIX SBCCX SBGCX
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Inception 5/18/67 11/7/94 12/2/92
* On February 26, 1972, an affiliate of Saloman Smith Barney assumed
management of the Smith Barney Large Cap value Fund.
Average Annual Total Returns as of June 30, 2000
<TABLE>
<CAPTION>
Without Sales Charges/(1)/
Class A Class B Class L
<S> <C> <C> <C>
Six Months+ (0.88)% (1.32)% (1.26)%
---------------------------------------------------------------------------
One-Year (10.01) (10.73) (10.71)
---------------------------------------------------------------------------
Five-Year 13.89 12.99 13.01
---------------------------------------------------------------------------
Ten-Year 11.97 N/A N/A
---------------------------------------------------------------------------
Since Inception++ 11.18 14.06 11.93
---------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
With Sales Charges/(2)/
Class A Class B Class L
<S> <C> <C> <C>
---------------------------------------------------------------------------
Six Months+ (5.81)% (6.25)% (3.21)%
---------------------------------------------------------------------------
One-Year (14.49) (14.95) (12.44)
---------------------------------------------------------------------------
Five-Year 12.73 12.87 12.79
---------------------------------------------------------------------------
Ten-Year 11.39 N/A N/A
---------------------------------------------------------------------------
Since Inception++ 11.01 14.06 11.79
---------------------------------------------------------------------------
</TABLE>
What's Inside
<TABLE>
<S> <C>
Your Investment in the Smith Barney
Large Cap Value Fund........................................ 1
A Message from the Chairman................................. 2
Fund at a Glance............................................ 3
Letter from the Portfolio Managers.......................... 4
Historical Performance...................................... 8
Growth of $10,000........................................... 11
Schedule of Investments..................................... 12
Statement of Assets and Liabilities......................... 15
Statement of Operations..................................... 16
Statements of Changes in Net Assets......................... 17
Notes to Financial Statements............................... 18
Financial Highlights........................................ 21
</TABLE>
[LOGO] SMITH BARNEY
MUTUAL FUNDS
Your Serious Money. Professionally Managed.(SM)
-------------------------------------------------------------------------------
Investment Products: Not FDIC Insured. Not Bank Guaranteed. May Lose Value
-------------------------------------------------------------------------------
/(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 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, this CDSC declines 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 May 18,1967, November
7, 1994 and December 2, 1992, respectively.
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<PAGE>
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YOUR INVESTMENT IN THE SMITH BARNEY LARGE CAP VALUE FUND
--------------------------------------------------------------------------------
[LOGO] -- We Earn Your Trust
In a world of change, our managers remain disciplined, using a
thoughtful approach to identifying, owning and monitoring securities.
Our approach to investing and our extensive research capabilities are
the foundation of our rigorous decision-making process.
[LOGO] -- Out-of-Favor Sector Opportunities
Our value managers seek to invest in established companies temporarily
out of favor or unrecognized by Wall Street investment professionals,
but demonstrating the potential for dynamic change.
[LOGO] -- A Disciplined Sell Strategy
Our managers' vast experience and knowledge allow them to identify
opportunities and to sell holdings when they no longer meet their
stringent criteria.
[LOGO] -- A Distinguished History of Managing Your Serious Money
Founded in 1873 and 1892, respectively, the firms of Charles D. Barney
and Edward B. Smith were among the earliest providers of securities
information, research and transactions. Merged in 1937, Smith Barney &
Co. offered its clients a powerful, blue-chip investment capability
able to provide timely information, advice and insightful asset
management. Today,S SB Citi Fund Management LLC unites the
distinguished history of Smith Barney with the unparalleled global
reach of its parent, Citigroup.
At SSB Citi Fund Management LLC, you gain access to blue-chip
management delivered professionally. We are proud to offer you, the
serious investor, a variety of managed solutions.
Managing Value and Risk in Large Cap Stock Investing
SMITH BARNEY
LARGE CAP VALUE FUND
. Potential For Positive Change
. Dividend Paying Ability
. Value Criteria
. Universe of Large Cap Stocks
1 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
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A M E S S A G E F R O M T H E C H A I R M A N
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[PHOTO]
Heath B. McLendon
Chairman
Originally offered in 1967, the Smith Barney Large Cap Value Fund looks to
provide you with the opportunity to invest in established and well-managed, yet
undervalued companies, a time-honored investment approach. We believe that
wisely run companies can offer two key benefits to you--dividend income and
capital appreciation potential. At SSB Citi Fund Management LLC, we remain
firmly committed to our belief that individual company selection should continue
to be the primary focus of any investor in any market. We believe that those
companies with superior products, strong management and a sound business plan
should be well positioned to deliver continued earnings growth in the evolving
global economy.
Our managers employ a two-step stock selection process in their search for
undervalued stocks. First, the managers use proprietary models and fundamental
research to try to identify stocks that are underpriced in the market relative
to their fundamental value. Next, the managers look for a positive catalyst in
the company's near term outlook, which they believe will accelerate earnings.
The managers look for companies with above-average dividend paying ability and
established dividend records, with positive changes in earnings prospects not
yet recognized in the marketplace.
For years, individuals and their families and businesses have looked to the
investment professionals of SSB Citi Fund Management LLC for thoughtful insight
and advice. For some, the solution has been a long-term investment strategy,
incorporating multiple stock and bond mutual funds. Others have invested with
specific portfolio managers who are recognized and respected for their insight
and record.
In our opinion, the lessons of the past can and should be used to better
understand the challenges and opportunities of the future. We believe SSB Citi
Fund Management LLC represents extensive asset management experience. We also
believe that expertise is achieved through the intelligent application of
knowledge and experience. Our portfolio managers have managed portfolios across
markets and cycles.
Whatever your investment objective may be, we believe that following a
disciplined investment plan is of paramount importance in these uncertain times.
We encourage you to work closely with your financial professional to map out an
investment plan that fits in with your objectives -- be it retirement, estate
planning or educational needs.
When you invest with SSB Citi Fund Management ENDON LLC, you can do so with the
confidence that your interests come first, your investment success is paramount,
and that the ultimate in resources is being committed to your financial future.
Thank you for investing with us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
July 12, 2000
2 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
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Smith Barney Large Cap Value Fund at a Glance (unaudited)
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Top Ten Holdings*+
<TABLE>
<S> <C>
1. Exxon Mobil Corp....................................................... 5.1%
2. The Williams Cos., Inc................................................. 3.8
3. The Chase Manhattan Corp............................................... 3.5
4. General Electric Co.................................................... 3.5
5. Marsh & McLennan Cos., Inc............................................. 3.4
6. Mellon Financial Corp.................................................. 3.3
7. American Home Products Corp............................................ 3.2
8. PepsiCo, Inc........................................................... 3.0
9. BP Amoco PLC........................................................... 2.9
10. Emerson Electric Co.................................................... 2.9
</TABLE>
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Industry Diversification*+
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10.2% Banking
6.4% Capital Goods
8.1% Drugs
4.1% Electric Utility
3.8% Household Products
9.2% Insurance
12.6% Integrated Oil
7.3% Natural Gas
5.6% Office Equipment
11.4% Telephone
21.3% Other
--------------------------------------------------------------------------------
Investment Breakdown*++
--------------------------------------------------------------------------------
0.1% Repurchase Agreement
99.9% Common Stock
* These holdings are as of June 30, 2000 and are subject to change.
+ As a percentage of total common stock.
++ As a percentage of total investments.
3 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
Dear Shareholder,
We are pleased to provide the semi-annual report for the Smith Barney Funds,
Inc. -- Large Cap Value Fund ("Fund") for the period ended June 30, 2000. In
this report, we summarize the period's prevailing economic conditions and
briefly outline the Fund's investment strategy./1/ Please note that any
discussion of the Fund's holdings is as of June 30, 2000. Please refer to pages
12 through 14 for the Fund's holdings. A detailed summary of performance and
current holdings 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 June 30, 2000, the Fund's Class A, B and L shares,
without sales charges, generated negative returns of 0.88%, 1.32% and 1.26%,
respectively. The Fund's Class A, B and L shares, with sales charges, generated
negative returns of 5.81%, 6.25% and 3.21%. In comparison, the Russell 1000
Value Index/2/ returned a negative 4.23% for the same period. (Past performance
is not indicative of future results.)
===============================================
WE SEEK TO INVEST IN ESTABLISHED COMPANIES
WE THINK DEMONSTRATE THE POTENTIAL FOR
EARNINGS GROWTH.
===============================================
Market Update
The initial months of 2000 began the same as last year ended, with the U.S.
economy growing, technology stocks rising toward new heights, and a growing
acceptance among investors of the likelihood of an extended period of monetary
policy tightening by the Federal Reserve Board ("Fed"). The exceptional
divergence in valuation and stock performance between tech stocks relative to
those of traditional companies also carried over into 2000, supported by the
idea that more established, blue-chip "Old Economy" companies may be trading at
significant discounts given the above average relative growth potential of many
technology firms.
Investors' willingness to pay exceptional multiples for such stocks appears to
have reached a limit. At the same time, the combination of high valuations and
steadily rising interest rates at one point took the Nasdaq Composite Index/3/
down more than 35% between mid-March and the end of April. As the market then
began to value companies on the basis of multiples of cash flow and income,
shares of companies that actually made money finally enjoyed a spell of better
performance compared to many "New Economy" stocks. Against the backdrop of six
months of higher market volatility, the Standard & Poor's 500 Index ("S&P
500")/4/ was up 1% and performed the best among the major stock indices,
although the Nasdaq Composite Index substantially recovered from its lows to
finish the first half just 3% lower and the Dow Jones Industrial Average
("DJIA")/5/ finished the period down 9%. (Please note that an investor cannot
invest directly in an index.)
___________
1 The information provided represents the opinion of the managers and is not
intended to be a forecast of future events, a guarantee of future results
nor investment advice. Further, there is no assurance that certain
securities will remain in or out of the Fund.
2 The Russell 1000 Value Index contains those stocks in the Russell 1000
Index with a less-than-average growth orientation. Companies that are
categorized in this index generally have lower price-to-book and price-to-
earnings ratios, higher dividend yields and lower forecasted growth values.
A price-to-earnings ratio is a widely used gauge of a stock's valuation
that indicates what investors are paying for an interest in a company based
on its prior earnings. A price-to-book ratio shows the price of a stock
compared to the company's book value.
3 The Nasdaq Composite Index is a market value-weighted index that measures
all domestic and non-U.S. based securities listed on the NASDAQ stock
market.
4 The S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks.
5 The DJIA is a price-weighted average of 30 actively traded blue-chip
stocks. Figures for the DJIA include reinvestment of dividends.
4 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
After an extraordinary period during which the U.S. economy appeared essentially
unaffected by the steady rise in rates, by the end of the reporting period, the
impact of six interest rate hikes by the Fed since June 1999, were reflected in
housing, employment, and manufacturing data. Although neither of these gauges of
economic strength may be conclusive over short periods of time, each gave
credence to the growing view that economic activity had begun to moderate
somewhat.
In our view, this data supported optimism that the Fed may soon end the recent
rounds of interest rate increases and sparked a broad-based market rally with
the interest-rate sensitive financial sector and other traditional stocks
leading the way. Importantly, at the same time signs of moderating growth caused
greater enthusiasm among many investors, so too have concerns grown about the
sustainability of corporate earnings in the face of a slowing economy.
We believe that investors' views on companies' ability to successfully manage
through this period should be a significant factor in determining which stocks
and indices perform best in coming months. In fact, even as the reporting period
came to a close, companies among sectors as diverse as consumer products,
financial services, communications and technology each preannounced earnings
shortfalls at least partly attributable to slowing economic growth.
Unfortunately, the threat of slowing economic growth is not the only issue that
companies must navigate to meet Wall Street's expectations in coming quarters.
Tight labor markets, rising credit costs, the persistent weakness of the
euro, /6/ and skyrocketing energy costs, are all factors which present companies
of all sizes with significant challenges.
==========================================================
WE VIEW THE BALANCE OF MARKET,ECONOMIC AND
INTEREST RATE RISKS AS FAVORABLE FOR STOCKS.
==========================================================
In our opinion, most investors should shift assets toward the companies they
deem to be best positioned to successfully manage their earnings against the
more challenging backdrop of slowing economic growth. We therefore expect second
quarter 2000 earnings reports, along with the release of key economic data
between now and the August 2000 Federal Open Market Committee ("FOMC")/7/
meeting, to be important factors influencing near-term market performance.
Market Outlook
We view the communications sector as an opportunity to participate in a changing
industry for which future growth opportunities may be considerably stronger than
those of the past. As the local telephone companies and long distance providers
watch their businesses converge, each is also moving rapidly to shift their
revenue mix toward faster growing areas (such as wireless, data and Internet
services) expected to drive future growth.
We recently added to the Fund's positions in ALLTEL Corp., a national provider
of wireline and wireless communication and information services. Wireless
services comprise greater than half of the company's earnings, recent roaming
agreements and asset swaps with Bell Atlantic/Vodafone should be positive. In
our view, its shares appear attractive relative to peers and the value of the
company's wireless assets.
_____________
6 The euro is the single currency of the European Monetary Union that was
adopted by Belgium, Germany, Spain, France, Ireland, Italy, Luxembourg, the
Netherlands, Austria, Portugal and Finland on January 1, 1999.
7 The FOMC is a policy-making body of the Federal Reserve System, the U.S.
central bank, that is responsible for the formulation of policy designed to
promote economic growth, full employment, stable prices, and a sustainable
pattern of international trade and payments.
5 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
We also consider the pharmaceutical industry to be an area with investment
potential. Valuations in the group have been depressed recently by political
concerns about rising Medicare drug benefits and other initiatives with the
potential to constrain industry pricing power. These concerns -- combined with
outsized patent expirations and a lack of new potential blockbuster drugs --
have added to investors' concerns about the pharmaceutical industry.
Nevertheless, we believe that select companies have the potential to overcome
these trends and benefit from strong company-specific product cycles, faster
time to market for new products and improving yields on investments in research
and development. We believe the fundamental outlook for Johnson & Johnson should
lead it to outperform despite considerable political pressures and we have
recently begun to accumulate more shares.
The Fund has also established a position in financial services giant Merrill
Lynch, which in our view, is uniquely positioned to capitalize on several
changes within the financial services industry including:
. The shift toward capital markets-linked financing abroad;
. The trends toward globalization driving increased merger volumes;
. The growing trend globally to privatize pension systems; and
. The strong demand for retirement savings products worldwide.
We are also encouraged by the firm's response to online competitors and believe
the financial and strategic implications of fully embracing the Internet may
favorably impact asset growth,raise the proportion of fees relative to
transaction-oriented income, and may ultimately lead to a higher stock
valuation. Risks related to the transformation of its retail division seemed
more than adequately discounted during the beginning of the year when we
established meaningful positions in Merrill.
