SEMI- ANNUAL
REPORT
[Small box above fund name showing 4 bars
with
the words "growth companies" printed on top
of them.]
SMITH BARNEY
Special Equities Fund
........................................
JUNE 30, 1995
[LOGO OF SMITH BARNEY APPEARS HERE]
Special Equities Fund
Dear Shareholder:
We are pleased to provide you with the semi-annual
report and port-
folio of investments for the six months ended June 30,
1995 for
Smith Barney Special Equities Fund. After a lackluster
1994, the
Fund rebounded strongly during the first half of 1995
and provided
investors with very attractive total returns. Class A
shares
earned a total return of 19.32%, Class B shares earned
a total re-
turn of 18.92%, and Class C shares earned a total
return of 18.92%
for the six-month period ended June 30, 1995.
Additional perfor-
mance data for each class of shares during this and
previous re-
porting periods is available in the "Financial
Highlights" section
of this report.
Market and Economic Overview
During the first half of 1995, the financial markets
experienced far more
vigorous activity than investors had anticipated. Most
market observers had
expected a slowdown in the economy, with moderate inflation
and flat interest
rates. This viewpoint led to a revival of interest in the
more traditional,
defensive-type sectors such as foods, drugs, cosmetics and
softdrinks. These
groups offer the appeal of steadiness of earnings in a
weaker economy. What
actually occurred throughout the first half of the year,
however, was a market
that kept hitting new highs. This surprisingly strong rally
was led primarily by
technology stocks.
In February, the small-cap sector, in which the Fund
invests, began to perform
much better than it had in quite some time. We believe that
the primary reason
for this solid performance was the belief among investors
that long-term inter-
est rates would move in a narrow sideways pattern, neither
rising substantial-
ly, nor falling sharply. In addition, the strength of
earnings reported by
technology stocks aided the upward move in the market.
Portfolio Strategy
The Fund underperformed the market in the first half of
1995, although second-
quarter results were better than those produced in the first
quarter. The Fund
had a reasonably heavy weighting in consumer nondurable
stocks during the peri-
od. In the second quarter, we began to shift the Portfolio,
so that it had a
greater exposure to technology issues, which had a positive
affect on the
Fund's performance. This stronger performance has continued
through July.
1
For the balance of 1995, we expect small-cap stocks to
outperform the larger-
cap sector as the relative earnings strength of small caps
should outweigh the
earnings reported by the larger-cap companies. In our
opinion, renewed interest
in small-cap stocks can be attributed to valuations which
remained at the low
end of the historical range, and the economic slowdown,
which increased the fo-
cus on higher growth small-cap stocks. In addition, flat
interest rates and the
strengthening of the dollar, which may harm large, multi-
national stocks, are
also playing a part in the small-cap rally. Viewed as a
whole, we believe that
these conditions have created a good environment for "true"
small-cap stocks,
and we look forward to taking advantage of the opportunities
in the market in
the coming months.
Sincerely,
/s/ Heath B. McLendon /s/ George V. Novello
Heath B. McLendon George V. Novello
Chairman of the Board Investment Officer
July 28, 1995
2
Smith Barney
Special Equities Fund
Portfolio Highlights (unaudited)
June 30, 1995
Pie chart depicting the allocation of the Investment Funds
Special Equities Fund
investment securities held at June 30, 1995, by industry
classification. The pie
is broken in pieces representing industries in the following
percentages:
<TABLE>
Industry
Percentage
<S> <C>
Repurchase Agreement and Net Other
Assets and Liabilities 5.3%
Transportation 2.6%
Healthcare 3.8%
Entertainment and Leisure 5.6%
Office Products 8.6%
Semiconductors 12.1%
Restaurants 14.7%
Software 12.5%
Technology 5.0%
Communications 12.7%
Retail 17.1%
</TABLE>
Top Ten Holdings
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
- -------------------------------------------------
<S> <C>
Baby Superstore Inc. 6.6%
Starbucks Corporation 6.1
Callaway Golf Company 5.6
PETsMART Inc. 5.3
Boston Chicken Inc. 4.7
LSI Logic Inc. 4.2
Ascend Communications Incorporated 4.0
Micro Warehouse Inc. 4.0
Integrated Silicon Solutions 3.9
Macromedia Inc. 3.6
</TABLE>
3
Smith Barney
Special Equities Fund
Portfolio of Investments (unaudited)
June 30, 1995
<TABLE>
<CAPTION>
Market
Value
Shares (Note 1)
- ------------------------------------------------------------
- -
<C> <S> <C>
COMMON STOCKS -- 94.7%
Retail -- 17.1%
300,000 Baby Superstore Inc.+ $
14,137,500
25,000 Barnes and Noble Inc.+
850,000
60,000 Global Direct Mail
1,185,000
80,000 Men's Wearhouse Inc.
