<PAGE>
Smith Barney Shearson
1993 Telecommunications
ANNUAL Growth
REPORT Fund
........................................
DECEMBER 31, 1993
[LOGO]
<PAGE>
Telecommunications Growth Fund
DEAR SHAREHOLDER:
We are pleased to provide you with the Annual Report for
Smith
Barney Shearson Telecommunications Growth Fund for the year
ended December 31, 1993. As you know, the Fund's primary
objective is to provide capital appreciation through common stocks;
investment income is a secondary objective. The Fund's holdings are
concentrated in communications, telecommunications and technology.
The Fund's Class A and Class B aggregate total return without the
deduction of the applicable sales charge total return (income plus
change in share price) was 35.27% and 34.34%, respectively for 1993.
By comparison, the Standard & Poor's Daily Price Index of 500 Common
Stocks (the "S&P 500"), an unmanaged index used to portray the
common
stock price movement of large U.S. companies, was up 10.0%. The Fund
outperformed this index because earnings growth prospects of its
sectors of the market are vastly superior to most companies
represented in the S&P. In this slow growth environment, companies
with high earnings growth prospects are appealing.
The year of 1993 was an exceptional period for the Fund, and we are
optimistic about the long term outlook. However, we
should note that the returns your Fund has generated in the last twelve months
should be tempered by the knowledge that stock market corrections occur and
less
attractive returns are possible.
Increasing activity in the telecommunications services market is the primary
force driving demand for equipment and the strong results for telecom
equipment
vendors. Competition is intensifying among the regional bell operating
companies
(RBOC), competitive access providers (CAP), cable multiple systems operators
(MSOs), direct broadcast satellite (DBS) and wireless companies. This is
leading
to new network strategies to provide higher levels of service and resulting in
higher levels of capital spending. The activity is broad, covering consumer
and
business markets, and domestic and international. We believe that this is more
than just a cycle, that it is actually a secular shift in broadband
communications.
The activity is primarily driven by the perceived existence of new and
untapped
demand for broadband communications. Consequently, MSOs and telecommunications
network plans are calling for increases in capacity to
1
<PAGE>
satisfy consumer demand for interactive video and information alternatives.
Similarly, carriers are implementing services to meet corporate demand for
increased bandwidth, reliability and flexibility of service.
Technology and regulation play important roles in shaping industry plans and
explaining the timing of those plans. Advances in fiber optic technology and
digital compression are enabling video-on-demand and interactive services,
requiring large increases in network capacity. As deployment plans progress
and
provide volume purchase orders, the economics improve and further encourage
activity. For example, fiber-in-the-loop advances are attracting initial
volume
commitments by the RBOCs, allowing vendors to plan for production efficiencies
and estimate costs approaching parity with copper. In addition, regulation
also
explains much. The FCC's Video Dialtone decision in July 1992 opened the door
for the RBOCs to provide a video signal on a common carrier basis, spawning
many
of the current RBOC video trials. The recent Bell Atlantic court victory
overturning the 1984 Cable Act provisions on video programming ownership is
also
likely to drive additional infrastructure spending. Furthermore, reregulation
of
the CATV industry has encouraged the development of new cable services which
will not fall under price regulations.
Another underlying factor contributing to the telecommunications landscape is
the lack of good growth prospects in traditional markets for today's major
players in the CATV and telecommunications industry. For example, the cable
industry passes approximately 88 million homes out of about 92 million
television households (95%+). While only 55-57 million households choose
service, the days of double digit subscriber growth are probably over. As a
result, cable's story (and this cycle) has changed from expanding
geographically
to reach new subscribers to expanding capabilities and services to the same
subscribers, leading to a significant impact on network planning. Similarly,
the
RBOCs are facing sluggish single-digit growth opportunities, particularly as
their monopoly positions are opening up to competition, forcing new and
innovative services largely to the same customer base.
The dynamics described above are essentially creating a network race where
operators must either spend capital to upgrade networks or lose market share
to
others who will. This is an excellent environment for telecommunications
vendors, particularly when customers have 1) a compelling reason to purchase
and
2) available financing.