==========================================================================
WIRELESS COMMUNICATION MAY REPRESENT FUTURE GROWTH
In 1990, there were only 5,283,055 subscribers to wireless
systems. In 1999, that number dramatically increased
to 87,047,003. Source: Cellular Telecommunications Industry Association
==========================================================================
One of the stocks we sold this year is the disability insurance company
UnumProvident, which was eliminated after the company released what we viewed as
disappointing earnings and revealed a wide range of concerns that suggested to
us that the company's turnaround was of greater complexity and may take longer
than previously thought. Among other missteps, the restructuring and retraining
of the sales force has negatively impacted important customer relationships and
caused a sales decline in UnumProvident's most important division. In our view,
the company faces a challenging future.
Shares of Enron have done extremely well since we added them to the Fund two
years ago. We think the rise in share price through June 2000 was driven in part
by management's persuasive argument for exploiting inefficiencies in the rapidly
expanding broadband market to create a structured broadband commodity trading
market. Management's superior track record and success at taking advantage of
similar imbalances in the electric and natural gas commodity markets gave us
confidence during the period that Enron might establish a dominant position in
this new industry. Nevertheless, after appreciating over 200% since we purchased
it in 1998, the company's shares no longer meet our dividend or cash flow yield
requirements and has begun to take on what we deem to be growth stock
characteristics. Therefore, we substantially eliminated the Fund's position in
Enron and used the proceeds from the sale to invest in what we thought were more
reasonable valued, yet presently out-of-favor names that we believe have
significant upside potential.
6 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
We are optimistic that U.S. economic growth will slow to a pace that helps to
mediate inflationary concerns enough to satisfy monetary policymakers, yet
remain strong enough to allow corporations to post respectable, if somewhat less
robust, overall earnings gains. Admittedly, the risks to our expectations are
significant. Historically, similar attempts to gradually tame the growth of an
expansion have often not succeeded. Additionally, we view the record trade
deficit in many respects as symbolic of the importance of the U.S. as a source
of demand for emerging and developed markets abroad. Given the increasingly
influential role of the U.S. consumer in helping to maintain the global economic
growth equation, the impact of slowing U.S. demand could be more detrimental
than is generally assumed.
Overall, we view the balance of market, economic and interest rate risks as
favorable for stocks and believe the recent downturn has served to dampen
speculation. In recent months we have identified several promising investment
opportunities within the pharmaceutical, natural gas and technology industries.
In closing, thank you for your investment in the Smith Barney Funds, Inc. --
Large Cap Value Fund. We look forward to continuing to help you pursue your
financial goals in the new century.
Sincerely,
/s/ Ellen Cardozo Sonsino /s/ Frances A. Root
Ellen Cardozo Sonsino Frances A. Root
Vice President Vice President
July 12, 2000
7 Smith Barney Large Cap Value Fund | 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>
6/30/00 $17.00 $16.75 $0.10 $0.00 $0.00 (0.88)%+
-------------------------------------------------------------------------------------------------------
12/31/99 18.28 17.00 0.20 0.85 0.06 (0.91)
-------------------------------------------------------------------------------------------------------
12/31/98 17.09 18.28 0.23 1.06 0.00 14.61
-------------------------------------------------------------------------------------------------------
12/31/97 14.79 17.09 0.29 1.50 0.00 27.86
-------------------------------------------------------------------------------------------------------
12/31/96 14.59 14.79 0.36 1.79 0.00 16.06
-------------------------------------------------------------------------------------------------------
12/31/95 12.18 14.59 0.39 1.18 0.00 33.05
-------------------------------------------------------------------------------------------------------
12/31/94 13.31 12.18 0.42 0.14 0.00 (4.31)
-------------------------------------------------------------------------------------------------------
12/31/93 12.48 13.31 0.46 0.73 0.00 16.38
-------------------------------------------------------------------------------------------------------
12/31/92 12.51 12.48 0.51 0.40 0.00 7.23
-------------------------------------------------------------------------------------------------------
12/31/91 10.54 12.51 0.73 0.05 0.00 26.57
-------------------------------------------------------------------------------------------------------
12/31/90 12.69 10.54 0.70 0.25 0.00 (9.46)
=======================================================================================================
Total $4.39 $7.95 $0.06
=======================================================================================================
</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>
6/30/00 $16.94 $16.69 $0.03 $0.00 $0.00 (1.32)%+
-------------------------------------------------------------------------------------------------------
12/31/99 18.21 16.94 0.05 0.85 0.06 (1.66)
-------------------------------------------------------------------------------------------------------
12/31/98 17.03 18.21 0.09 1.06 0.00 13.71
-------------------------------------------------------------------------------------------------------
12/31/97 14.74 17.03 0.15 1.50 0.00 26.83
-------------------------------------------------------------------------------------------------------
12/31/96 14.54 14.74 0.24 1.79 0.00 15.22
-------------------------------------------------------------------------------------------------------
12/31/95 12.15 14.54 0.29 1.18 0.00 32.07
-------------------------------------------------------------------------------------------------------
Inception* -- 12/31/94 12.54 12.15 0.09 0.14 0.00 (1.28)+
=======================================================================================================
Total $0.94 $6.52 $0.06
=======================================================================================================
</TABLE>
8 Smith Barney Large Cap Value Fund | 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>
6/30/00 $16.95 $16.71 $0.03 $0.00 $0.00 (1.26)%+
-------------------------------------------------------------------------------------------------------------------
12/31/99 18.22 16.95 0.05 0.85 0.06 (1.65)
-------------------------------------------------------------------------------------------------------------------
12/31/98 17.05 18.22 0.10 1.06 0.00 13.73
-------------------------------------------------------------------------------------------------------------------
12/31/97 14.76 17.05 0.16 1.50 0.00 26.85
-------------------------------------------------------------------------------------------------------------------
12/31/96 14.57 14.76 0.24 1.79 0.00 15.15
-------------------------------------------------------------------------------------------------------------------
12/31/95 12.18 14.57 0.29 1.18 0.00 32.01
-------------------------------------------------------------------------------------------------------------------
12/31/94 13.30 12.18 0.34 0.14 0.00 (4.91)
-------------------------------------------------------------------------------------------------------------------
12/31/93 12.48 13.30 0.36 0.73 0.00 15.46
-------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/92 12.87 12.48 0.06 0.40 0.00 (0.57)+
===================================================================================================================
Total $1.63 $7.65 $0.06
===================================================================================================================
</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>
6/30/00 $17.01 $16.75 $0.13 $0.00 $0.00 (0.77)%+
---------------------------------------------------------------------------------------------------------------------
12/31/99 18.28 17.01 0.26 0.85 0.06 (0.54)
---------------------------------------------------------------------------------------------------------------------
12/31/98 17.09 18.28 0.29 1.06 0.00 14.96
---------------------------------------------------------------------------------------------------------------------
12/31/97 14.80 17.09 0.35 1.50 0.00 28.21
---------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/96 15.06 14.80 0.41 1.79 0.00 12.86+
=====================================================================================================================
Total $1.44 $5.20 $0.06
=====================================================================================================================
</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>
6/30/00 $17.04 $16.78 $0.13 $0.00 $0.00 (0.77)%+
---------------------------------------------------------------------------------------------------------------------
12/31/99 18.31 17.04 0.26 0.85 0.06 (0.54)
---------------------------------------------------------------------------------------------------------------------
12/31/98 17.12 18.31 0.29 1.06 0.00 14.95
---------------------------------------------------------------------------------------------------------------------
12/31/97 14.82 17.12 0.35 1.50 0.00 28.27
---------------------------------------------------------------------------------------------------------------------
12/31/96 14.61 14.82 0.41 1.79 0.00 16.47
---------------------------------------------------------------------------------------------------------------------
12/31/95 12.19 14.61 0.42 1.18 0.00 33.41
---------------------------------------------------------------------------------------------------------------------
Inception* -- 12/31/94 12.54 12.19 0.12 0.14 0.00 (0.73)+
=====================================================================================================================
Total $1.98 $6.52 $0.06
=====================================================================================================================
</TABLE>
It is the Portfolio's policy to distribute dividends and capital gains, if any,
annually.
9 Smith Barney Large Cap Value Fund | 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 6/30/00+ (0.88)% (1.32)% (1.26)% (0.77)% (0.77)%
--------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/00 (10.01) (10.73) (10.71) (9.75) (9.74)
--------------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/00 13.89 12.99 13.01 N/A 14.26
--------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 6/30/00 11.97 N/A N/A N/A N/A
--------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/00 11.18 14.06 11.93 11.93 15.39
==========================================================================================================================
</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 6/30/00+ (5.81)% (6.25)% (3.21)% (0.77)% (0.77)%
----------------------------------------------------------------------------------------------------------------------------
Year Ended 6/30/00 (14.49) (14.95) (12.44) (9.75) (9.74)
----------------------------------------------------------------------------------------------------------------------------
Five Years Ended 6/30/00 12.73 12.87 12.79 N/A 14.26
----------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 6/30/00 11.39 N/A N/A N/A N/A
----------------------------------------------------------------------------------------------------------------------------
Inception* through 6/30/00 11.01 14.06 11.79 11.93 15.39
============================================================================================================================
</TABLE>
--------------------------------------------------------------------------------
Cumulative Total Returns
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charges/(1)/
===============================================================================================
<S> <C>
Class A (6/30/90 through 6/30/00) 209.62%
-----------------------------------------------------------------------------------------------
Class A (Inception* through 6/30/00) 3,255.74
-----------------------------------------------------------------------------------------------
Class B (Inception* through 6/30/00) 110.24
-----------------------------------------------------------------------------------------------
Class L (Inception* through 6/30/00) 135.07
-----------------------------------------------------------------------------------------------
Class Y (Inception* through 6/30/00) 64.18
-----------------------------------------------------------------------------------------------
Class Z (Inception* through 6/30/00) 124.47
===============================================================================================
</TABLE>
(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 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 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.
+ Total return is not annualized, as it may not be representative of the total
return for the year
* The inception dates for Class A, B, L, Y and Z shares are May 18, 1967,
November 7, 1994, December 2, 1992, February 6, 1996 and November 7, 1994,
respectively.
10 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Historical Performance (unaudited)
--------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
Large Cap Value Fund vs. the Russell 1000 Value Index+
--------------------------------------------------------------------------------
June 1990 -- June 2000
[_] Large Cap Value Fund
[_] Russell 1000 Value Index
Large Cap Value Fund Russell 1000+
Jun\1990 9,426 10,000
Dec\1990 8,487 9,305
Dec\1991 10,998 11,594
Dec\1992 11,792 13,195
Dec\1993 13,724 15,586
Dec\1994 13,132 15,276
Dec\1995 17,472 21,133
Dec\1996 20,279 25,705
Dec\1997 25,928 34,748
Dec\1998 29,717 40,181
Dec\1999 29,446 47,570
Jun\2000 29,186 45,558
+ Hypothetical illustration of $10,000 invested in Class A shares on June
30,1990, assuming deduction of the maximum 5.00% sales charge and
reinvestment of dividends and capital gains, if any, at net asset value
through June 30, 2000. The Russell 1000 Value Index contains those securities
in the Russell 1000 Index with a less than average growth orientation.
Companies in this Index generally have low price to book and price/earnings
ratios, higher dividend yields and lower forecasted growth values. 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 Portfolio's other classes may be greater or less than the
Class A 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 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
shareholders tax liability on dividends or capital gains.
11 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
COMMON STOCK -- 99.9%
Aerospace & Defense -- 2.6%
520,000 United Technologies Corp. $ 30,615,000
--------------------------------------------------------------------------------
Automobiles -- 0.1%
20,000 General Motors Corp. 1,161,250
--------------------------------------------------------------------------------
Banking -- 10.2%
435,000 Bank of America Corp. 18,705,000
27,100 Bank One Corp. 719,844
901,500 The Chase Manhattan Corp. 41,525,343
1,075,000 Mellon Financial Corp. 39,170,313
180,000 Merrill Lynch & Co.,Inc.* 20,700,000
--------------------------------------------------------------------------------
120,820,500
--------------------------------------------------------------------------------
Basic Materials -- 1.2%
490,000 International Paper Co. 14,608,125
--------------------------------------------------------------------------------
Beverage -- 3.0%
800,000 PepsiCo,Inc. 35,550,000
--------------------------------------------------------------------------------
Capital Goods -- 6.4%
575,000 Emerson Electric Co. 34,715,625
750,000 General Electric Co. 40,810,000
--------------------------------------------------------------------------------
75,525,625
--------------------------------------------------------------------------------
Chemicals -- 1.8%
300,000 The Dow Chemical Co.* 9,056,250
289,999 E.I.du Pont de Nemours & Co. 12,687,460
--------------------------------------------------------------------------------
21,743,710
--------------------------------------------------------------------------------
Consumer Cyclicals -- 1.8%
1,175,000 Masco Corp. 21,223,437
--------------------------------------------------------------------------------
Consumer Services -- 0.3%
143,400 First Data Corp. 4,103,988
--------------------------------------------------------------------------------
Drugs -- 8.1%
650,000 American Home Products Corp. 38,187,500
560,000 Bristol-Myers Squibb Co. 32,620,000
475,000 Pharmacia Corp. 24,551,563
--------------------------------------------------------------------------------
95,359,063
--------------------------------------------------------------------------------
Electric Utility -- 4.1%
450,000 Duke Energy Corp. 25,368,750
607,500 Unicom Corp. 23,502,656
--------------------------------------------------------------------------------
48,871,406
--------------------------------------------------------------------------------
Household Products -- 3.8%
280,000 Avon Products,Inc. 12,460,000
575,000 Kimberly-Clark Corp. 32,990,625
--------------------------------------------------------------------------------
45,450,625
--------------------------------------------------------------------------------
Instruments - Controls -- 1.7%
600,000 Honeywell International Inc. 20,212,500
--------------------------------------------------------------------------------
See Notes to Financial Statements.