2,200,000
400,000 PETsMART Inc.+
11,500,000
200,000 Sunglass Hut International, Inc.+
7,000,000
- ------------------------------------------------------------
- -
36,872,500
- ------------------------------------------------------------
- -
Restaurants -- 14.7%
420,000 Boston Chicken Inc.+
10,158,750
200,000 Cheesecake Factory+
5,150,000
110,000 Rock Bottom Restaurants Inc.+
3,217,500
370,000 Starbucks Corporation+
13,181,250
- ------------------------------------------------------------
- -
31,707,500
- ------------------------------------------------------------
- -
Communications -- 12.7%
200,000 Adtran Inc.+
6,700,000
50,000 America Online Inc.+
2,200,000
170,000 Ascend Communications Inc.
8,585,000
100,000 Aspect Telecommunications Corporation
4,475,000
100,000 Boston Technology Inc.
1,862,500
130,000 U-Unet Technologies
3,575,000
- ------------------------------------------------------------
- -
27,397,500
- ------------------------------------------------------------
- -
Software -- 12.5%
50,000 Baan Corporation
1,543,750
55,000 Datlogix
1,340,625
15,200 Dendrite International
246,025
25,000 Inference Corporation
353,125
60,000 Expert Software Inc.
1,110,000
180,000 Macromedia Inc.+
7,785,000
70,000 Maxis Inc.
1,863,750
</TABLE>
See Notes to Financial Statements.
4
Smith Barney
Special Equities Fund
Portfolio of Investments (unaudited) (continued)
June 30, 1995
<TABLE>
<CAPTION>
Market Value
Shares (Note 1)
- ---------------------------------------------------------
<C> <S> <C>
COMMON STOCKS -- (continued)
Software -- (continued)
115,000 Peoplesoft Inc.+ $ 6,238,750
150,000 Shiva Corporation 6,487,500
- ---------------------------------------------------------
26,968,525
- ---------------------------------------------------------
Semiconductors -- 12.1%
75,000 Arcsys 2,550,000
160,000 Integrated Silicon Solutions 8,360,000
40,000 Lattice Semiconductor Corp. 1,375,000
230,000 LSI Logic Inc.+ 8,998,750
90,000 Nexgen Inc. 2,126,250
25,000 Paradigm Technology Inc. 560,938
70,000 SDL Inc. 2,100,000
- ---------------------------------------------------------
26,070,938
- ---------------------------------------------------------
Office Products -- 8.6%
165,000 Corporate Express Inc.+ 3,526,875
185,000 Micro Warehouse Inc.+ 8,510,000
100,000 OfficeMax Inc.+ 2,787,500
100,000 Viking Office Products Inc.+ 3,662,500
- ---------------------------------------------------------
18,486,875
- ---------------------------------------------------------
Entertainment and Leisure -- 5.6%
800,000 Callaway Golf Company 12,000,000
- ---------------------------------------------------------
Technology -- 5.0%
70,000 Act Networks Inc. 1,207,500
65,000 Arrow Electronics Inc.+ 3,233,750
100,000 C-Cube Microsystems Inc.+ 2,725,000
25,000 Discreet Logic Inc. 724,373
10,000 Seer Technologies Inc. 208,000
70,000 Videoserver 2,730,000
- ---------------------------------------------------------
10,828,623
- ---------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
5
Smith Barney
Special Equities Fund
Portfolio of Investments (unaudited) (continued)
June 30, 1995
<TABLE>
<CAPTION>
Market
Value
Shares (Note
1)
- ------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS -- (continued)
Healthcare -- 3.8%
40,000 Instent Incorporated $
570,000
70,000 Occusystems Incorporated
1,198,750
130,000 Steris Corporation
6,305,000
- ------------------------------------------------------------
- ---
8,073,750
- ------------------------------------------------------------
- ---
Transportation -- 2.6%
72,700 Fritz Companies, Inc.+
4,266,581
40,000 Valujet Airlines Incorporated
1,315,000
- ------------------------------------------------------------
- ---
5,581,581
- ------------------------------------------------------------
- ---
TOTAL COMMON STOCKS (Cost $143,630,533)
203,987,792
- ------------------------------------------------------------
- ---
</TABLE>
<TABLE>
<CAPTION>
Face Value
- ------------------------------------------------------------
- ------------------
<C> <S>
<C> <C>
REPURCHASE AGREEMENT -- 5.4% (Cost $11,542,000)
$11,542,000 Agreement with Citibank, N.A. 6.125% dated
6/30/95, to be repurchased at $11,547,891
on 7/3/95, collateralized by $11,140,000
U.S. Treasury Note 7.125% due 2/15/98
11,542,000
- ------------------------------------------------------------
- ------------------
TOTAL INVESTMENTS (Cost $155,172,533*)
100.1% 215,529,792
OTHER ASSETS AND LIABILITIES (Net)
(0.1) (265,246)
- ------------------------------------------------------------
- ------------------
NET ASSETS
100.0% $215,264,546
</TABLE>
- ------------------------------------------------------------
- --------------------
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
See Notes to Financial Statements.