2
<PAGE>
Our goal in managing your Fund is to participate in the growth opportunities
in
these telecommunications areas. We have significant investments in the
companies
that provide the new technologies of the 1990s and are the beneficiaries of
the
capital spending necessary to provide these new technologies. Because these
developing companies need capital for expansion, most of their cash flow is
used
internally rather than paid to shareholders as dividends. Therefore, the Fund
did not pay a dividend for the fiscal year.
Also, we see opportunities in foreign communications companies. Many formerly
state-run companies are becoming private enterprises and are modernizing their
operations. Their long-term growth prospects are excellent.
Thank you again for your continued confidence in the Fund.
Sincerely,
Guy R. Scott
Vice President and Investment Officer
FEBRUARY 17, 1994
3
<PAGE>
A line graph depicting the total growth (including reinvestment of dividends
and
capital gains) of a hypothetical investment of $10,000 in Telecommunications
Growth Fund's Class A shares on January 1, 1984 through December 31, 1993 as
compared with the growth of a $10,000 investment in Standard & Poor's 500
Index,
the Lipper Growth Fund Index and the Lipper Science & Technology Index. The
plot
points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000 GROWTH
OF $10,000 GROWTH OF $10,000
INVESTED IN CLASS A INVESTMENT IN THE
INVESTMENT IN THE INVESTMENT IN THE LIPPER
MONTH ENDED SHARES OF THE FUND STANDARD & POOR'S 500 INDEX LIPPER
GROWTH FUND INDEX SCIENCE & TECHNOLOGY INDEX
<S> <C> <C> <C>
<C>
12/31/83 -- $10,000
$10,000 --
01/01/84 $9,500 --
- -- --
01/84 10,224 9,944
9,944 --
3/84 9,748 9,760
9,241 --
06/84 9,827 9,511
8,984 --
09/84 10,916 10,433
9,575 --
12/84 11,079 10,629
9,720 $10,000
03/85 12,182 11,605
10,613 11,902
06/85 13,204 12,459
11,375 11,926
09/85 12,174 11,948
10,909 11,433
12/85 14,589 14,004
12,669 13,446
03/86 16,852 15,980
14,617 14,825
06/86 18,340 16,921
15,397 15,209
09/86 16,709 15,741
14,161 13,357
12/86 17,338 16,618
14,678 14,102
03/87 19,667 20,167
17,481 18,026
06/87 20,802 21,179
17,891 18,113
09/87 22,495 22,576
18,846 19,396
12/87 16,726 17,491
14,828 14,569
03/88 18,058 18,484
15,999 15,528
06/88 19,418 19,715
16,930 16,576
09/88 18,936 19,780
16,882 15,653
12/88 19,684 20,385
17,167 15,851
03/89 22,143 21,829
18,534 16,639
06/89 25,150 23,752
20,159 18,067
09/89 27,441 26,292
22,253 19,936
12/89 27,136 26,832
22,068 19,820
03/90 24,787 26,025
21,439 19,574
06/90 25,590 27,659
23,001 21,479
09/90 21,109 23,862
19,299 16,062
12/90 23,483 25,998
20,970 18,243
03/91 25,716 29,768
24,462 22,632
06/91 24,535 29,697
24,218 21,224
09/91 26,868 31,282
26,035 23,326
12/91 28,401 33,902
28,352 26,750
03/92 28,957 33,047
27,854 26,105
06/92 28,303 33,674
27,460 24,374
09/92 29,023 34,736
28,180 25,338
12/92 33,913 36,481
30,486 29,606
03/93 37,858 38,071
31,664 30,203
06/93 40,886 38,254
32,488 33,306
09/93 45,922 39,239
34,158 36,201
12/93 45,875 40,173
34,813 36,578
</TABLE>
+ Illustration of $10,000 invested in Class A shares on January 1, 1984
(commencement of operations) assuming deduction of the applicable sales
charge
at the time of investment and reinvestment of dividends and capital gains at
net asset value through December 31, 1993.
The Lipper Science & Technology Fund Index is a net asset value weighted
index
of the 10 largest funds within the Science & Technology investment
objective.
The Lipper Growth Fund Index is a net asset value weighted index of the 30
largest growth Mutual Funds.