12 Smith BarneyLarge Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
Insurance -- 9.2%
380,000 The Chubb Corp.* $ 23,370,000
150,000 CIGNA Corp. 14,025,000
575,000 The Hartford Financial Services
Group, Inc. 32,164,063
380,000 Marsh & McLennan Cos., Inc. 39,686,250
--------------------------------------------------------------------------------
109,245,313
--------------------------------------------------------------------------------
Integrated Oil -- 12.6%
600,000 BP Amoco PLC* 33,937,500
290,000 Chevron Corp. 24,595,625
700,000 Conoco Inc., Class A Shares 15,400,000
583,498 Conoco Inc., Class B Shares 14,332,170
775,000 Exxon Mobil Corp. 60,837,500
--------------------------------------------------------------------------------
149,102,795
--------------------------------------------------------------------------------
Medical Products & Supplies -- 1.5%
145,000 Baxter International Inc. 10,195,312
74,000 Johnson & Johnson 7,538,750
--------------------------------------------------------------------------------
17,734,062
--------------------------------------------------------------------------------
Natural Gas -- 7.3%
600,000 El Paso Energy Corp. 30,562,500
150,000 Enron Corp. 10,642,500
1,075,000 The Williams Cos., Inc. 44,814,063
--------------------------------------------------------------------------------
86,019,063
--------------------------------------------------------------------------------
Office Equipment -- 5.6%
230,000 International Business Machines Corp. 25,199,375
600,000 Pitney Bowes Inc.* 24,000,000
800,000 Xerox Corp. 16,600,000
--------------------------------------------------------------------------------
65,799,375
--------------------------------------------------------------------------------
Oil Service -- 2.0%
500,000 Halliburton Co. 23,593,750
--------------------------------------------------------------------------------
Publishing -- 2.3%
495,000 The McGraw-Hill Cos., Inc. 26,730,000
--------------------------------------------------------------------------------
Raw & Intermediate Materials -- 1.9%
780,000 Alcoa Inc. 22,620,000
--------------------------------------------------------------------------------
Telephone -- 11.4%
350,000 ALLTEL Corp. 21,678,125
800,000 AT&T Corp. 25,300,000
525,000 GTE Corp.+ 32,681,250
675,000 SBC Communications Inc. 29,193,750
500,000 Sprint Corp. 25,500,000
--------------------------------------------------------------------------------
134,353,125
--------------------------------------------------------------------------------
Transportation -- 1.0%
325,000 Union Pacific Corp.* 12,085,937
--------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $978,298,547) 1,182,528,649
--------------------------------------------------------------------------------
See Notes to Financial Statements.
13 Smith BarneyLarge Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 2000
--------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.1%
$ 869,000 J.P. Morgan Securities, Inc., 6.500% due
7/3/00; Proceeds at maturity --
$869,471; (Fully collateralized by U.S.
Treasury Notes & Bonds,
3.375% to 7.875% due 7/15/02 to 2/15/21; Market
value -- $886,597)(Cost --$869,000) $ 869,000
--------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $979,167,547**) $1,183,397,649
--------------------------------------------------------------------------------
* All or a portion of this security is on loan (See Note 5).
+ On July 3, 2000, Bell Atlantic Corp. and GTE Corp. merged. The surviving
company was renamed Verizon Communications.
** Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
14 Smith BarneyLarge Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments,at value (Cost -- $979,167,547) $ 1,183,397,649
Cash 912
Collateral for securities on loan (Note 5) 39,349,444
Receivable for securities sold 6,522,052
Receivable for Fund shares sold 757,259
Dividends and interest receivable 1,748,693
--------------------------------------------------------------------------------
Total Assets 1,231,776,009
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 5) 39,349,444
Dividends payable 3,457,545
Management fees payable 577,857
Distribution fees payable 100,935
Payable for Fund shares purchased 2,612
Accrued expenses 202,431
--------------------------------------------------------------------------------
Total Liabilities 43,690,824
--------------------------------------------------------------------------------
Total Net Assets $1,188,085,185
--------------------------------------------------------------------------------
Net ASSETS:
Par value of capital shares $ 709,590
Capital paid in excess of par value 918,035,279
Overdistributed net investment income (38,392)
Accumulated net realized gain from security transactions 65,148,606
Net unrealized appreciation of investments 204,230,102
--------------------------------------------------------------------------------
Total Net Assets $1,188,085,185
--------------------------------------------------------------------------------
Shares Outstanding:
Class A 38,302,245
-----------------------------------------------------------------------------
Class B 5,900,205
-----------------------------------------------------------------------------
Class L 5,369,033
-----------------------------------------------------------------------------
Class Y 12,590,809
-----------------------------------------------------------------------------
Class Z 8,796,690
Net Asset Value:
Class A (and redemption price) $16.75
-----------------------------------------------------------------------------
Class B * $16.69
-----------------------------------------------------------------------------
Class L ** $16.71
-----------------------------------------------------------------------------
Class Y (and redemption price) $16.75
-----------------------------------------------------------------------------
Class Z (and redemption price) $16.78
-----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $17.63
-----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $16.88
-----------------------------------------------------------------------------
* 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 shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
15 Smith BarneyLarge Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended June 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 12,705,731
Interest 106,063
Less: Foreign withholding tax (30,294)
--------------------------------------------------------------------------------
Total Investment Income 12,781,500
--------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 3,448,078
Distribution fees (Note 2) 1,833,875
Shareholder and system servicing fees 324,329
Shareholder communications 44,954
Registration fees 36,400
Custody 18,455
Audit and legal 14,647
Directors' fees 11,946
Other 5,635
--------------------------------------------------------------------------------
Total Expenses 5,738,319
--------------------------------------------------------------------------------
Net Investment Income 7,043,181
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions (excluding short
-term securities):
Proceeds from sales 227,610,899
Cost of securities sold 161,842,033
--------------------------------------------------------------------------------
Net Realized Gain 65,768,866
--------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 291,422,717
End of period 204,230,102
--------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (87,192,615)
--------------------------------------------------------------------------------
Net Loss on Investments (21,423,749)
--------------------------------------------------------------------------------
Decrease in Net Assets From Operations $(14,380,568)
================================================================================
See Notes to Financial Statements.
16 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
===================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 7,043,181 $ 14,634,946
Net realized gain 65,768,866 63,929,917
Decrease in net unrealized appreciation (87,192,615) (96,058,919)
-------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Operations (14,380,568) (17,494,056)
-------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (7,066,965) (14,579,182)
Net realized gains -- (63,537,409)
Capital -- (4,214,738)
-------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to Shareholders (7,066,965) (82,331,329)
-------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sales 94,768,562 286,875,651
Net asset value of shares issued for reinvestment of dividends 2,542,612 64,751,969
Cost of shares reacquired (196,162,922) (246,832,983)
Increase (Decrease) in Net Assets From Fund Share Transactions (98,851,748) 104,794,637
-------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (120,299,281) 4,969,252
NET ASSETS:
Beginning of period 1,308,384,466 1,303,415,214
-------------------------------------------------------------------------------------------------------------------
End of period* $1,188,085,185 $ 1,308,384,466
===================================================================================================================
* Includes overdistributed net investment income of: $ (38,392) $ (14,608)
===================================================================================================================
</TABLE>
See Notes to Financial Statements.
17 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The Large Cap Value Fund ("Portfolio") is a separate investment portfolio of the
Smith Barney Funds, Inc. ("Fund"). The Fund, a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended,as a
diversified, open-end management investment company and consists of this
Portfolio and two other separate investment portfolios: U.S. Government
Securities Fund and Short-Term High Grade Bond Fund. The financial statements
and financial highlights for the other portfolios are presented in separate
shareholder reports.
The significant accounting policies consistently followed by the Portfolio are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price was reported and U.S. government and agency
obligations are valued at the mean between the bid and ask prices; (c)
securities, other than U.S. government agencies and obligations, 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 or less are valued at cost plus accreted discount, or minus
amortized premium, which approximates value; (e) dividend income is recorded on
the ex-dividend date and interest income is recorded on the accrual basis;
foreign dividends are recorded on the ex-dividend date or as soon as practical
after the Portfolio determines the existence of a dividend declaration after
exercising reasonable due diligence; (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) direct expenses are charged to each class; management fees and general
portfolio expenses are allocated on the basis of relative net assets by class;
(i) the accounting records are maintained in U.S. dollars. All assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
based on the rate of exchange of such currencies against U.S. dollars on the
date of valuation. Purchases and sales of securities, and income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian bank;
(j) the Portfolio 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
December 31, 1999, reclassifications were made to the capital accounts of the
Portfolio 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 (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. Management Agreement and Other Transactions
SSB Citi Fund Management LLC ("SSBC"),a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH") which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment manager of the Portfolio. The Portfolio pays
SSBC a management fee calculated at an annual rate of 0.60% on the Portfolio's
average daily net assets up to $500 million, 0.55% on the next $500 million and
0.50% on average daily net assets in excess of $1.0 billion. These fees are
calculated daily and paid monthly.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney Private
Trust Company, another subsidiary of Citigroup,acts as the Portfolio's transfer
agent and PFPC Global Fund Services ("PFPC") acts as the Portfolio's sub-
transfer agent. CFTC 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 CFTC. During the six months ended June 30, 2000, the Portfolio
paid transfer agent fees of $293,054 to CFTC.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Portfolio's distributor replacing CFBDS, Inc. ("CFBDS"). In
addition, SSB acts as the primary broker for the Portfolio's agency
transactions. Certain other broker-dealers continue to sell Portfolio shares to
the public as members of the selling group. For the six months ended June 30,
2000, SSB and its affiliates received total brokerage commissions of $6,251.
18 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
There are maximum initial sales charges of 5.00% and 1.00% for Class A and L
shares, respectively. There is a contingent deferred sales charge ("CDSC") of
5.00% on Class B shares, which applies if redemption occurs less than one year
from purchase and declines 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 June 30, 2000, CFBDS and SSB received sales charges of
$138,000 and $125,000 on sales of the Portfolio's Class A and L shares,
respectively. In addition, CDSCs paid to SSB were approximately as follows:
Class A Class B Class L
================================================================================
CDSCs $18,000 $212,000 $24,000
================================================================================
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to its 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 Portfolio
also pays a distribution fee with respect to Class B and L shares calculated at
the annual rate of 0.75% of the average daily net assets of each class. For the
six months ended June 30, 2000, total Distribution Plan fees were as follows:
Class A Class B Class L
================================================================================
Distribution Plan Fees $848,752 $526,647 $458,476
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
================================================================================
Purchases $120,501,893
--------------------------------------------------------------------------------
Sales 227,610,899
================================================================================
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $272,311,657
Gross unrealized depreciation (68,081,555)
--------------------------------------------------------------------------------
Net unrealized appreciation $204,230,102
================================================================================
4. Repurchase Agreements
The Portfolio purchases (and its custodian take 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 Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolio on securities lending are recorded
in interest income. Loans of securities by the Portfolio 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 Portfolio maintains exposure for the
risk of any losses in the investment of amounts received as collateral.
At June 30, 2000, the Portfolio loaned stocks having a value of approximately
$37,800,147 and holds the following collateral for loaned securities:
Security Descriptions Value
================================================================================
Time Deposits:
Banco Bilboa Vizcaya S.A., 7.13% due 7/3/00 $ 4,806,764
Bank Brussels Lambert, 7.13% due 7/3/00 399,527
Caisse des Depots et Consignations, 6.94% due 7/3/00 4,806,764
Caisse des Depots et Consignations, 7.06% due 7/3/00 2,386,189
Credit Suisse First Boston, 7.13% due 7/3/00 334,359
Credit Suisse First Boston, 7.16% due 7/3/00 1,249,759
San Paolo IMI, S.p.A., 7.00% due 7/3/00 2,403,382
Floating Rate Notes:
Bank One Corp., 6.68% due 7/2/01 500,077
First Union National Bank, 6.51% due 5/21/01 5,573,145
First Union National Bank, 6.61% due 5/23/01 427,741
Goldman, Sachs & Co., 5.28% due 8/23/00 3,609,371
Key Bank Corp., 5.91% due 2/14/01 5,412,904
Sigma Finance Corp., 6.48% due 11/6/00 7,439,462
--------------------------------------------------------------------------------
Total $39,349,444
================================================================================
For the six months ended June 30, 2000, income earned by the Portfolio from
securities lending was $61,992.
19 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
6. Capital Shares
At June 30, 2000, the Fund had two billion shares of capital stock authorized
with a par value of $0.01 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest in the Portfolio and has the same rights, except that each class bears
certain expenses specifically related to the distribution of its shares.