6
Smith Barney
Special Equities Fund
Statement of Assets and Liabilities (unaudited)
June 30, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $155,172,533) (Note 1)
See accompanying schedule
$215,529,792
Receivable for investment securities sold
3,553,282
Receivable for Fund shares sold
679,907
Interest receivable
1,963
- ------------------------------------------------------------
- ---------
Total Assets
219,764,944
- ------------------------------------------------------------
- ---------
LIABILITIES:
Payable for investment securities purchased $4,023,760
Payable for Fund shares redeemed 163,305
Investment advisory fee payable (Note 2) 93,403
Distribution fee payable (Note 3) 44,755
Transfer agent fees payable (Note 2) 41,575
Administration fee payable (Note 2) 33,965
Service fee payable (Note 3) 30,299
Custodian fees payable (Note 2) 10,000
Due to custodian 4,864
Accrued expenses and other payables 54,472
- ------------------------------------------------------------
- ---------
Total Liabilities
4,500,398
- ------------------------------------------------------------
- ---------
NET ASSETS
$215,264,546
- ------------------------------------------------------------
- ---------
</TABLE>
See Notes to Financial Statements.
7
Smith Barney
Special Equities Fund
Statement of Assets and Liabilities (unaudited) (continued)
June 30, 1995
<TABLE>
<S> <C>
NET ASSETS consist of:
Accumulated net investment loss $
(1,240,026)
Accumulated net realized gain on investments sold
2,037,632
Unrealized appreciation of investments
60,357,259
Par value
9,529
Paid-in capital in excess of par value
154,100,152
- ------------------------------------------------------------
- ---------
Total Net Assets
$215,264,546
- ------------------------------------------------------------
- ---------
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($110,127,417 / 4,831,957 shares of common stock
outstanding)
$22.79
- ------------------------------------------------------------
- ---------
Maximum offering price per share ($22.79 / 0.95)
(Based on sales charge of 5.00% of offering price on
June 30, 1995)
$23.99
- ------------------------------------------------------------
- ---------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($102,574,622 / 4,582,896 shares of common stock
outstanding)
$22.38
- ------------------------------------------------------------
- ---------
CLASS C SHARES:
NET ASSET VALUE and offering price per share+
($2,562,507 / 114,482 shares of common stock
outstanding)
$22.38
- ------------------------------------------------------------
- ---------
</TABLE>
+ Redemption price per share is equal to net asset value
less any applicable
contingent deferred sales charge.
See Notes to Financial Statements.
8
Smith Barney
Special Equities Fund
Statement of Operations (unaudited)
For the six months
ended June 30, 1995
<TABLE>
<S>
<C> <C>
INVESTMENT INCOME:
Interest
$ 399,330
Dividends
100,625
- ------------------------------------------------------------
- -------------------
Total Investment Income
499,955
- ------------------------------------------------------------
- -------------------
EXPENSES:
Investment advisory fee (Note 2)
$527,818
Distribution fee (Note 3)
353,877
Service fee (Note 3)
239,917
Transfer agent fees (Notes 2 and 4)
232,389
Administration fee (Note 2)
191,934
Legal and audit fees
37,675
Directors' fees and expenses (Note 2)
28,643
Custodian fees (Note 2)
27,182
Other
100,546
- ------------------------------------------------------------
- -------------------
Total Expenses
1,739,981
- ------------------------------------------------------------
- -------------------
NET INVESTMENT LOSS
(1,240,026)
- ------------------------------------------------------------
- -------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
(Notes 1 and 5):
Net realized gain on investments sold during the period
7,900,064
Net change in unrealized appreciation of investments
during the period
28,461,994
- ------------------------------------------------------------
- -------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
36,362,058
- ------------------------------------------------------------
- -------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$35,122,032
- ------------------------------------------------------------
- -------------------
</TABLE>
See Notes to Financial Statements.