The Standard & Poor's Composite Index of 500 Common Stocks ("S&P 500") is
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is useful
in
depicting the general movement of the Stock Market, but because it is
unmanaged the S&P 500 is not subject to the same management and trading
expenses of a Mutual Fund.
NOTE: All figures cited here and on the other pages represent past
performance
and do not guarantee future results of Class A shares.
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
----------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN* -- CLASS A SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Without Sales Charge
With Sales Charge**
<S> <C>
<C>
- ----------------------------------------------------------------------------
Year Ended 12/31/93 35.27%
28.51%
- ----------------------------------------------------------------------------
Five Years Ended 12/31/93 18.44%
17.23%
- ----------------------------------------------------------------------------
Inception (1/1/84) through 12/31/93 17.06%
16.46%
- ----------------------------------------------------------------------------
<FN>
*All average annual total return figures shown reflect reinvestment of
dividends and capital gains at net asset value.
**Average annual total return figures shown assume the deduction of the
applicable front-end sales charge. As of November 6, 1992, shares of the
Fund
were designated Class A -- subject to a maximum 5% front-end sales charge
and
an annual service fee of 0.25% of the value of the average daily net assets
attributable to that class. The Fund's rates of return would have been lower
had service fees been in effect prior to November 6, 1992.
</TABLE>
4
<PAGE>
A line graph depicting the total growth (including reinvestment of dividends
and
capital gains) of a hypothetical investment of $10,000 in Telecommunications
Growth Fund's Class B shares on November 6, 1992 through December 31, 1993 as
compared with the growth of a $10,000 investment in Standard & Poor's 500
Index,
the Lipper Growth Fund Index and the Lipper Science & Technology Index. The
plot
points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000 GROWTH
OF $10,000 GROWTH OF $10,000
INVESTED IN CLASS B INVESTMENT IN THE
INVESTMENT IN THE INVESTMENT IN THE LIPPER
MONTH ENDED SHARES OF THE FUND STANDARD & POOR'S 500 INDEX LIPPER
GROWTH FUND INDEX SCIENCE & TECHNOLOGY INDEX
<S> <C> <C> <C>
<C>
10/31/92 -- $ 10,000 $
10,000 $ 10,000
11/06/92 $ 10,000 --
- -- --
11/92 10,557 10,340
10,492 10,702
12/92 11,098 10,466
10,665 11,139
03/93 12,377 10,923
11,077 11,363
06/93 13,323 10,975
11,365 12,531
09/93 14,947 11,258
11,950 13,620
12/93 14,509 11,526
12,179 13,762
</TABLE>
+ Illustration of $10,000 invested in Class B shares on November 6, 1992
assuming deduction of the applicable contingent deferred sales charge
("CDSC")
at the time of redemption and reinvestment of dividends and capital gains at
net asset value through December 31, 1993.
The Standard & Poor's Composite Index of 500 Common Stocks ("S&P 500") is
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is useful
in
depicting the general movement of the stock market, but because it is
unmanaged the S&P 500 is not subject to the same management and trading
expenses of a Mutual Fund.
The Lipper Growth Fund Index is a net asset value weighted index of the 30
largest growth Mutual Funds.
The Lipper Science & Technology Fund Index is a net asset value weighted
index
of the 10 largest funds within the Science & Technology investment
objective.
NOTE: All figures cited here and on the other pages represent past
performance
of the Fund and do not guarantee future results of Class B shares.
++ Value does not assume deduction of applicable CDSC.
+++ Value assumes deduction of applicable CDSC (assuming redemption on
December 31, 1993).
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
- --------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN* -- CLASS B SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Without Sales Charge
With Sales Charge**
<S> <C>
<C>
- ----------------------------------------------------------------------------
Year Ended 12/31/93** 34.34%
29.34%
- ----------------------------------------------------------------------------
Inception (11/6/92) through 12/31/93 41.52%
38.21%
- ----------------------------------------------------------------------------
<FN>
*All average annual total return figures shown reflect the reinvestment of
dividends and capital gains at net asset value.
**Average annual total return figures shown assume the deduction of the
applicable CDSC.