At June 30, 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 $385,002,364 $108,151,564 $ 89,774,296 $217,848,720 $117,967,925
========================================================================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
------------------------------------- --------------------------------------
Shares Amount Shares Amount
==============================================================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 1,704,868 $ 28,975,110 5,013,895 $ 92,920,169
Shares issued on reinvestment 103,283 1,790,934 2,501,796 42,790,540
Shares reacquired (7,287,206) (121,550,243) (8,652,752) (158,447,531)
------------------------------------------------------------------------------------------------------------------------------
Net Decrease (5,479,055) $ (90,784,199) (1,137,061) $ (22,736,822)
==============================================================================================================================
Class B
Shares sold 662,675 $ 11,085,496 4,427,025 $ 83,969,932
Shares issued on reinvestment 4,678 80,839 361,942 6,119,426
Shares reacquired (1,761,784) (1,626,979) (29,674,516)
------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (1,094,431) (17,883,023) 3,161,988 $ 60,414,842
==============================================================================================================================
Class L
Shares sold 861,849 $ 14,370,142 3,011,037 $ 57,035,420
Shares issued on reinvestment 4,257 73,602 299,065 5,059,969
Shares reacquired (1,262,961) (20,891,869) (1,176,864) (21,533,421)
------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (396,855) $ (6,448,125) 2,133,238 $ 40,561,968
==============================================================================================================================
Class Y
Shares sold 1,851,098 $ 31,055,935 2,202,645 $ 40,349,777
Shares issued on reinvestment -- -- -- --
Shares reacquired (135,645) (2,299,133) (28,660) (562,000)
------------------------------------------------------------------------------------------------------------------------------
Net Increase 1,715,453 $ 28,756,802 2,173,985 $ 39,787,777
==============================================================================================================================
Class Z
Shares sold 552,154 $ 9,281,879 670,713 $ 12,600,353
Shares issued on reinvestment 34,383 597,237 626,698 10,782,034
Shares reacquired (1,344,459) (22,372,319) (1,973,751) (36,615,515)
------------------------------------------------------------------------------------------------------------------------------
Net Decrease (757,922) $ (12,493,203) (676,340) $ (13,233,128)
==============================================================================================================================
</TABLE>
20 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 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 $ 17.00 $ 18.28 $ 17.09 $ 14.79 $ 14.59 $ 12.18
-----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.10 0.20 0.24 0.29 0.36 0.39
Net realized and unrealized gain (loss) (0.25) (0.37) 2.24 3.80 1.99 3.59
-----------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.15) (0.17) 2.48 4.09 2.35 3.98
-----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.10) (0.20) (0.23) (0.29) (0.36) (0.39)
Net realized gains(3) -- (0.85) (1.06) (1.50) (1.79) (1.18)
Capital -- (0.06) -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.10) (1.11) (1.29) (1.79) (2.15) (1.57)
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.75 $ 17.00 $ 18.28 $ 17.09 $ 14.79 $ 14.59
-----------------------------------------------------------------------------------------------------------------------------
Total Return (0.88)%++ (0.91)% 14.61% 27.86% 16.06% 33.05%
-----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 641,427 $744,405 $821,003 $758,708 $645,935 $617,431
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.90%+ 0.90% 0.90% 0.92% 0.95% 1.02%
Net investment income 1.18+ 1.09 1.29 1.71 2.28 2.78
-----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 10% 34% 48% 40% 49% 51%
=============================================================================================================================
<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 $ 16.94 $ 18.21 $ 17.03 $ 14.74 $ 14.54 $ 12.15
-----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.03 0.06 0.09 0.16 0.25 0.24
Net realized and unrealized gain (loss) (0.25) (0.37) 2.24 3.78 1.98 3.62
-----------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.22) (0.31) 2.33 3.94 2.23 3.86
-----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) (0.05) (0.09) (0.15) (0.24) (0.29)
Net realized gains/(3)/ -- (0.85) (1.06) (1.50) (1.79) (1.18)
Capital -- (0.06) -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.03) (0.96) (1.15) (1.65) (2.03) (1.47)
-----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.69 $ 16.94 $ 18.21 $ 17.03 $ 14.74 $ 14.54
-----------------------------------------------------------------------------------------------------------------------------
Total Return (1.32)%++ (1.66)% 13.71% 26.83% 15.22% 32.07%
-----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 98,481 $118,477 $ 69,786 $ 28,525 $ 14,883 $ 6,065
-----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.69%+ 1.67% 1.69% 1.71% 1.71% 1.73%
Net investment income 0.39+ 0.32 0.51 0.92 1.55 1.83
-----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 10% 34% 48% 40% 49% 51%
=============================================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Net short-term gains, if any, are included and reported as ordinary income
for income tax purposes.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
21 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 2000/(1)(2)/ 1999/(2)/ 1998/(2)(3)/ 1997 1996 1995
===============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 16.95 $ 18.22 $ 17.05 $ 14.76 $ 14.57 $ 12.18
-------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.03 0.06 0.09 0.16 0.24 0.27
Net realized and unrealized gain (loss) (0.24) (0.37) 2.24 3.79 1.98 3.59
-------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.21) (0.31) 2.33 3.95 2.22 3.86
-------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) (0.05) (0.10) (0.16) (0.24) (0.29)
Net realized gains/(4)/ -- (0.85) (1.06) (1.50) (1.79) (1.18)
Capital -- (0.06) -- -- -- --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions [0.03) (0.96) (1.16) (1.66) (2.03) (1.47)
-------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.71 $ 16.95 $ 18.22 $ 17.05 $ 14.76 $ 14.57
-------------------------------------------------------------------------------------------------------------------------------
Total Return (1.26)%++ (1.65)% 13.73% 26.85% 15.15% 32.01%
-------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 89,691 $ 97,745 $ 66,190 $ 42,115 $ 33,365 $29,758
-------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.68%+ 1.66% 1.67% 1.69% 1.73% 1.79%
Net investment income 0.41+ 0.34 0.52 0.93 1.50 2.00
===============================================================================================================================
Portfolio Turnover Rate 10% 34% 48% 40% 49% 51%
===============================================================================================================================
<CAPTION>
Class Y Shares 2000/(1)(2)/ 1999/(2)/ 1998/(2)/ 1997 1996/(2)(5)/
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.01 $ 18.28 $ 17.09 $ 14.80 $ 15.06
-------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.13 0.26 0.30 0.38 0.36
Net realized and unrealized gain (loss) (0.26) (0.36) 2.24 3.76 1.58
-------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.13) (0.10) 2.54 4.14 1.94
-------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.13) (0.26) (0.29) (0.35) (0.41)
Net realized gains/(4)/ -- (0.85) (1.06) (1.50) (1.79)
Capital -- (0.06) -- -- --
Total Distributions (0.13) (1.17) (1.35) (1.85) (2.20)
-------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.75 $ 17.01 $ 18.28 $ 17.09 $ 14.80
-------------------------------------------------------------------------------------------------------------------------------
Total Return (0.77)%++ (0.54)% 14.96% 28.21% 12.86%++
-------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 210,898 $184,974 $159,084 $111,690 $ 30,169
-------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.58%+ 0.58% 0.58% 0.60% 0 .66%+
Net investment income 1.51+ 1.41 1.61 2.06 3.02+
-------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 10% 34% 48% 40% 49%
===============================================================================================================================
</TABLE>
(1) For the six months ended June 30, 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) Net short-term gains, if any, are included and reported as ordinary income
for income tax purposes.
(5) For the period from February 6, 1996 (inception date) to December 31, 1996.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
22 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class Z Shares 2000/(1)(2)/ 1999/(2)/ 1998/(2)/ 1997 1996 1995
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 17.04 $ 18.31 $ 17.12 $ 14.82 $ 14.61 $ 12.19
--------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.13 0.26 0.30 0.35 0.42 0.43
Net realized and unrealized gain (loss) (0.26) (0.36) 2.24 3.80 1.99 3.59
--------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.13) (0.10) 2.54 4.15 2.41 4.02
--------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.13) (0.26) (0.29) (0.35) (0.41) (0.42)
Net realized gains/(3)/ -- (0.85) (1.06) (1.50) (1.79) (1.18)
Capital -- (0.06) -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.13) (1.17) (1.35) (1.85) (2.20) (1.60)
--------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 16.78 $ 17.04 $ 18.31 $ 17.12 $ 14.82 $ 14.61
--------------------------------------------------------------------------------------------------------------------------
Total Return (0.77)%++ (0.54)% 14.95% 28.27% 16.47% 33.41%
--------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 147,588 $162,783 $187,352 $144,008 $113,160 $98,661
--------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.59%+ 0.58% 0.59% 0.60% 0.62% 0.69%
Net investment income 1.50+ 1.40 1.61 2.03 2.62 3.11
--------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 10% 34% 48% 40% 49% 51%
==========================================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) Net short-term gains, if any, are included and reported as ordinary income
for income tax purposes.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
23 Smith Barney Large Cap Value Fund | 2000 Semi-Annual Report to Shareholders
<PAGE>
(This page intentionally left blank.)
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
LARGE CAP VALUE FUND
--------------------------------------------------------------------------------
DIRECTORS INVESTMENT MANAGER
Lee Abraham SSB Citi Fund Management LLC
Allan J. Bloostein
Jane F. Dasher
Donald R. Foley DISTRIBUTOR
Richard E. Hanson, Jr. Salomon Smith Barney Inc.
Paul Hardin PFS Distributors, Inc.
Heath B. McLendon, Chairman
Roderick C. Rasmussen CUSTODIAN
John P. Toolan PFPC Trust Company
Joseph H. Fleiss, Emeritus
TRANSFER AGENT
OFFICERS Citi Fiduciary Trust Company
Heath B. McLendon 125 Broad Street, 11th Floor
President and New York, New York 10004
Chief Executive Officer
SUB-TRANSFER AGENT
Lewis E. Daidone PFPC Global Fund Services
Senior Vice President and Treasurer P.O. Box 9134
Boston, Massachusetts
02205-9134
Ellen Cardozo Sonsino
Vice President
Frances A. Root, CFA
Vice President
Paul A. Brook
Controller
Christina T. Sydor
Secretary
<PAGE>
Smith Barney Large Cap Value Fund
--------------------------------------------------------------------------------
THE SMITH BARNEY FAMILY OF FUNDS
EQUITY FUNDS
Aggressive Growth Fund
Appreciation Fund
Balanced Fund
Concert Peachtree Growth Fund
Concert Social Awareness Fund
Convertible Fund
Financial Services Fund
Fundamental Value Fund
Health Sciences Fund
Large Cap Blend Fund
Large Capitalization Growth Fund
--------------------
Large Cap Value Fund
--------------------
Mid Cap Blend Fund
Natural Resources Fund
Premier Selections All Cap Fund
Premier Selections Global Growth Fund
Premier Selections Large Cap Fund
Premium Total Return Fund
S&P 500 Index Fund
Small Cap Blend Fund
Small Cap Growth Fund
Small Cap Value Fund
Technology Fund
TAX-EXEMPT FIXED INCOME FUNDS+
Arizona Municipals Fund*
California Municipals Fund*
Florida Portfolio*
Georgia Portfolio*
Intermediate Maturity CA Municipals Fund*
Intermediate Maturity NY Municipals Fund*
Limited Term Portfolio
Managed Municipals Fund
Massachusetts Municipals Fund*
Municipal High Income Fund
National Portfolio
New Jersey Municipals Fund*
New York Portfolio*
Oregon Municipals Fund*
Pennsylvania Portfolio*
MONEY MARKET FUNDS
California Money Market Portfolio*
Institutional Cash Management Fund
Massachusetts Money Market Portfolio*
Municipal Money Market
Money Funds, Inc.
TAXABLE FIXED-INCOME FUNDS
Adjustable Rate Government Income Fund
Diversified Strategic Income Fund
Government Securities Fund
High Income Fund
Investment Grade Bond Fund
Managed Governments Fund
Short-Term High Grade Bond Fund
Total Return Bond Fund
U.S. Government Securities Fund
GLOBAL/INTERNATIONAL FUNDS**
Emerging Markets Portfolio
European Portfolio
Global Government Bond Portfolio
Hansberger Global Small Cap Value Fund
Hansberger Global Value Fund
International Equity Portfolio
Pacific Portfolio
CONCERT ALLOCATION SERIES
Global Portfolio
High Growth Portfolio
Growth Portfolio
Balanced Portfolio
Conservative Portfolio
Income Portfolio
+ A portion of the income from the tax-free funds many be subject to federal,
state and local taxes.
* Not available in all states.
** Investments in non-U.S. securities involve risks relating to political,
social and economic developments abroad, as well as risks resulting from the
differences between the regulations to which U.S. issuers and markets are
subject .
This report is submitted for the general information of the shareholders of
Smith Barney Funds, Inc.- Large Cap Value 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 materials after September 30, 2000, this report must
be accompanied by performance information for the most recently completed
calendar quarter.
SMITH BARNEY LARGE CAP VALUE FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any of the above Smith Barney Mutual Funds,
including management fees and expenses, call or write for a free prospectus.
Read it carefully before you invest or send money.
1-888-GET-SERIOUS
www.smithbarney.com/mutualfunds
Salomon Smith Barney
-------------------------------------
A member of citigroup[LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
<PAGE>
[LOGO OF SMITH BARNEY FUNDS]
SMITH BARNEY FUNDS, INC.
SHORT-TERM
HIGH GRADE BOND Fund
CLASSIC SERIES
SEMI-ANNUAL REPORT
JUNE 30, 2000
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
--------------------------------------------------------------------------------
A Message from the Chairman
--------------------------------------------------------------------------------
[PHOTO]
HEATH B.
MCLENDON
Chairman
Dear Shareholder:
For years, individuals and their families and businesses have looked to the
investment professionals of SSB Citi Fund Management LLC for thoughtful insights
and advice. For some, the solution has been a long-term investment strategy,
incorporating multiple stock and bond mutual funds. Others have invested with
specific portfolio managers who are recognized and respected for their insights
and record.
The Smith Barney Short-Term High Grade Bond Fund seeks to offer you, the serious
investor, current income, preservation of capital and liquidity by investing
primarily in "high grade" fixed-income securities.
In our opinion, the lessons of the past may be used to better understand the
challenges and opportunities of the future. We believe SSB Citi Fund Management
LLC represents extensive asset management expertise. We also believe that
expertise is achieved through the intelligent application of knowledge and
experience. Our portfolio managers have managed portfolios across markets and
cycles.
Whatever your investment objective may be, we believe that following a
disciplined investment plan is of paramount importance in these uncertain yet
exciting times. We encourage you to work closely with your financial
professional to map out an investment plan that fits in with your objectives
--be it retirement, estate planning or educational needs.
When you invest with SSB Citi Fund Management LLC, you can do so with the
confidence that your interests come first, your investment success is paramount,
and that the ultimate in resources is being committed to your financial future.
Thank you for investing with us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
July 24, 2000
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 1
<PAGE>
--------------------------------------------------------------------------------
Shareholder Letter
--------------------------------------------------------------------------------
[PHOTO]
JAMES E.
CONROY
Vice President
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Funds,
Inc. -- Short-Term High Grade Bond Fund ("Portfolio") for the period ended June
30, 2000. In this report, we summarize the period's prevailing economic and
market conditions and outline our portfolio strategy.1 A more 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 June 30, 2000, the Portfolio's Class A shares returned
2.79%. In comparison, the Salomon Smith Barney Treasury/Government
Sponsored/Corporate 1-5 Year Index ("SSB Index")2 returned 3.13% for the same
period. In addition, during the past six months, the Portfolio distributed
income dividends totaling $0.10 per Class A share. For performance information
on the Portfolio's other share classes, please refer to pages five and six.
The Portfolio's underperformance versus the benchmark during the period was
primarily due to its overweight in corporate bonds which did not perform as well
as government securities. However, we will continue to look for any
opportunities that may arise in the corporate debt market with the objective of
increasing the Portfolio's yield. As always, we will closely monitor any
anticipated change in interest rates. (Of course, no guarantees can be given
that our approach will be successful.)
The continued strength of the U.S. stock markets and the inverted yield curve
has made investing in bonds challenging. (The yield curve is a graphical
depiction of the relationship between the yield on bonds of the same credit
quality but different maturities. An inverted yield curve illustrates an
occurrence when shorter-term bonds have higher yields than longer-term bonds.)
However, it is our belief that the Federal Reserve Board ("Fed") actions may
ultimately
----------------
1 The information provided represents the opinion of the manager and is not
intended to be a forecast of future events, a guarantee of future results
nor investment advice. Further, there is no assurance that certain
securities will remain in or out of the Portfolio.
2 The SSB Index consists of short-term U.S. treasury and corporate debt
securities. The index is unmanaged and not subject to the same charges of a
mutual fund. An investor cannot invest directly in an index.
--------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
slow economic conditions and make bonds more appealing to many investors over
time. Additionally, we think that long-term rates may possibly decline by the
end of the year.
Market Update
In our view, the issues that significantly impacted the performance of the bond
market during the period were:
. The increase in interest rates by the Fed;
. The U.S. Treasury's buyback program;
. Reduced mutual fund inflows; and
. Investor concerns regarding credit quality, the extreme levels of market
volatility and illiquidity.
The Fed raised interest rates three times for a total of 75 basis points/3/
during the reporting period. In addition, the plan by the U.S. Treasury to buy
back more than $30 billion of its long-term debt obligations has led to reduced
supply in the market. As such, the price of longer-term bonds increased in
relation to their shorter-term counterparts, as reflected by an inverted yield
curve. Instead of a "normal" yield curve, with yields rising steadily along with
the maturity of Treasury bonds, the highest yields were for shorter-term bonds.
During the report period, our strategy included slowly buying longer-dated U.S.