9
Smith Barney
Special Equities Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Six Months
Ended
6/30/95
Year Ended
(unaudited)
12/31/94
<S> <C>
<C>
Net investment loss $
(1,240,026) $ (2,749,410)
Net realized gain/(loss) on investments sold
during the period
7,900,064 (5,296,726)
Net unrealized appreciation/(depreciation) on
investments during the period
28,461,994 (3,369,494)
- ------------------------------------------------------------
- ----------------
Net increase/(decrease) in net assets resulting
from operations
35,122,032 (11,415,630)
Net increase/(decrease) in net assets from Fund
share transactions (Note 6):
Class A
(9,087,261) 51,357,852
Class B
(7,910,061) (33,501,105)
Class C
639,206 1,352,466
- ------------------------------------------------------------
- ----------------
Net increase in net assets
18,763,916 7,793,583
NET ASSETS:
Beginning of period
196,500,630 188,707,047
- ------------------------------------------------------------
- ----------------
End of period
$215,264,546 $196,500,630
- ------------------------------------------------------------
- ----------------
</TABLE>
See Notes to Financial Statements.
10
Smith Barney
Special Equities Fund
Financial Highlights
For a Class A share outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months
Ended Year
Year Period
6/30/95 Ended
Ended Ended
(unaudited) 12/31/94#
12/31/93# 12/31/92*
<S> <C> <C> <C>
<C>
Net asset value, beginning
of period $ 19.10 $ 20.23 $
15.47 $14.13
- ------------------------------------------------------------
- -------------------
Income from investment
operations:
Net investment loss (0.08) (0.13)
(0.08) (0.01)
Net realized and unrealized
gain/(loss) on investments 3.77 (1.00)
5.17 1.35
- ------------------------------------------------------------
- -------------------
Total from investment
operations 3.69 (1.13)
5.09 1.34
- ------------------------------------------------------------
- -------------------
Distributions from net
realized capital gains -- --
(0.33) --
- ------------------------------------------------------------
- -------------------
Net asset value, end of
period $ 22.79 $ 19.10 $
20.23 $15.47
- ------------------------------------------------------------
- -------------------
Total return+ 19.32% (5.59)%
32.90% 9.48%
- ------------------------------------------------------------
- -------------------
Ratios to average net
assets/
supplemental data:
Net assets, end of period
(in 000's) $110,127 $101,052
$50,121 $ 195
Ratio of operating expenses
to average net assets 1.42%** 1.49%
1.67% 1.51%**
Ratio of net investment loss
to average net assets (0.90)%** (0.94)%
(0.46)% (0.97)%**
Portfolio turnover rate 79% 123%
112% 211%
- ------------------------------------------------------------
- -------------------
</TABLE>
* The Fund commenced selling Class A shares on November 6,
1992.
** Annualized.
+ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charge.
# Per share amounts have been calculated using the average
shares method, which
more appropriately presents the per share data for the
period since use of
the undistributed net investment income method does not
accord with results
of operations.
See Notes to Financial Statements.
11
Smith Barney
Special Equities Fund
Financial Highlights
For a Class B share outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months
Ended
Year Year
6/30/95
Ended Ended
(unaudited)
12/31/94# 12/31/93#
<S> <C>
<C> <C>
Net asset value, beginning of period $ 18.82 $
20.08 $ 15.47
- ------------------------------------------------------------
- -------------------
Income from investment operations:
Net investment income/(loss) (0.18)
(0.27) (0.20)
Net realized and unrealized gain/(loss)
on investments 3.74
(0.99) 5.14
- ------------------------------------------------------------
- -------------------
Total from investment operations 3.56
(1.26) 4.94
- ------------------------------------------------------------
- -------------------
Less distributions:
Distributions from net investment income --
- -- --
Distributions from net realized capital
gains --
- -- (0.33)
Distributions from capital --
- -- --
- ------------------------------------------------------------
- -------------------
Total distributions 0.00
0.00 (0.33)
- ------------------------------------------------------------
- -------------------
Net asset value, end of period $ 22.38 $
18.82 $ 20.08
- ------------------------------------------------------------
- -------------------
Total return+ 18.92%
(6.27)% 31.93%
- ------------------------------------------------------------
- -------------------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $102,575
$93,920 $138,401
Ratio of operating expenses to average
net assets 2.22%**
2.21% 2.34%
Ratio of net investment income/(loss) to
average net assets (1.70)%**
(1.66)% (1.13)%
Portfolio turnover rate 79%
123% 112%
- ------------------------------------------------------------
- -------------------
</TABLE>
* On November 6, 1992 the Fund commenced selling Class A
shares. Those shares
in existence prior to November 6, 1992 were designated
as Class B shares.
** Annualized.
*** Annualized expense ratio before reimbursement of
expenses by investment ad-
viser, sub-investment adviser and administrator for the
year ended December
31, 1988 was 2.39%.
+ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charge.