The Fund began offering Class B shares on November 6, 1992. Class B shares are
subject to a maximum 5% CDSC, and annual service and distribution fees of .25%
and .75%, respectively, of value of the average daily net assets attributable
to
that class.
</TABLE>
5
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) DECEMBER 31,
1993
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Telecommunications Growth Fund's
investment securities held at December 31, 1993 by industry classification.
The
pie is broken in pieces representing industries in the following percentages:
<TABLE>
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Capital Goods 2.3%
Health Care 2.4%
Energy 4.3%
Technology 9.2%
Consumer Services 12.4%
Telecommunications 22.9%
Commercial Paper, Repurchase Agreements
and Other Assets and Liabilities 12.4%
Communications 32.7%
Utilities 1.4%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
- ------------------------------------------------------------------
GENERAL INSTRUMENTS CORPORATION 3.1%
MCI COMMUNICATIONS CORPORATION 2.8
TELECOMMUNICATIONS INC., CLASS A 2.7
NEXTEL COMMUNICATIONS INC., CLASS A 2.6
TIME WARNER INC. 2.5
COMCAST CORPORATION, CLASS A 2.5
MOTOROLA INC. 2.4
ERICSSON TELEPHONE COMPANY, CLASS B, ADR 2.4
MFS COMMUNICATIONS COMPANY, INC. 2.4
CELLULAR COMMUNICATIONS INC., SERIES A 2.3
</TABLE>
6
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ------------------------------------------
PORTFOLIO OF INVESTMENTS DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<C> <S> <C>
-----------------------------------------------------------------------------
- ---
COMMON STOCKS -- 87.6%
COMMUNICATIONS -- 32.7%
131,000 Associated Communications Corporation,
Class B+ $
3,733,500
13,500 BHC Communications, Inc, Class A
1,107,000
8,200 Capital Cities/ABC Inc.
5,079,900
23,333 Cellular Communications Inc.+
524,993
117,500 Cellular Communications Inc., Series A+
5,493,125
60,000 Century Telephone Enterprises, Inc.
1,545,000
158,700 Comcast Corporation, Class A
5,772,713
19,000 Compania De Telefonos De Chile, ADR
1,935,625
55,500 Comsat Corporation
1,651,125
90,000 Contel Cellular Inc.+
1,473,750
140,000 Ericsson Telephone Company, Class B, ADR
5,652,500
59,800 Grupo Televisa S A ADR
4,186,000
79,500 IDB Communications Group, Inc.+
4,372,500
45,000 Lin Broadcasting Corporation
4,972,500
171,200 MFS Communications Company, Inc.+
5,564,000
164,000 Nextel Communications Inc., Class A+
6,109,000
81,500 Rogers Cantel Mobile Communications,
Inc., Class B+
2,200,500
164,000 Scientific-Atlanta, Inc.
5,412,000
134,500 Time Warner, Inc.
5,951,625
33,000 Turner Broadcasting Systems Inc., Class B
891,000
49,000 Vanguard Cellular Systems Inc., Class A+
1,433,250
20,000 Viacom Inc., Class A+
977,500
11,400 Viacom Inc., Class B+
511,575
-----------------------------------------------------------------------------
- ---
76,550,681
-----------------------------------------------------------------------------
- ---
TELECOMMUNICATIONS -- 22.9%
39,000 C-TEC Corporation, Class B+
1,355,250
51,000 Hong Kong Telecommunications Ltd., ADR
3,174,750
234,700 MCI Communications Corporation
6,630,275
65,000 Newbridge Networks Corporation
3,558,750
118,000 Octel Communications Corporation+
3,274,500
131,550 Sprint Corporation
4,571,363
25,000 Telecom Corporation Argentina
Stet-France, ADR**
1,575,000
59,900 Telecom Corporation New Zealand Ltd., ADR
3,032,438
40,000 Telecomasia Corporation Pub. Ltd.**
2,110,000
65,000 Telecommunication Brasillinas, ADR
2,145,000
21,000 Telefonica De Argentina S A, ADR, Class
B**
1,533,000
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS (CONTINUED)
TELECOMMUNICATIONS -- (CONTINUED)
70,000 Telefonica De Espana S A, ADR $
2,730,000
74,200 Telefonos De Mexico S A, ADR
5,008,500
117,200 Telepanel Systems Inc.+
644,600
102,000 Telephone & Data Systems Inc.