Treasuries and extending maturities as interest rates rose during the period.
Due to the U.S. Treasury's buyback program, we anticipate that interest rates on
the long end of the yield curve will continue to be lower that rates on the
short end of the yield curve. (Of course, no guarantees can be given that our
expectations will be met.)
Investment Strategy
The Portfolio seeks current income, preservation of capital and liquidity by
investing primarily in "high grade" fixed-income securities. "High grade"
securities include those securities rated by a national ratings organization
(i.e., Moody's Investors Service, Inc. or Standard & Poor's Ratings Service)
within one of the top three categories at the time of purchase, or, if unrated,
judged by the manager to be of comparable credit quality.
Securities in which the Portfolio invests include corporate debt securities,
bank obligation and securities issued by the U.S. government and its agencies
and instrumentalities. The Portfolio may also invest in U.S. dollar denominated
fixed-income securities of foreign issuers.
---------------
3 A basis point is 0.01% or one one-hundredth of a percent.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 3
<PAGE>
The Portfolio maintains an average dollar-weighted portfolio maturity of between
one and four years; the average duration of the Portfolio will normally be no
greater than 3.5 years.
The Portfolio's investment strategy has included slowly buying U.S. Treasuries
and extending maturities as interest rates rose during this period. In our view,
we have probably seen the highs in yields over the near-term, and our investment
strategy in the coming months will be to increase our U.S. Treasury exposure and
reduce our mortgage-backed securities holdings.
Yields from U.S. Treasuries
Interest Rates 6/30/00 12/31/99
-------------- ------- --------
2-year U.S. Treasury Notes 6.36% 6.24%
5-year U.S. Treasury Notes 6.18 6.34
10-year U.S. Treasury Bonds 6.02 6.43
30-year U.S. Treasury Bonds 5.90 6.48
Thank you for investing in the Smith Barney Funds, Inc. -- Short-Term High Grade
Bond Fund. We look forward to continuing to help you pursue your financial goals
in the new century.
Sincerely,
/s/ James E. Conroy
James E. Conroy
Vice President
July 24, 2000
--------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Historical Performance -- Class A Shares
--------------------------------------------------------------------------------
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns
================================================================================
6/30/00 $3.97 $3.98 $0.10 $0.00 2.79%+
--------------------------------------------------------------------------------
12/31/99 4.13 3.97 0.19 0.00 0.76
--------------------------------------------------------------------------------
12/31/98 4.09 4.13 0.20 0.00 6.07
--------------------------------------------------------------------------------
12/31/97 4.05 4.09 0.22 0.00 6.73
--------------------------------------------------------------------------------
12/31/96 4.19 4.05 0.23 0.00 2.17
--------------------------------------------------------------------------------
12/31/95 3.91 4.19 0.22 0.00 13.16
--------------------------------------------------------------------------------
12/31/94 4.16 3.91 0.18 0.00 (2.15)
--------------------------------------------------------------------------------
12/31/93 4.12 4.16 0.18 0.02 6.01
--------------------------------------------------------------------------------
12/31/92 4.09 4.12 0.19 0.01 5.92
--------------------------------------------------------------------------------
Inception* - 12/31/91 4.01 4.09 0.03 0.01 2.85+
================================================================================
Total $1.74 $0.04
================================================================================
--------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
--------------------------------------------------------------------------------
Net Asset Value
-------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns
================================================================================
6/30/00 $3.97 $3.98 $0.11 $0.00 3.04%+
--------------------------------------------------------------------------------
12/31/99 4.13 3.97 0.21 0.00 1.26
--------------------------------------------------------------------------------
12/31/98 4.09 4.13 0.22 0.00 6.56
--------------------------------------------------------------------------------
12/31/97 4.05 4.09 0.24 0.00 7.20
--------------------------------------------------------------------------------
Inception* - 12/31/96 4.19 4.05 0.22 0.00 2.08+
================================================================================
Total $1.00 $0.00
================================================================================
It is the Fund's policy to distribute dividends monthly and capital gains, if
any, annually.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 5
<PAGE>
--------------------------------------------------------------------------------
Average Annual Total Returns
--------------------------------------------------------------------------------
Class A Class Y
================================================================================
Six Months Ended 6/30/00+ 2.79% 3.04%
--------------------------------------------------------------------------------
Year Ended 6/30/00 3.20 3.97
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 4.63 N/A
--------------------------------------------------------------------------------
Inception* through 6/30/00 5.14 4.57
================================================================================
--------------------------------------------------------------------------------
Cumulative Total Returns
--------------------------------------------------------------------------------
Class A (Inception* through 6/30/00) 54.18%
--------------------------------------------------------------------------------
Class Y (Inception* through 6/30/00) 21.68
================================================================================
* The inception dates for Class A and Y shares are November 11, 1991 and
February 7, 1996, respectively.
+ Total return is not annualized, as it may not be representative of the total
return for the year.
--------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Historical Performance(unaudited)
--------------------------------------------------------------------------------
Growth of$10,000 Invested in Class A Shares of
the Short-Term High Grade Bond Fund vs. Salomon Smith Barney
Treasury/Government Sponsored/Corporate 1-5 Year Index+
November 1991 -- June 2000
--- Short-Term
High Grade Bond Fund
--- Salomon Brothers Government
Corporate 1-5 Year Index
11/11/91 10,000 10,000
Dec-91 10,283 10,189
Dec-92 10,892 10,890
Dec-93 11,547 11,673
Dec-94 11,361 11,594
Dec-95 12,874 13,086
Dec-96 13,150 13,696
Dec-97 14,034 14,672
Dec-98 14,886 15,796
Dec-99 14,999 16,136
6/30/00 15,417 16,641
+ Hypothetical illustration of$10,000 invested in shares at inception on
November 11, 1991, assuming reinvestment of dividends and capital gains, if
any, at net asset value through June 30, 2000. The Salomon Smith Barney
Treasury/Government Sponsored/Corporate 1-5 Year Index is a broad-based
index of short-term U.S. Treasury and corporate debt securities. The index
is unmanaged and is not subject to the same management and trading expenses
of a mutual fund. The performance of the Portfolio's other class may be
greater or less than the Class A shares' performance indicated on this
chart, depending on whether greater or lesser fees were incurred by
shareholders investing in the other class.
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.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 7
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
=================================================================================================
<S> <C> <C>
U.S. GOVERNMENT AND AGENCY OBLIGATIONS -- 30.5%
U.S. Treasury Notes:
3,000,000 5.625% due 11/30/00 2,992,500
10,000,000 5.500% due 7/31/01 9,900,000
9,000,000 5.875% due 11/15/04 8,865,180
8,000,000 6.750% due 5/15/05 8,190,000
--------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AND AGENCY OBLIGATIONS
(Cost -- 29,912,466) 29,947,680
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
==================================================================================================
<S> <C> <C> <C>
CORPORATE BONDS AND NOTES -- 67.8%
Banks/Savings and Loans -- 3.6%
2,000,000 Aa3* BankAmerica Corp., Sub. Notes, 7.875% due 12/1/02 2,020,000
1,500,000 A+ Toronto-Dominion Bank, Sub. Notes, 6.500% due 1/15/07 1,460,550
--------------------------------------------------------------------------------------------------
3,480,550
--------------------------------------------------------------------------------------------------
Broadcasting - TV, Cable and Radio -- 6.5%
1,000,000 BBB+ CBS Corp., Notes, 8.375% due 6/15/02 1,021,250
2,000,000 AA- Continental Cablevision Inc., Sr. Notes, 8.500% due 9/15/01 2,027,500
2,000,000 AA- TCI Communications, Inc., Sr. Notes, 6.375% due 5/1/03 1,952,500
1,355,000 BBB Time Warner Inc., Notes, 9.625% due 5/1/02 1,405,813
--------------------------------------------------------------------------------------------------
6,407,063
--------------------------------------------------------------------------------------------------
Consumer Durables -- 7.7%
3,500,000 BBB Black & Decker Corp., Notes, 6.625% due 11/15/00 3,495,625
3,000,000 A+ Clorox Co., Debentures, 8.800% due 7/15/01 3,060,000
1,000,000 BBB Crown Cork & Seal Co., Debentures, 7.125% due 9/1/02 955,000
--------------------------------------------------------------------------------------------------
7,510,625
--------------------------------------------------------------------------------------------------
Consumer Non-Durables -- 2.0%
2,000,000 AA The Procter & Gamble Co., Unsubordinated Notes,
6.600% due 12/15/04 1,967,500
--------------------------------------------------------------------------------------------------
Diversified/Conglomerate Manufacturing -- 2.0%
2,000,000 A+ IBM Corp., Notes, 7.250% due 11/1/02 2,002,500
--------------------------------------------------------------------------------------------------
Financial Services -- 24.6%
1,000,000 A+ American General Finance, Sr. Notes, 5.875% due 7/15/01 985,000
1,500,000 Aa3* Associates Corp., Sr. Notes, 7.500% due 4/15/02 1,505,625
2,000,000 A+ Chrysler Financial Co., LLC, Notes, 5.875% due 2/7/01 1,985,000
2,000,000 A- Donaldson, Lufkin & Jenrette Securities Corp., Sr. Notes,
8.000% due 3/1/05 2,002,708
2,000,000 A Ford Motor Credit Co., Notes, 8.000% due 6/15/02 2,022,500
2,000,000 Aaa* Freddie Mac Corp., Bonds, 6.250% due 10/15/02 1,972,340
2,000,000 AAA General Electric Corp., Notes, 7.000% due 2/3/03 1,992,500
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT RATING(a) SECURITY VALUE
==================================================================================================
<S> <C> <C> <C>
Financial Services -- 24.6% (continued)
$ 2,000,000 A General Motors Acceptance Corp., Bonds,
5.500% due 1/14/02 $1,947,500
2,500,000 A+ Goldman Sachs Group, LP, Notes, 6.250% due 2/1/03+ 2,418,750
1,545,000 AA- International Lease Finance Corp., Bonds, 5.900%
due 4/15/02 1,508,306
2,000,000 AA- Merrill Lynch & Co., Notes, 6.060% due 10/15/01 1,970,000
2,000,000 AA- Morgan Stanley Dean Witter & Co., Sr. Unsubordinated
Notes, 5.625% due 1/20/04 1,880,000
2,000,000 A+ St. Paul Cos., Inc., Sr. Notes, 7.875% due 4/15/05 2,012,500
--------------------------------------------------------------------------------------------------
24,202,729
--------------------------------------------------------------------------------------------------
Medical - Drugs -- 1.0%
1,000,000 AA+ Zeneca Wilmington Notes, 6.300% due 6/15/03 990,000
--------------------------------------------------------------------------------------------------
Pollution Control/Waste Management -- 2.5%
2,500,000 BBB WMX Technologies Inc., 6.250% due 10/15/00 2,481,250
--------------------------------------------------------------------------------------------------
Rail/Trucking/Overnight Delivery -- 5.5%
1,000,000 BBB CSX Corp., Debentures, 7.250% due 5/1/04 977,500
1,500,000 A+ DaimlerChrysler North America Holdings Corp., Company
Guaranteed, 7.750% due 5/27/03 1,511,250
3,000,000 BBB- Union Pacific Resources Group Inc., Debentures, 6.340%
due 11/25/03 2,872,500
--------------------------------------------------------------------------------------------------
5,361,250
--------------------------------------------------------------------------------------------------
Retail -- 5.0%
2,000,000 A2* Dayton Hudson Corp., Notes, 6.800% due 10/1/01 1,990,000
2,500,000 AA- Home Depot Inc., Sr. Notes, 6.500% due 9/15/04 2,478,125
500,000 BBB JC Penney Inc., Notes, 7.250% due 4/1/02 486,250
--------------------------------------------------------------------------------------------------
4,954,375
--------------------------------------------------------------------------------------------------
Telecommunications -- 7.4%
3,000,000 A- MCI WorldCom Inc., Sr. Notes, 6.125% due 8/15/01 2,962,500
3,000,000 BBB+ Sprint Capital Corp., Sr. Notes, 5.700% due 11/15/03 2,846,250
1,500,000 A US West Communications Inc., Notes, 7.625% due 6/9/03+ 1,498,125
--------------------------------------------------------------------------------------------------
7,306,875
--------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $67,707,844) 66,664,717
==================================================================================================
</TABLE>
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 9
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
=================================================================================================
<S> <C> <C>
REPURCHASE AGREEMENT -- 1.7%
$ 1,637,000 Goldman, Sachs & Co., 6.450% due 7/3/00; Proceeds at
maturity -- $1,637,879; (Fully collateralized by
U.S. Treasury Bills, Notes and Bonds, 0.000% to
12.000% due 8/15/00 to 11/15/28; Market
value -- $1,669,741) (Cost -- $1,637,0000) $ 1,637,000
==================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $99,257,310**) $98,249,397
==================================================================================================
</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.
+ 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 11 for definitions of ratings.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10 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
"BBB" 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 differs 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.
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 ranking 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.
NR -- Indicates that the bond is not rated by Standard & Poor's or Moody's.
Smith Barney Funds, Inc. 11
<PAGE>
Statement of Assets and Liabilities (unaudited) June 30, 2000
<TABLE>
<CAPTION>
<C> <S>
ASSETS:
Investments, at value (Cost-- 99,257,310) 98,249,397
Cash 295,642
Interest receivable 1,543,133
----------------------------------------------------------------------
Total Assets 100,088,172
----------------------------------------------------------------------
LIABILITIES:
Dividends payable 311,045
Management fees payable 41,873
Distribution fees payable 7,314
Accrued expenses 49,702
----------------------------------------------------------------------
Total Liabilities 409,934
----------------------------------------------------------------------
Total Net Assets 99,678,238
======================================================================
NET ASSETS:
Par value of capital shares 250,548
Capital paid in excess of par value 108,904,764
Undistributed net investment income 12,025
Accumulated net realized loss on security transactions (8,481,186)
Net unrealized depreciation of investments (1,007,913)
----------------------------------------------------------------------
Total Net Assets 99,678,238
======================================================================
Shares Outstanding:
Class A 12,525,066
----------------------------------------------------------------------
Class Y 12,529,692
----------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) 3.98
----------------------------------------------------------------------
Class Y (and redemption price) 3.98
----------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12 2000 Semi-Annual Report to Shareholders
<PAGE>
Statement of Operations(unaudited)
For the Six Months Ended June 30, 2000
<TABLE>
<CAPTION>
INVESTMENT INCOME:
Interest 3,109,184
--------------------------------------------------------------------
<C> <S>
EXPENSES:
Management fees (Note 2) 230,629
Distribution fees (Note 2) 89,220
Shareholder and system servicing fees 25,229
Shareholder communications 20,002
Registration fees 19,236
Audit and legal 7,750
Directors' fees 1,919
Custody 793
Other 4,122
--------------------------------------------------------------------
Total Expenses 398,900
--------------------------------------------------------------------
Net Investment Income 2,710,284
--------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 73,910,114
Cost of securities sold 74,633,945
--------------------------------------------------------------------
Net Realized Loss (723,831)
--------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (1,856,740)
End of period (1,007,913)
--------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 848,827
--------------------------------------------------------------------
Net Gain on Investments 124,996
--------------------------------------------------------------------
Increase in Net Assets From Operations 2,835,280
====================================================================
</TABLE>
See Notes to Financial Statements.