++ Net investment income before reimbursement of expenses
by investment advis-
er, sub-investment adviser and administrator for the
year ended December 31,
1988 was $0.70.
# Per share amounts have been calculated using the average
shares method,
which more appropriately presents the per share data for
the period since
use of the undistributed net investment income method
does not accord with
results of operations.
See Notes to Financial Statements.
12
Smith Barney
Special Equities Fund
PMT Insert Head
<TABLE>
<CAPTION>
Year Year Year Year Year
Year Year Year
Ended Ended Ended Ended Ended
Ended Ended Ended
12/31/92* 12/31/91 12/31/90 12/31/89 12/31/88
12/31/87 12/31/86 12/31/85
<S> <C> <C> <C> <C>
<C> <C> <C>
$ 14.18 $ 9.82 $ 13.77 $ 12.04 $ 11.48
$ 13.02 $ 13.15 $ 9.94
- ------------------------------------------------------------
- ---------------------------------
(0.26) (0.07) 0.29 0.28 0.71++
(0.10) (0.05) 0.05
1.55 4.46 (3.70) 1.96 0.70
(1.30) 0.97 3.37
- ------------------------------------------------------------
- ---------------------------------
1.29 4.39 (3.41) 2.24 1.41
(1.40) 0.92 3.42
- ------------------------------------------------------------
- ---------------------------------
-- -- (0.29) (0.27) (0.55)
- -- (0.05) (0.21)
-- -- (0.23) -- (0.30)
(0.14) (1.00) --
-- (0.03) (0.02) (0.24) --
- -- -- --
- ------------------------------------------------------------
- ---------------------------------
0.00 (0.03) (0.54) (0.51) (0.85)
(0.14) (1.05) (0.21)
- ------------------------------------------------------------
- ---------------------------------
$ 15.47 $ 14.18 $ 9.82 $ 13.77 $ 12.04
$ 11.48 $ 13.02 $ 13.15
- ------------------------------------------------------------
- ---------------------------------
9.10% 44.76% (24.71)% 18.60% 12.60%
(10.91)% 7.05% 35.17%
- ------------------------------------------------------------
- ---------------------------------
$78,130 $81,618 $76,009 $141,630 $169,983
$178,905 $214,419 $163,468
2.32% 2.31% 2.30% 2.34%
2.32%*** 2.09% 2.12% 2.20%
(1.77)% (0.74)% 2.12% 1.69% 5.23%
(0.63)% (0.34)% 0.43%
211% 379% 372% 228% 165%
148% 114% 146%
- ------------------------------------------------------------
- ---------------------------------
</TABLE>
See Notes to Financial Statements.
13
Smith Barney
Special Equities Fund
Financial Highlights
For a Class C share outstanding throughout each period.
<TABLE>
<CAPTION>
Six Months
Year Period
Ended
Ended Ended
6/30/95
12/31/94# 12/31/93*#
<S> <C> <C>
<C>
Net asset value, beginning of period $18.82
$20.08 $22.62
- ------------------------------------------------------------
- -------------------
Income from investment operations:
Net investment loss (0.12)
(0.25) (0.16)
Net realized and unrealized gain/(loss)
on investments 3.68
(1.01) (2.05)
- ------------------------------------------------------------
- -------------------
Total from investment operations 3.56
(1.26) (2.21)
- ------------------------------------------------------------
- -------------------
Distributions from net realized capital
gains --
- -- (0.33)
- ------------------------------------------------------------
- -------------------
Net asset value, end of period $22.38
$18.82 $20.08
- ------------------------------------------------------------
- -------------------
Total return+ 18.92%
(6.27)% (9.77)%
- ------------------------------------------------------------
- -------------------
Ratios to average net assets/supplemental
data:
Net assets, end of period (in 000's) $2,563
$1,528 $ 185
Ratio of operating expenses to average
net assets 2.05%**
2.15% 2.19%**
Ratio of net investment loss to average
net assets (1.53)%**
(1.60)% (0.98)%**
Portfolio turnover rate 79%
123% 112%
- ------------------------------------------------------------
- -------------------
</TABLE>
* The Fund commenced selling Class C shares (previously
designated as Class D
shares) on October 18, 1993.
** Annualized.
+ Total return represents aggregate total return for the
periods indicated and
does not reflect any applicable sales charge.
# Per share amounts have been calculated using the average
shares method, which
more appropriately presents the per share data for the
period since use of
the undistributed net investment income method does not
accord with results
of op-erations.
See Notes to Financial Statements.
14
Smith Barney
Special Equities Fund
Notes to Financial Statements (unaudited)
1. Significant Accounting Policies
Smith Barney Investment Funds Inc. (the "Company") was
incorporated in Mary-
land on September 29, 1981 and commenced operations on
January 4, 1982. The
Company is registered with the Securities and Exchange
Commission under the
Investment Company Act of 1940, as amended (the "1940 Act"),
as a diversified
open-end management investment company. As of the date of
this report, the
Company is composed of five managed investment funds: Smith
Barney Investment
Grade Bond Fund, Smith Barney Government Securities Fund,
Smith Barney Special
Equities Fund (the "Fund"), Smith Barney Managed Growth Fund
and Smith Barney
Growth Opportunity Fund. At the time of this report, the
Fund offers four
classes of shares: Class A, Class B, Class C shares
(formerly Class D shares)
and Class Y shares. Class A shares are sold with a front-end
sales charge.
Class B and Class C shares may be subject to a contingent
deferred sales
charge ("CDSC") upon redemption. Class B shares will convert
automatically to
Class A shares approximately eight years after the date of
original purchase.
Class Y shares are available to investors making an initial
investment of at
least $5 million and are not subject to any sales charges,
distribution or
service fees. As of June 30, 1995, no Class Y shares had
been sold. All clas-
ses of shares have identical rights and privileges except
with respect to the
effect of the respective sales charges to each class, the
distribution and/or
service fees borne by each class, expenses allocable
exclusively to each
class, voting rights on matters affecting a single class,
the exchange privi-
lege of each class and the conversion feature of Class B
shares. The following
is a summary of significant accounting policies consistently
followed by the
Fund in preparation of its financial statements.
Portfolio valuation: Securities listed on an exchange are
valued on the basis
of the last sale prior to the time the valuation is made. If
there has been no
sale since the immediately previous valuation, then the
current bid price is
used. Over-the-counter securities are valued on the basis of
the bid price at
the close of business on each day. Notwithstanding the
above, bonds and other
fixed-income securities are valued by using market
quotations and may be val-
ued on the basis of prices provided by a pricing service,
when the Board of
Directors believes that such prices reflect the market value
of such securi-
ties. In cases where securities are traded on more than one
exchange, the se-
curities are valued on the exchange designated by or under
the authority of
the Board of Directors as the primary market. Securities and
assets for which
market quotations are not readily available are valued at
fair value as deter-
mined in good faith by or under the direction of the Board
of Directors. Money
market instruments maturing within 60 days of the valuation
date are valued at
amortized cost.
15
Smith Barney
Special Equities Fund
Notes to Financial Statements (unaudited) (continued)
Repurchase agreements: The Fund engages in repurchase
agreement transactions.
Under the terms of a typical repurchase agreement, the Fund
takes possession of
an underlying debt obligation subject to an obligation of
the seller to repur-
chase, and the Fund to resell, the obligation at an agreed-
upon price and time,
thereby determining the yield during the Fund's holding
period. This arrange-
ment results in a fixed rate of return that is not subject
to market fluctua-
tions during the Fund's holding period. The value of the
collateral is at least
equal at all times to the total amount of the repurchase
obligations, including
interest. In the event of counterparty default, the Fund has
the right to use
the collateral to offset losses incurred. There is a
potential loss to the Fund
in the event the Fund is delayed or prevented from
exercising its rights to
dispose of the collateral securities including the risk of a
possible decline
in the value of the underlying securities during the period
while the Fund
seeks to assert its rights. The Fund's investment adviser,
administrator or
sub-administrator, acting under the supervision of the Board
of Directors, re-
views the value of the collateral and the creditworthiness
of those banks and
dealers with which the Fund enters into repurchase
agreements to evaluate po-
tential risks.
Securities transactions and investment income: Securities
transactions are re-
corded as of the trade date. Dividend income is recorded on
the ex-dividend
date. Interest income is recorded on the accrual basis.
Realized gains and
losses from securities transactions are recorded on the
identified cost basis.
Investment income and realized and unrealized gains and
losses are allocated
based upon the relative net assets of each class of shares.
Dividends and distributions to shareholders: Distributions
from net investment
income, if any, are determined on a class level and will be
declared and paid
at least annually. Distributions from net realized capital
gains, after utili-
zation of capital loss carry forwards, are determined on a
Fund level and will
be distributed at least annually. Net short-term capital
gains may be paid more
frequently, with the distribution of dividends from net
investment income. Ad-
ditional distributions of net investment income and capital
gains may be made
at the discretion of the Board of Directors to avoid the
application of a 4.00%
nondeductible excise tax imposed on certain amounts of
undistributed ordinary
income and capital gains. Income distributions and capital
gain distributions
on a Fund level are determined in accordance with income tax
regulations which
may differ from generally accepted accounting principles.