Smith Barney Funds, Inc. 13
<PAGE>
Statements of Changes in Net Assets
For the Six Months Ended June 30, 2000 (unaudited) and
the Year Ended December 31, 1999
<TABLE>
<CAPTION>
2000 1999
================================================================================================================
<C> <S> <S>
OPERATIONS:
Net investment income $ 2,710,284 $ 5,434,654
Net realized loss (723,831) (1,801,419)
(Increase) decrease in net unrealized depreciation 848,827 (2,620,344)
----------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,835,280 1,012,891
----------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,710,198) (5,434,096)
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (2,710,198) (5,434,096)
----------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 126,473,129 73,188,210
Net asset value of shares issued for reinvestment of dividends 973,280 2,497,476
Cost of shares reacquired (132,152,889) (81,090,728)
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (4,706,480) (5,405,042)
----------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (4,581,398) (9,826,247)
NET ASSETS:
Beginning of period 104,259,636 114,085,883
----------------------------------------------------------------------------------------------------------------
End of period* $ 99,678,238 $ 104,259,636
================================================================================================================
* Includes undistributed net investment income of: $ 12,025 $ 11,939
================================================================================================================
</TABLE>
See Notes to Financial Statements.
14 2000 Semi-Annual Report to Shareholders
<PAGE>
Notes to Financial Statements(unaudited)
1. Significant Accounting Policies
The Short-Term High Grade Bond Fund ("Portfolio"), a separate investment
portfolio of the Smith Barney Funds, Inc. ("Fund"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Fund consists of the
Portfolio and two other separate investment portfolios: Large Cap Value Fund and
U.S. Government Securities Fund. The financial statements and financial
highlights for the other portfolios are presented in separate shareholder
reports.
The significant accounting policies consistently followed by the Portfolio are:
(a) security transactions are accounted for on trade date; (b) U.S. government
agencies and obligations are valued at the mean between the bid and ask prices;
(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 Directors;
(d) securities, other than U.S. government agencies, 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) interest income, adjusted for amortization of premium
and accretion of discount, is recorded on an accrual basis; (g) gains or losses
on the sale of securities are calculated by using the specific identification
method; (h) direct expenses are charged to each class; management fees and
general fund expenses are allocated on the basis of relative net assets; (i)
dividends and distributions to shareholders are recorded on the ex-dividend
date; (j) the Portfolio 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 distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
December 31, 1999, reclassifications were made to the Portfolio's capital
accounts to reflect permanent book/tax differences and income and gains
available for distributions under income tax regulations. Net investment income,
net realized gains and net assets were not affected by this change; 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.
Smith Barney Funds, Inc. 15
<PAGE>
Notes to Financial Statements (unaudited) (continued)
2. Management Agreements and Transactions with Affiliated Persons
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment manager of the Portfolio. As compensation for
its services, the Portfolio pays SSBC a management fee calculated at an annual
rate of 0.45% of the Portfolio's average daily net assets. This fee is
calculated daily and paid monthly.
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney Private
Trust Company, another subsidiary of Citigroup, acts as the Portfolio's transfer
agent and PFPC Global Fund Services ("PFPC") acts as the Portfolio's
sub-transfer agent. CFTC 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 CFTC. During the six months ended June 30, 2000, the Portfolio
paid transfer agent fees of $15,291 to CFTC.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Portfolio's distributor replacing CFBDS, Inc. In addition, SSB
acts as the primary broker for the Fund's portfolio agency transactions. Certain
other broker-dealers continue to sell Portfolio shares to the public as members
of the selling group.
Pursuant to a Distribution Plan, the Portfolio pays a distribution fee and a
service fee with respect to Class A shares calculated at the annual rate of
0.10% and 0.25% of its average daily net assets, respectively.
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
<TABLE>
<CAPTION>
=====================================================
<S> <C>
Purchases $68,402,964
-----------------------------------------------------
Sales 73,910,114
=====================================================
</TABLE>
At June 30, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
<TABLE>
<CAPTION>
=====================================================
<S> <C>
Gross unrealized appreciation $ 241,039
Gross unrealized depreciation (1,248,952)
-----------------------------------------------------
Net unrealized depreciation $(1,007,913)
=====================================================
</TABLE>
16 2000 Semi-Annual Report to Shareholders
<PAGE>
Notes to Financial Statements (unaudited) (continued)
4. Repurchase Agreements
The Portfolio 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 Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. Reverse Repurchase Agreements
A reverse repurchase agreement involves a sale by the Portfolio of securities
that it holds with an agreement 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 Portfolio may decline below the
repurchase price of the securities. The Portfolio will establish a segregated
account with its custodian, in which the Portfolio will maintain cash, U.S.
government securities or other liquid high grade debt obligations equal in value
to its obligations with respect to the reverse repurchase agreements.
During the six months ended June 30, 2000, the Portfolio did not enter into any
reverse repurchase agreements.
6. Capital Loss Carryforward
At December 31, 1999, the Portfolio had for Federal income tax purposes
approximately $7,757,000 of capital loss carryforwards available to offset
future realized gains. To the extent that these capital carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed.
The amount and expiration of the carryforwards are indicated below. Expiration
occurs on December 31 of the year indicated:
<TABLE>
<CAPTION>
2002 2003 2004 2007
========================================================================
<S> <C> <C> <C> <C>
Carryforward Amounts $3,858,000 $1,124,000 $971,000 $1,804,000
========================================================================
</TABLE>
Smith Barney Funds, Inc. 17
<PAGE>
Notes to Financial Statements(unaudited) (continued)
7. Capital Shares
At June 30, 2000, the Fund had two billion shares of capital stock authorized
with a par value of $0.01 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest in the Portfolio and has the same rights, except that each class bears
certain expenses specifically related to the distribution of its shares.
At June 30, 2000, total paid-in capital amounted to the following for each
class:
<TABLE>
<CAPTION>
Class A Class Y
====================================================================
<C> <S> <S>
Total Paid-in Capital 58,559,370 50,595,942
====================================================================
</TABLE>
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
--------------------- --------------------
Shares Amount Shares Amount
===========================================================================================
<C> <S> <S> <S> <S>
Class A
Shares sold 30,894,130 122,182,601 15,781,549 64,318,447
Shares issued on reinvestment 245,977 973,271 616,825 2,497,420
Shares reacquired (32,066,868) (126,769,137) (19,644,379) (79,985,537)
-------------------------------------------------------------------------------------------
Net Decrease (926,761) (3,613,265) (3,246,005) (13,169,670)
===========================================================================================
Class Y
Shares sold 1,084,604 4,290,528 2,176,262 8,869,763
Shares issued on reinvestment 2 9 14 56
Shares reacquired (1,358,783) (5,383,752) (275,123) (1,105,191)
-------------------------------------------------------------------------------------------
Net Increase (Decrease) (274,177) (1,093,215) 1,901,153 7,764,628
===========================================================================================
</TABLE>
18 2000 Semi-Annual Report to Shareholders
<PAGE>
Financial Highlights
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S> <S> <S>
Class A Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995
========================================================================================================
Net Asset Value, Beginning of Period $ 3.97 $ 4.13 $ 4.09 $ 4.05 $ 4.19 $ 3.91
--------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.10 0.19 0.20 0.22 0.23 0.22
Net realized and unrealized gain (loss) 0.01 (0.16) 0.04 0.04 (0.14) 0.28
--------------------------------------------------------------------------------------------------------
Total Income From Operations 0.11 0.03 0.24 0.26 0.09 0.50
--------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.10) (0.19) (0.20) (0.22) (0.23) (0.22)
--------------------------------------------------------------------------------------------------------
Total Distributions (0.10) (0.19) (0.20) (0.22) (0.23) (0.22)
--------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 3.98 $ 3.97 $ 4.13 $ 4.09 $ 4.05 4.19
--------------------------------------------------------------------------------------------------------
Total Return 2.79%++ 0.76% 6.07% 6.73% 2.17% $13.16%
--------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 50 $ 53 $ 69 $ 71 $ 83 $ 107
--------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.03%+ 1.01% 1.04% 0.95% 0.98% 0.98%
Net investment income 5.05+ 4.70 4.94 5.53 5.62 5.29
--------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 69% 88% 150% 145% 130% 29%
========================================================================================================
</TABLE>
(1) For the six months ended June 30, 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 Funds, Inc. 19
<PAGE>
Financial Highlights(continued)
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
<C> <S> <S> <S> <S> <S>
Class Y Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996(3)
==================================================================================================
Net Asset Value, Beginning of Period $ 3.97 $ 4.13 $ 4.09 $ 4.05 $ 4.19
--------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.11 0.21 0.22 0.24 0.22
Net realized and unrealized gain (loss) 0.01 (0.16) 0.04 0.04 (0.14)
--------------------------------------------------------------------------------------------------
Total Income From Operations 0.12 0.05 0.26 0.28 0.08
--------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.11) (0.21) (0.22) (0.24) (0.22)
--------------------------------------------------------------------------------------------------
Total Distributions (0.11) (0.21) (0.22) (0.24) (0.22)
--------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 3.98 $ 3.97 $ 4.13 $ 4.09 $ 4.05
--------------------------------------------------------------------------------------------------
Total Return 3.04%++ 1.26% 6.56% 7.20% 2.08%++
--------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $ 50 $ 51 $ 45 $ 30 $ 32
--------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.53%+ 0.53% 0.56% 0.50% 0.58%+
Net investment income 5.55+ 5.19 5.42 6.00 5.99+
--------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 69% 88% 150% 145% 130%
==================================================================================================
</TABLE>
(1) For the six months ended June 30, 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) through December 31,
1996.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
20 2000 Semi-Annual Report to Shareholders
<PAGE>
[LOGO OF SALOMON SMITH BARNEY]
Directors
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
Joseph H. Fleiss, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
James E. Conroy
Vice President
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
SSB Citi Fund Management LLC
Distributor
Salomon Smith Barney Inc.
Custodian
PFPC Trust Company
Transfer Agent
Citi Fiduciary Trust Company
125 Broad Street, 10th Floor
New York, New York 10004
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 Funds, Inc. -- Short-Term High Grade 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 Portfolio. If used as sales material after
September 30, 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 Funds, Inc.
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
SMITH BARNEY FUNDS,INC.
U.S. GOVERNMENT
SECURITIES FUND
CLASSIC SERIES
SEMI-ANNUAL REPORT
JUNE 30, 2000
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
--------------------------------------------------------------------------------
A Message from the Chairman
--------------------------------------------------------------------------------
Dear Shareholder:
[PHOTO]
HEATH B. MCLENDON
Chairman
For years, individuals and their families and businesses have looked to the
investment professionals of SSB Citi Fund Management LLC for thoughtful insights
and advice. For some, the solution has been a long-term investment strategy,
incorporating multiple stock and bond mutual funds. Others have invested with
specific portfolio managers who are recognized and respected for their insights
and record.
In our opinion, the lessons of the past may be used to better understand the
challenges and opportunities of the future. We believe SSB Citi Fund Management
LLC represents extensive asset management expertise. We also believe that
expertise is achieved through the intelligent application of knowledge and
modern investment technique. Our portfolio managers have managed portfolios
across markets and cycles.
Whatever your investment objective may be, we believe that following a
disciplined investment plan is of paramount importance in these uncertain times.
We encourage you to work closely with your financial professional to map out an
investment plan that fits in with your objectives -- be it retirement, estate
planning or educational needs.
When you invest with SSB Citi Fund Management LLC, you can do so with the
confidence that your interests come first, your investment success is paramount,
and that the ultimate in resources is being committed to your financial future.
Thank you for investing with us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
July 24, 2000
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 1
<PAGE>
--------------------------------------------------------------------------------
Shareholder Letter
--------------------------------------------------------------------------------
[PHOTO]
JAMES E. CONROY
Vice President
Dear Shareholder:
We are pleased to provide the semi-annual report for the Smith Barney Funds,
Inc.- U.S. Government Securities Fund ("Portfolio") for the period ended June
30, 2000. In this report, we summarize the period's prevailing economic and
market conditions and outline our portfolio strategy.(1) A more 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 June 30, 2000, the Portfolio's Class A shares, without
sales charges, returned 3.82%. The Portfolio's Class A shares, with sales
charges, returned a negative 0.88%. In comparison, the Lehman Brothers
Mortgage-Backed Securities Index ("Lehman Index")(2) returned 3.67% for the same
time period. In addition, during the past six months, the Portfolio distributed
income dividends totaling $0.38 per Class A share. For performance information
on the Portfolio's other share classes, please turn to pages five through seven.
The continued strength of the U.S. stock market and the inverted yield curve has
made investing in bonds challenging. (The yield curve is a graphical depiction
of the relationship between the yield on bonds of the same credit quality but
different maturities. An inverted yield curve illustrates an occurrence when
shorter-term bonds have higher yields than longer-term bonds.) However, it is
our belief that the actions by the Federal Reserve Board ("Fed") may ultimately
slow economic conditions and make bonds more appealing to many investors over
time. Additionally, we think that long-term rates may possibly decline by the
end of the year.
--------------
1 The information provided represents the opinion of the manager and is not
intended to be a forecast of future events, a guarantee of future results
nor investment advice. Further, there is no assurance that certain
securities will remain in or out of the portfolio.
2 The Lehman Index is a broad-based unmanaged index of mortgage-backed
securities comprised of approximately 600 15-year to 30-year fixed rate
mortgage-backed pools of Government National Mortgage Association, Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation
obligations. An investor cannot invest directly in an index.
--------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
Market Update and Outlook
In our view, the issues that significantly impacted the performance of the bond
market during the period were:
. The increase in interest rates by the Fed;
. The U.S. Treasury's buyback program;
. Reduced mutual fund inflows; and
. Investor concerns regarding credit quality, the extreme levels of
market volatility and illiquidity.
The Fed raised interest rates three times for a total of 75 basis points(3)
during the reporting period. In addition, the plan by the U.S. Treasury to buy
back more than $30 billion of its long-term debt obligations has led to reduced
supply in the market. As such, the price of longer-term bonds increased in
relation to their shorter-term counterparts, as reflected by an inverted yield
curve. Instead of a "normal" yield curve, with yields rising steadily along with
the maturity of Treasury bonds, the highest yields were for shorter-term bonds.