These differences are
primarily due to differing treatments of income and gains on
various investment
securities held by the Fund, timing differences and
differing characterization
of distributions made by the Fund as a whole.
16
Smith Barney
Special Equities Fund
Notes to Financial Statements (unaudited) (continued)
Federal income taxes: The Fund intends to continue to
qualify as a regulated
investment company, if such qualification is in the best
interest of its
shareholders, by complying with the requirements of the
Internal Revenue Code
of 1986, as amended, applicable to regulated investment
companies and to dis-
tribute substantially all of its taxable income to its
shareholders. There-
fore, no Federal income tax provision is required.
2. Investment Advisory Fee, Administration Fee and Other
Transactions
The Fund has entered into an investment advisory agreement
(the "Advisory
Agreement") with Smith Barney Mutual Funds Management Inc.
("SBMFM"). SBMFM is
a wholly owned subsidiary of Smith Barney Holdings Inc.
which in turn is a
wholly owned subsidiary of Travelers Group Inc. Under the
Advisory Agreement,
the Fund pays a monthly fee at the annual rate of 0.55% of
the value of the
Funds average daily net assets.
The Fund has entered into an administration agreement (the
"Administration
Agreement") with SBMFM. Under the Administration Agreement,
the Fund pays a
monthly fee at the annual rate of 0.20% of the value of its
average daily net
assets.
The Fund and SBMFM have also entered into a sub-
administration agreement (the
"Sub-Administration Agreement") with The Boston Company
Advisors, Inc. ("Bos-
ton Advisors"), an indirect wholly owned subsidiary of
Mellon Bank Corporation
("Mellon"). Under the Sub-Administration Agreement, SBMFM
pays Boston Advisors
a portion of its administration fee at a rate agreed upon
from time to time
between SBMFM and Boston Advisors.
For the six months ended June 30, 1995, Smith Barney Inc.
("Smith Barney") re-
ceived $31,928 from investors representing commissions
(sales charges) on
sales of Class A shares.
A CDSC is generally payable by a shareholder in connection
with the redemption
of certain Class A, Class B and Class C shares. In
circumstances in which the
CDSC is imposed, the amount will vary. For the six months
ended June 30, 1995,
Smith Barney received $205,835 and $93 from investors in
CDSCs on the redemp-
tion of Class B and Class C shares, respectively.
17
Smith Barney
Special Equities Fund
Notes to Financial Statements (unaudited) (continued)
No officer, director or employee of Smith Barney or of its
affiliates receives
any compensation from the Company for serving as an officer
or director of the
Company. The Company pays each Director who is not an
officer, director or em-
ployee of Smith Barney or any of its affiliates $16,000 per
annum plus $2,500
per meeting attended and reimburses each such Director for
travel and out-of-
pocket-expenses.
Boston Safe Deposit and Trust Company, an indirect wholly
owned subsidiary of
Mellon, serves as the Fund's custodian. The Shareholder
Services Group, Inc., a
subsidiary of First Data Corporation, serves as the Fund's
transfer agent.
3. Distribution Plan
Smith Barney acts as exclusive distributor of the Fund's
shares pursuant to a
distribution agreement with the Company, and sells shares of
the Fund through
Smith Barney or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has
adopted a services and
distribution plan (the "Plan"). Under this Plan, the Company
compensates
Smith Barney for servicing shareholder accounts for Class A,
Class B and Class
C shareholders, and covers expenses incurred in distributing
Class B and Class
C shares. Smith Barney is paid an annual service fee with
respect to Class A,
Class B and Class C shares of the Fund at the rate of 0.25%
of the value of the
average daily net assets of each respective class of shares.
Smith Barney is
also paid an annual distribution fee with respect to Class B
and Class C shares
at the rate of 0.75% of the value of the average daily net
assets attributable
to each respective class of shares. For the six months ended
June 30, 1995,
service fees for Class A, Class B and Class C shares were
$121,958, $115,609
and $2,350, respectively. For the six months ended June 30,
1995, the distribu-
tion fees for Class B and Class C shares were $346,828 and
$7,049, respective-
ly.
Under its terms, the Plan shall remain in effect from year
to year, provided
that such continuance is approved annually by vote of the
Company's Directors,
including a majority of those Directors who are not
"interested persons" of the
Company and who have no direct or indirect financial
interest in the operation
of the Plan.
4. Expense Allocation
Expenses of the Fund not directly attributable to the
operations of any class
of shares are prorated among the classes based upon the
relative net assets of
each
18
Smith Barney
Special Equities Fund
Notes to Financial Statements (unaudited) (continued)
class. Operating expenses directly attributable to a class
of shares are
charged to that class' operations. In addition to the above
service and distri-
bution fees, class specific operating expenses include the
transfer agent fees.
For the six months ended June 30, 1995, the Fund paid
transfer agent fees of
$107,736, $123,700 and $953 for Class A, Class B and Class C
shares, respec-
tively.
5. Securities Transactions
Cost of purchases and proceeds from sales of securities,
excluding short-term
investments, aggregated $141,578,384 and $156,201,585,
respectively, for the
six months ended June 30, 1995.
At June 30, 1995, aggregate gross unrealized appreciation
for all securities in
which there was an excess of value over tax cost was
$61,898,319, and aggregate
gross unrealized depreciation for all securities in which
there was an excess
of tax cost over value was $1,541,060.
6. Shares of Common Stock
At June 30, 1995, the Company had authorized on behalf of
the Fund, capital of
3.15 billion shares of $.001 par value common stock divided
into four classes
of shares, Class A, Class B, Class C, and Class Y. Changes
in the common stock
outstanding were as follows:
<TABLE>
<CAPTION>
Six months Ended
Year Ended
6/30/95
12/31/94
Class A shares: Shares Amount Shares
Amount
- ------------------------------------------------------------
- -----------------
<S> <C> <C> <C>
<C>
Sold 3,986,997 $ 78,911,230
6,100,691 $ 113,645,641
Redeemed (4,445,039) (87,998,491)
(3,288,861) (62,287,789)
- ------------------------------------------------------------
- -----------------
Net increase/(decrease) (458,042) $ (9,087,261)
2,811,830 $ 51,357,852
- ------------------------------------------------------------
- -----------------
<CAPTION>
Six months Ended
Year Ended
6/30/95
12/31/94
Class B shares: Shares Amount Shares
Amount
- ------------------------------------------------------------
- -----------------
<S> <C> <C> <C>
<C>
Sold 961,570 $ 18,399,477
6,054,365 $ 113,219,270
Redeemed (1,368,394) (26,309,538)
(7,958,837) (146,720,375)
- ------------------------------------------------------------
- -----------------
Net decrease (406,824) $ (7,910,061)
(1,904,472) $ (33,501,105)
- ------------------------------------------------------------
- -----------------
</TABLE>
19
Smith Barney
Special Equities Fund
Notes to Financial Statements (unaudited) (continued)
<TABLE>
<CAPTION>
Six months Ended Year Ended
6/30/95 12/31/94
Class C shares: Shares Amount Shares Amount
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 79,931 $1,537,817 75,807 $1,423,144
Redeemed (46,624) (898,611) (3,844) (70,678)
- ---------------------------------------------------------
Net increase 33,307 $ 639,206 71,963 $1,352,466
- ---------------------------------------------------------
</TABLE>
As of June 30, 1995, no Class Y shares had been sold.
7. Line of Credit
The Fund and several affiliated entities participate in a
$50 million line of
credit provided by Bank of America, N.A., under an Amended
and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992, and
renewed effective
May 31, 1994, primarily for temporary or emergency purposes,
including the
meeting of redemption requests that otherwise might require
the untimely dispo-
sition of securities. Under this Agreement, the Fund may
borrow up to the
lesser of $25 million or 25% of its net assets. However,
pursuant to the Fund's
Statement of Additional Information, the Fund may only
borrow up to 5% of its
total net assets. Under the terms of the Agreement, the Fund
and the other af-
filiated entities are charged an aggregate commitment fee of
$100,000 which is
allocated equally among each of the participants. The
Agreement requires, among
other provisions, each participating fund to maintain a
ratio of net assets
(not including funds borrowed pursuant to the Agreement) to
aggregate amount of
indebtedness pursuant to the Agreement of no less than 5 to
1. During the six
months ended June 30, 1995, the Fund did not borrow under
the Agreement.
8. Capital Loss Carryfoward
As of December 31, 1994, the Fund had available for Federal
tax purposes unused
capital loss carryfowards of $258,726 and $5,603,706
expiring in the years 2001
and 2002, respectively.
20
Special Equities Fund
Directors
Paul R. Ades
Herbert Barg
Alger B. Chapman
Dwight B. Crane
Frank G. Hubbard
Allan R. Johnson
Heath B. McLendon
Ken Miller
John F. White
Officers
Heath B. McLendon
Chairman of the Board
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
George V. Novello
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
[LOGO OF SMITH
BARNEY APPEARS HERE]
This report is submitted for the general information of the
shareholders of
Smith Barney Special Equities Fund. It is not authorized for
distribution to
prospective investors unless accompanied or preceded by an
effective Prospectus
for the Fund, which contains information concerning the
Fund's investment
policies, fees and expenses as well as other pertinent
information.
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
Fund 102, 93, 253
FD 0405 8/95