Investment Strategy
The Portfolio seeks high current income, liquidity and security of principal.
The Portfolio invests primarily in debt securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, and in related repurchase
and reverse repurchase agreements.
The U.S. government securities in which the Portfolio invests consist primarily
of mortgage-related securities issued by the federal agencies and U.S. Treasury
securities. Mortgage-related securities issued by federal agencies or
instrumentalities may be backed by the full faith and credit of the U.S.
Treasury by the right of the issuer to borrow from the U.S. government or only
by the credit of the issuer itself. Please note that shares of the Portfolio are
not guaranteed nor backed by the full faith and credit of the U.S. government.
During the period, the Portfolio's income orientation helped returns due to our
emphasis on mortgage-backed securities and U.S. Treasury strips throughout the
year. We employed this strategy in an attempt to mirror the Government National
Mortgage Association Master Mortgage Index.(4) In addition, we have maintained a
duration(5) of roughly 4.5 to 6.5 years.
--------------
3 A basis point is 0.01% or one one-hundredth of a percent.
4 The Government National Mortgage Association Master Mortgage Index includes
various weightings of all outstanding coupons issued in 15- and 30-year
GNMA mortgage pass-throughs.
5 Duration is a common gauge of the price sensitivity of a fixed income asset
or portfolio to a change in interest rates.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 3
<PAGE>
Our strategy has included slowly buying U.S. Treasuries and extending maturities
as interest rates have risen during this period. In our view, we have probably
seen the highs in yields over the near-term. Our investment strategy in the
coming months may be to increase our U.S. Treasury exposure and reduce our
mortgage-backed securities holdings.
As of June 30, 2000, the Portfolio's allocation was approximately 66% in U.S.
government agencies, 11% in U.S. treasury obligations and 23% in short-term
investments. And while no guarantees can be given, we believe our strategy
should continue to benefit the Portfolio.
The chart below shows the yields from U.S. Treasuries during the period under
review.
Yields from U.S. Treasuries
Interest Rates 6/30/00 12/31/99
-------------- ------- --------
2-year U.S. Treasury Notes 6.36% 6.24%
5-year U.S. Treasury Notes 6.18 6.34
10-year U.S. Treasury Bonds 6.02 6.43
30-year U.S. Treasury Bonds 5.90 6.48
Thank you for investing in the Smith Barney Funds, Inc. - U.S. Government
Securities Fund. We look forward to continuing to help you pursue your
financial goals in the new century.
Sincerely,
/s/ James E. Conroy
James E. Conroy
Vice President
July 24, 2000
--------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Historical Performance -- Class A Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
=========================================================================================
<S> <C> <C> <C> <C> <C>
6/30/00 $12.67 $12.77 $0.38 $0.00 3.82%+
-----------------------------------------------------------------------------------------
12/31/99 13.41 12.67 0.71 0.00 (0.24)
-----------------------------------------------------------------------------------------
12/31/98 13.61 13.41 0.72 0.27 6.04
-----------------------------------------------------------------------------------------
12/31/97 13.24 13.61 0.86 0.00 9.67
-----------------------------------------------------------------------------------------
12/31/96 13.59 13.24 0.86 0.00 3.97
-----------------------------------------------------------------------------------------
12/31/95 12.50 13.59 0.92 0.00 16.52
-----------------------------------------------------------------------------------------
12/31/94 13.66 12.50 0.91 0.05 (1.48)
-----------------------------------------------------------------------------------------
12/31/93 13.87 13.66 0.98 0.11 6.40
-----------------------------------------------------------------------------------------
12/31/92 14.10 13.87 1.08 0.08 6.85
-----------------------------------------------------------------------------------------
12/31/91 13.22 14.10 1.13 0.05 16.29
-----------------------------------------------------------------------------------------
12/31/90 13.17 13.22 1.18 0.00 9.95
=========================================================================================
Total $9.73 $0.56
=========================================================================================
</TABLE>
--------------------------------------------------------------------------------
Historical Performance -- Class B Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
=========================================================================================
<S> <C> <C> <C> <C> <C>
6/30/00 $12.69 $12.79 $0.34 $0.00 3.54%+
-----------------------------------------------------------------------------------------
12/31/99 13.42 12.69 0.64 0.00 (0.66)
-----------------------------------------------------------------------------------------
12/31/98 13.63 13.42 0.66 0.27 5.47
-----------------------------------------------------------------------------------------
12/31/97 13.26 13.63 0.80 0.00 9.12
-----------------------------------------------------------------------------------------
12/31/96 13.61 13.26 0.79 0.00 3.44
-----------------------------------------------------------------------------------------
12/31/95 12.51 13.61 0.86 0.00 16.03
-----------------------------------------------------------------------------------------
Inception* - 12/31/94 12.47 12.51 0.21 0.00 2.04+
=========================================================================================
Total $4.30 $0.27
=========================================================================================
</TABLE>
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 5
<PAGE>
--------------------------------------------------------------------------------
Historical Performance -- Class L Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
=========================================================================================
<S> <C> <C> <C> <C> <C>
6/30/00 $12.67 $12.77 $0.34 $0.00 3.55%+
-----------------------------------------------------------------------------------------
12/31/99 13.40 12.67 0.64 0.00 (0.67)
-----------------------------------------------------------------------------------------
12/31/98 13.60 13.40 0.66 0.27 5.53
-----------------------------------------------------------------------------------------
12/31/97 13.23 13.60 0.80 0.00 9.18
-----------------------------------------------------------------------------------------
12/31/96 13.58 13.23 0.80 0.00 3.49
-----------------------------------------------------------------------------------------
12/31/95 12.50 13.58 0.87 0.00 15.93
-----------------------------------------------------------------------------------------
12/31/94 13.66 12.50 0.83 0.04 (2.11)
-----------------------------------------------------------------------------------------
12/31/93 13.86 13.66 0.88 0.11 5.74
-----------------------------------------------------------------------------------------
Inception* - 12/31/92 14.01 13.86 0.30 0.00 1.07+
=========================================================================================
Total $6.12 $0.42
=========================================================================================
</TABLE>
--------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
--------------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
=========================================================================================
<S> <C> <C> <C> <C> <C>
6/30/00 $12.68 $12.78 $0.40 $0.00 3.99%+
-----------------------------------------------------------------------------------------
12/31/99 13.42 12.68 0.75 0.00 0.08
-----------------------------------------------------------------------------------------
12/31/98 13.64 13.42 0.78 0.27 6.29
-----------------------------------------------------------------------------------------
12/31/97 13.27 13.64 0.90 0.00 10.00
-----------------------------------------------------------------------------------------
12/31/96 13.61 13.27 0.89 0.00 4.30
-----------------------------------------------------------------------------------------
12/31/95 12.51 13.61 0.96 0.00 16.88
-----------------------------------------------------------------------------------------
12/31/94 13.67 12.51 0.91 0.04 (1.53)
-----------------------------------------------------------------------------------------
Inception* - 12/31/93 13.97 13.67 0.95 0.11 5.55+
=========================================================================================
Total $6.54 $0.42
=========================================================================================
</TABLE>
It is the Portfolio's policy to distribute dividends monthly and capital
gains, if any, annually.
--------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Average Annual Total Returns
--------------------------------------------------------------------------------
Without Sales Charges (1)
-----------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 6/30/00+ 3.82% 3.54% 3.55% 3.99%
--------------------------------------------------------------------------------
Year Ended 6/30/00 4.41 3.95 3.95 4.75
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 5.70 5.19 5.21 6.04
--------------------------------------------------------------------------------
Ten Years Ended 6/30/00 7.33 N/A N/A N/A
--------------------------------------------------------------------------------
Inception* through 6/30/00 8.65 6.80 5.38 5.97
================================================================================
With Sales Charges(2)
-----------------------------------------
Class A Class B Class L Class Y
================================================================================
Six Months Ended 6/30/00+ (0.88)% (0.96)% 1.50% 3.99%
--------------------------------------------------------------------------------
Year Ended 6/30/00 (0.29) (0.49) 1.94 4.75
--------------------------------------------------------------------------------
Five Years Ended 6/30/00 4.72 5.03 5.01 6.04
--------------------------------------------------------------------------------
Ten Years Ended 6/30/00 6.84 N/A N/A N/A
--------------------------------------------------------------------------------
Inception* through 6/30/00 8.33 6.80 5.24 5.97
================================================================================
--------------------------------------------------------------------------------
Cumalative Total Returns
--------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (6/30/90 through 6/30/00) 102.85%
--------------------------------------------------------------------------------
Class B (Inception* through 6/30/00) 44.98
--------------------------------------------------------------------------------
Class L (Inception* through 6/30/00) 48.76
--------------------------------------------------------------------------------
Class Y (Inception* through 6/30/00) 54.20
================================================================================
(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; 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 dates for Class A, B, L and Y shares are October 9, 1984,
November 7, 1994, December 2, 1992 and January 12, 1993, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 7
<PAGE>
--------------------------------------------------------------------------------
Historical Performance (unaudited)
--------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the
U.S. Government Securities Fund vs.
Lehman Brothers Mortgage-Backed Securities Index+
--------------------------------------------------------------------------------
June 1990 -- June 2000
[GRAPH]
U.S. Government Lehman Brothers
Securities Fund MBS Index
--------------- ---------------
6/90 9,600 10,000
12/90 10,228 10,654
12/91 11,845 12,329
12/92 12,624 13,187
12/93 13,390 14,089
12/94 13,163 13,862
12/95 15,338 16,192
12/96 15,946 17,058
12/97 17,489 18,677
12/98 18,320 19,967
12/99 18,501 20,338
6/00 19,207 21,084
+ Hypothetical illustration of $10,000 invested in Class A shares on June 30,
1990, assuming deduction of the maximum 4.50% sales charge in effect at the
time of investment and reinvestment of dividends (after deduction of
applicable sales charge through November 7, 1994, and thereafter at net
asset value) and capital gains, if any, at net asset value through June 30,
2000. The Lehman Brothers Mortgage-Backed Securities ("MBS") Index is
composed of about 600 15-year to 30-year fixed-rate mortgage-backed pools
of Government National Mortgage Association, Federal National Mortgage
Association and Federal Home Loan Mortgage Corp. obligations. The Index is
unmanaged and is not subject to the management and trading expenses of a
mutual fund. An investor may not invest directly in an index. The
performance of the Portfolio's other classes may be greater or less than
the Class A shares' performance indicated on this chart, depending on
whether greater or lesser sales charges and fees were incurred by
shareholders investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
--------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30,2000
--------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
U.S. TREASURY OBLIGATIONS -- 10.6%
$15,000,000 U.S. Treasury Notes, 6.50% due 2/15/10 $ 15,496,500
20,000,000 U.S. Treasury Strips, zero coupon due 11/15/09 11,055,400
--------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost -- $26,322,840) 26,551,900
================================================================================
U.S. GOVERNMENT AGENCIES-- 66.4%
Government National Mortgage Association (GNMA) Certificates:
23,760,483 6.50% due 10/15/28+ 22,564,856
17,179,661 7.00% due 11/15/28+ 16,717,872
54,027,102 7.50% due 4/15/30+ 53,672,145
72,268,087 8.00% due 5/15/30+ 73,081,103
--------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost -- $168,503,574) 166,035,976
================================================================================
SUB-TOTAL INVESTMENTS
(Cost -- $194,826,414) 192,587,876
================================================================================
REPURCHASE AGREEMENTS-- 23.0%
7,558,000 Goldman Sachs & Co., 6.45% due 7/3/00; Proceeds at
maturity -- $7,562,062; (Fully collateralized by
U.S. Treasury Bills, Notes & Bonds, 0.000% to
12.000% due 1/4/01 to 11/15/28; Market value --
$7,707,872) 7,558,000
49,864,000 JP Morgan Securities, Inc., 6.50% due 7/3/00;
Proceeds at maturity -- $49,891,010; (Fully
collateralized by U.S. Treasury Notes & Bonds,
3.375% to 7.875% due 7/15/02 to 2/15/21;
Market value -- $50,861,304) 49,864,000
--------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $57,422,000) 57,422,000
================================================================================
TOTAL INVESTMENTS-- 100%
(Cost -- $252,248,414*) $250,009,876
================================================================================
+ Maturity date shown represents the last in the range of maturity dates of
mortgage certificates owned.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 9
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $194,826,414) $192,587,876
Repurchase agreements, at value (Cost -- $57,422,000) 57,422,000
Cash 346,889
Receivable for Fund shares sold 830,965
Interest receivable 1,365,277
--------------------------------------------------------------------------------
Total Assets 252,553,007
--------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 1,047,966
Management fees payable 130,202
Distribution fees payable 34,088
Accrued expenses 69,208
--------------------------------------------------------------------------------
Total Liabilities 1,281,464
--------------------------------------------------------------------------------
Total Net Assets $251,271,543
================================================================================
NET ASSETS:
Par value of capital shares $ 196,733
Capital paid in excess of par value 264,244,117
Undistributed net investment income 2,002,355
Accumulated net realized loss on security transactions (12,933,124)
Net unrealized depreciation of investments (2,238,538)
--------------------------------------------------------------------------------
Total Net Assets $251,271,543
================================================================================
Shares Outstanding:
Class A 17,464,168
------------------------------------------------------------------------------
Class B 1,034,411
------------------------------------------------------------------------------
Class L 990,519
------------------------------------------------------------------------------
Class Y 184,213
------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $12.77
------------------------------------------------------------------------------
Class B * $12.79
------------------------------------------------------------------------------
Class L ** $12.77
------------------------------------------------------------------------------
Class Y (and redemption price) $12.78
------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 4.71% of net asset value per share) $13.37
------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $12.90
================================================================================
* 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.
--------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations (unaudited)
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000
INVESTMENT INCOME:
Interest $ 8,420,136
--------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 574,100
Distribution fees (Note 2) 356,550
Shareholder and system servicing fees 58,258
Registration fees 29,624
Shareholder communications 19,145
Audit and legal 14,199
Custody 9,167
Directors' fees 2,493
Other 4,987
--------------------------------------------------------------------------------
Total Expenses 1,068,523
--------------------------------------------------------------------------------
Net Investment Income 7,351,613
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions
(excluding short-term securities):
Proceeds from sales 233,557,320
Cost of securities sold 237,672,656
--------------------------------------------------------------------------------
Net Realized Loss (4,115,336)
--------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (7,244,027)
End of period (2,238,538)
--------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation 5,005,489
--------------------------------------------------------------------------------
Net Gain on Investments 890,153
--------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 8,241,766
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 11
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
For the Six Months Ended June 30, 2000 (unaudited)
and the Year Ended December 31, 1999
2000 1999
================================================================================
OPERATIONS:
Net investment income $ 7,351,613 $ 15,286,788
Net realized loss (4,115,336) (8,181,916)
(Increase) decrease in net unrealized depreciation 5,005,489 (8,320,262)
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 8,241,766 (1,215,390)
--------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (7,001,754) (14,264,175)
--------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (7,001,754) (14,264,175)
--------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 810,748,913 906,652,727
Net asset value of shares issued for
reinvestment of dividends 3,735,577 8,719,918
Cost of shares reacquired (797,633,041) (951,026,813)
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions 16,851,449 (35,654,168)
--------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 18,091,461 (51,133,733)
NET ASSETS:
Beginning of period 233,180,082 284,313,815
--------------------------------------------------------------------------------
End of period* $251,271,543 $233,180,082
================================================================================
* Includes undistributed net investment income of: $2,002,355 $1,652,496
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The U.S. Government Securities Fund ("Portfolio"), is a separate investment
portfolio of the Smith Barney Funds, Inc. ("Fund"). The Fund, a Maryland
corporation,is registered under the Investment Company Act of 1940,as amended,
as a diversified, open-end management investment company. The Fund consists of
this Portfolio and two other separate investment portfolios: Large Cap Value
Fund and Short-Term High Grade Bond Fund. The financial statements and financial
highlights for the other portfolios are presented in separate shareholder
reports.
The significant accounting policies consistently followed by the Portfolio are:
(a) security transactions are accounted for on trade date; (b) U.S. government
agencies and obligations are valued at the mean between the bid and ask prices;
(c) securities for which market quotations are not available will be valued in
good faith at fair value by or under direction of the Board of Directors; (d)
securities maturing within 60 days are valued at cost plus accreted discount, or
minus amortized premium, which approximates value; (e) interest income 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; (h) dividends and distributions to
shareholders are recorded on the ex-dividend date; (i) the portfolio intends to
comply with the applicable provisions of the Internal Revenue Code of 1986,as
amended, pertaining to regulated investment companies to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; (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 December 31, 1999,
reclassifications were made to the Portfolio's capital accounts to reflect
permanent book/tax differences and income and gains available for distribution
under income tax regulations. Net investment income, net realized gains and net
assets were not affected by this change; 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. Management Agreement and Transactions with Affiliated Persons
SSB Citi Fund Management LLC ("SSBC"), a subsidiary of Salomon Smith Barney
Holdings Inc. ("SSBH"), which, in turn, is a subsidiary of Citigroup Inc.
("Citigroup"), acts as investment manager for the Portfolio. The Portfolio pays
SSBC a management fee calculated at an annual rate of 0.50% of the first $200
million of the average daily net assets, and 0.40% of the average daily net
assets of the Portfolio in excess of $200 million. This fee is calculated daily
and paid monthly.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 13
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
Citi Fiduciary Trust Company ("CFTC"), formerly known as Smith Barney Private
Trust Company, another subsidiary of Citigroup, acts as the Portfolio's transfer
agent and PFPC Global Fund Services ("PFPC") acts as the Portfolio's
sub-transfer agent. CFTC 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.
For the six months ended June 30, 2000, the Portfolio paid transfer agent fees
of $45,921 to CFTC.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Portfolio's distributor replacing CFBDS, Inc. ("CFBDS"). In
addition, SSB acts as the primary broker for the Portfolio's agency
transactions. Certain other broker-dealers, continue to sell Portfolio shares to
the public as members of the selling group.
There are maximum initial sales charges of 4.50% and 1.00% for 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
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 are being
sold at net asset value plus a maximum initial sales charge of 1.00%. 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 June 30, 2000, CFBDS and SSB received sales charges of
approximately $86,000 and $5,000 on sales of the Portfolio's Class A and L
shares, respectively. In addition, CDSCs paid to SSB were approximately $1,000,
$20,000 and $1,000 for Class A, B and L shares,respectively.
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to its Class A, B and L shares calculated at an annual rate of 0.25% of the
average daily net assets for each respective class. In addition, the Portfolio
also pays a distribution fee with respect to Class B and L shares calculated at
the annual rate of 0.50% and 0.45% of the average daily net assets for each
class, respectively. For the six months ended June 30, 2000, total Distribution
Plan fees were as follows:
Class A Class B Class L
================================================================================
Distribution Plan Fees $260,327 $49,810 $46,413
================================================================================
All officers and one Director of the Fund are employees of SSB.
--------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
3. Investments
During the six months ended June 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
================================================================================
Purchases $200,257,405
--------------------------------------------------------------------------------
Sales 233,557,320
================================================================================
At June 30, 2000, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 929,559
Gross unrealized depreciation (3,168,097)
--------------------------------------------------------------------------------
Net unrealized depreciation $(2,238,538)
================================================================================
4. Repurchase Agreements
The Portfolio purchases 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 Portfolio requires continual maintenance of the market
value of the collateral in amounts at least equal to the repurchase price.
5. Reverse Repurchase Agreement
The Portfolio may enter into reverse repurchase agreement transactions for
leveraging purposes. A reverse repurchase agreement involves a sale by the
Portfolio of securities that it holds with an agreement by the Portfolio 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 Portfolio may decline below the repurchase price of the securities.
The Portfolio will establish a segregated account with its custodian, in which
the Portfolio will maintain cash, U.S. government securities or other liquid
high grade debt obligations equal in value to its obligations with respect to
the reverse repurchase agreement.
During the six months ended June 30, 2000, the Portfolio did not enter into any
reverse repurchase agreements.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 15
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
6. Securities Traded on a To-Be-Announced Basis
The Portfolio may trade securities, particularly GNMAs, on a "to-be-announced"
("TBA") basis. In a TBA transaction, the Portfolio 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. Securities
purchased on a TBA basis are not settled until they are delivered to the
Portfolio, 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 portfolio securities.
At June 30, 2000, the Portfolio had no TBA securities.
7. 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 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 Portfolio records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transactions and the Portfolio's basis in the contract.
The Portfolio enters into such contracts to hedge a portion of its portfolio.
The Portfolio bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At June 30, 2000, the Portfolio had no open futures contracts.
8. Capital Shares
At June 30, 2000, the Fund had two billion shares of capital stock authorized
with a par value of $0.01 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest in the Portfolio and has the same rights. Each class bears certain
expenses specifically related to the distribution of its shares.
--------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
At June 30, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L Class Y
--------------------------------------------------------------------------------
Total Paid-in Capital $233,866,373 $13,554,442 $13,870,828 $3,149,207
--------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 2000 December 31, 1999
-------------------------- ----------------------------
Shares Amount Shares Amount
=========================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 63,818,182 $808,482,282 69,198,296 $ 899,315,105
Shares issued on reinvestment 261,129 3,294,826 591,604 7,682,394
Shares reacquired (62,621,598) (792,608,718) (72,472,777) (941,068,231)
-----------------------------------------------------------------------------------------
Net Increase (Decrease) 1,457,713 $ 19,168,390 (2,682,877) $ (34,070,732)
=========================================================================================
Class B
Shares sold 123,820 $ 1,576,177 307,144 $ 4,010,617
Shares issued on reinvestment 17,303 218,528 39,047 507,217
Shares reacquired (175,459) (2,220,533) (384,807) (5,022,756)
-----------------------------------------------------------------------------------------
Net Decrease (34,336) $ (425,828) (38,616) $ (504,922)
-----------------------------------------------------------------------------------------
Class L
Shares sold 54,723 $ 690,454 254,539 $ 3,322,005
Shares issued on reinvestment 15,905 200,610 36,919 478,902
Shares reacquired (209,431) (2,647,240) (312,047) (4,068,787)
-----------------------------------------------------------------------------------------
Net Decrease (138,803) $ (1,756,176) (20,589) $ (267,880)
-----------------------------------------------------------------------------------------
Class Y
Shares sold -- $ -- 373 $ 5,000
Shares issued on reinvestment 1,713 21,613 3,958 51,405
Shares reacquired (12,443) (156,550) (66,261) (867,039)
-----------------------------------------------------------------------------------------
Net Decrease (10,730) $ (134,937) (61,930) $ (810,634)
=========================================================================================
</TABLE>
9. Capital Loss Carryforward
At December 31, 1999, the Portfolio had, for Federal income tax purposes,
approximately $8,818,000 of unused capital loss carryforwards available to
offset future capital gains expiring in 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.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 17
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995
===========================================================================================================
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period $12.67 $13.41 $13.61 $13.24 $13.59 $12.50
-----------------------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income 0.39 0.75 0.71 0.85 0.84 0.92
Net realized and
unrealized gain (loss) 0.09 (0.78) 0.08 0.38 (0.33) 1.09
-----------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.48 (0.03) 0.79 1.23 0.51 2.01
-----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.38) (0.71) (0.72) (0.86) (0.86) (0.92)
Net realized gains -- -- (0.27) (0.00)* -- --
Capital -- -- (0.00)* -- -- --
-----------------------------------------------------------------------------------------------------------
Total Distributions (0.38) (0.71) (0.99) (0.86) (0.86) (0.92)
-----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $12.77 $12.67 $13.41 $13.61 $13.24 $13.59
-----------------------------------------------------------------------------------------------------------
Total Return 3.82%++ (0.24)% 6.04% 9.67% 3.97% 16.52%
-----------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (millions) $223 $203 $251 $272 $312 $385
-----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 6.27%+ 5.82% 5.22% 6.37% 6.34% 6.82%
Interest expense -- -- 0.05 0.16 0.30 --
Other expenses 0.85+ 0.83 0.81 0.80 0.79** 0.79
-----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 91% 193% 268% 130% 265% 57%
===========================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01.
** Amount has been restated from the December 31, 1996 annual report.
++ 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 (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995
===========================================================================================================
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period $12.69 $13.42 $13.63 $13.26 $13.61 $12.51
-----------------------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income 0.36 0.70 0.64 0.79 0.77 0.80
Net realized and
unrealized gain (loss) 0.08 (0.79) 0.08 0.38 (0.33) 1.16
-----------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.44 (0.09) 0.72 1.17 0.44 1.96
-----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.64) (0.66) (0.80) (0.79) (0.86)
Net realized gains -- -- (0.27) (0.00)* -- --
Capital -- -- (0.00)* -- -- --
-----------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.64) (0.93) (0.80) (0.79) (0.86)
-----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $12.79 $12.69 $13.42 $13.63 $13.26 $13.61
-----------------------------------------------------------------------------------------------------------
Total Return 3.54%++ (0.66)% 5.47% 9.12% 3.44% 16.03%
-----------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $13,227 $13,558 $14,861 $12,238 $11,212 $11,116
-----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 5.74%+ 5.34% 4.69% 5.85% 5.85% 6.16%
Interest expense -- -- 0.05 0.16 0.30 --
Other expenses 1.36+ 1.33 1.31 1.31 1.28** 1.28
-----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 91% 193% 268% 130% 265% 57%
===========================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01.
** Amount has been restated from the December 31, 1996 annual report.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 19
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 2000(1)(2) 1999(2) 1998(2)(3) 1997 1996 1995
===========================================================================================================
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period $12.67 $13.40 $13.60 $13.23 $13.58 $12.50
-----------------------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income 0.36 0.70 0.65 0.77 0.78 0.86
Net realized and
unrealized gain (loss) 0.08 (0.79) 0.08 0.40 (0.33) 1.09
-----------------------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 0.44 (0.09) 0.73 1.17 0.45 1.95
-----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.34) (0.64) (0.66) (0.80) (0.80) (0.87)
Net realized gains -- -- (0.27) (0.00)* -- --
Capital -- -- (0.00)* -- -- --
-----------------------------------------------------------------------------------------------------------
Total Distributions (0.34) (0.64) (0.93) (0.80) (0.80) (0.87)
-----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $12.77 $12.67 $13.40 $13.60 $13.23 $13.58
-----------------------------------------------------------------------------------------------------------
Total Return 3.55%++ (0.67)% 5.53% 9.18% 3.49% 15.93%
-----------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $12,652 $14,308 $15,407 $14,464 $17,249 $21,559
-----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 5.78%+ 5.38% 4.74% 5.91% 5.87% 6.36%
Interest expense -- -- 0.05 0.16 0.30 --
Other expenses 1.32+ 1.29 1.27 1.27 1.26** 1.25
-----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 91% 193% 268% 130% 265% 57%
===========================================================================================================
</TABLE>
(1) For the six months ended June 30, 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.
* Amount represents less than $0.01.
** Amount has been restated from the December 31, 1996 annual report.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
--------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended December 31, except where noted:
<TABLE>
<CAPTION>
Class Y Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996 1995
===========================================================================================================
Net Asset Value,
<S> <C> <C> <C> <C> <C> <C>
Beginning of Period $12.68 $13.42 $13.64 $13.27 $13.61 $12.51
-----------------------------------------------------------------------------------------------------------
Income (Loss)
From Operations:
Net investment income 0.41 0.79 0.75 0.88 0.88 1.00
Net realized and
unrealized gain (loss) 0.09 (0.78) 0.08 0.39 (0.33) 1.06
-----------------------------------------------------------------------------------------------------------
Total Income
From Operations 0.50 0.01 0.83 1.27 0.55 2.06
-----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.40) (0.75) (0.78) (0.90) (0.89) (0.96)
Net realized gains -- -- (0.27) (0.00)* -- --
Capital -- -- (0.00)* -- -- --
-----------------------------------------------------------------------------------------------------------
Total Distributions (0.40) (0.75) (1.05) (0.90) (0.89) (0.96)
-----------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $12.78 $12.68 $13.42 $13.64 $13.27 $13.61
-----------------------------------------------------------------------------------------------------------
Total Return 3.99%++ 0.08% 6.29% 10.00% 4.30% 16.88%
-----------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $2,354 $2,472 $3,447 $5,182 $5,589 $6,992
-----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Net investment income 6.54%+ 6.10% 5.52% 6.65% 6.64% 7.22%
Interest expense -- -- 0.05 0.16 0.30 --
Other expenses 0.55+ 0.54 0.52 0.51 0.50** 0.49
-----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 91% 193% 268% 130% 265% 57%
===========================================================================================================
</TABLE>
(1) For the six months ended June 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01.
** Amount has been restated from the December 31, 1996 annual report.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
--------------------------------------------------------------------------------
Smith Barney Funds, Inc. 21
<PAGE>
[LOGO OF SALOMON SMITH BARNEY]
Directors
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
Joseph H. Fleiss, Emeritus
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
James E. Conroy
Vice President
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
SSB Citi Fund Management LLC
Distributor
Salomon Smith Barney Inc.
Custodian
PFPC Trust Company
Transfer Agent
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
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 Funds, Inc. -- U.S. Government Securities 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 Portfolio. If used as sales material after September 30, 2000,
this report must be accompanied by performance information for the most recently
completed calender quarter.
Salomon Smith Barney is a service mark
of Salomon Smith Barney Inc.
Smith Barney Funds, Inc.
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutualfunds
FD0631 8/00