5,316,750
49,000 Tellabs Inc.
2,315,250
51,500 Vodafone Group Plc, ADR
4,596,375
-----------------------------------------------------------------------------
- ---
53,571,801
-----------------------------------------------------------------------------
- ---
CONSUMER SERVICES -- 12.4%
100,000 Cablemaxx Inc.+
1,075,000
149,600 Gaylord Entertainment Company, Class A
4,207,500
145,000 International Family Entertainment Inc.,
Class B+
2,954,375
184,000 Liberty Media Corporation, Class A
5,359,000
43,000 Multimedia, Inc.+
1,472,750
85,000 QVC Network Inc.+
3,336,250
15,000 Starsight Telecast Inc.+
277,500
206,000 Tele-Communications Inc., Class A+
6,231,500
118,100 United International Holdings Inc., Class
A+
4,044,924
-----------------------------------------------------------------------------
- ---
28,958,799
-----------------------------------------------------------------------------
- ---
TECHNOLOGY -- 9.2%
71,300 Antec Corporation+
1,782,500
135,000 Broadband Technologies Inc.
4,286,250
127,500 General Instruments Corporation+
7,155,938
62,000 Motorola Inc.
5,727,250
24,000 PeopleSoft Inc.+
750,000
45,000 Sapiens International Corporation+
855,000
125,000 SPI Holdings Inc., Class B+
1,125,000
-----------------------------------------------------------------------------
- ---
21,681,938
-----------------------------------------------------------------------------
- ---
ENERGY -- 4.3%
780,000 Global Marine Inc.+
3,217,500
64,200 Schlumberger, Ltd.
3,795,824
142,000 Varco International, Inc.+
852,000
210,000 Weatherford International, Inc.+
2,231,250
-----------------------------------------------------------------------------
- ---
10,096,574
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
COMMON STOCKS (CONTINUED)
HEALTH CARE -- 2.4%
120,000 Alpha 1 Biomedicals Inc.+ $
1,740,000
38,000 Amgen Inc.+
1,881,000
24,000 Chiron Corporation+
2,016,000
-----------------------------------------------------------------------------
- ---
5,637,000
-----------------------------------------------------------------------------
- ---
CAPITAL GOODS -- 2.3%
337,000 Rowan Inc.+
3,033,000
119,300 Tidewater, Inc.
2,386,000
-----------------------------------------------------------------------------
- ---
5,419,000
-----------------------------------------------------------------------------
- ---
UTILITIES -- 1.4%
121,300 Alcatel Alsthom, ADR
3,472,212
-----------------------------------------------------------------------------
- ---
TOTAL COMMON STOCKS
(Cost $179,745,231)
205,388,005
-----------------------------------------------------------------------------
- ---
<CAPTION>
FACE VALUE
<C> <S> <C>
-----------------------------------------------------------------------------
- ---
COMMERCIAL PAPER -- 10.0%
$ 11,741,000 Ford Motor Credit Corporation, 3.180% due
1/3/1994
11,741,000
11,741,000 General Electric Capital Corporation,
3.200% due 1/3/1994
11,741,000
-----------------------------------------------------------------------------
- ---
TOTAL COMMERCIAL PAPER
(Cost $23,482,000)
23,482,000
-----------------------------------------------------------------------------
- ---
REPURCHASE AGREEMENTS -- 5.6%
11,741,000 Repurchase agreement with Morgan Stanley
& Company, 3.050% dated 12/31/1993, to
be repurchased at $11,743,984 on
1/3/1994, collateralized by
$10,635,000, U.S. Treasury note 7.500%
due 11/15/2001
11,741,000
-----------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (CONTINUED) DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET
VALUE
FACE VALUE (NOTE 1)
-----------------------------------------------------------------------------
- ---
<C> <S> <C>
REPURCHASE AGREEMENTS (CONTINUED)
$ 1,317,000 Repurchase agreement with UBS Securities
Inc., 3.100% dated 12/31/1993, to be
repurchased at $1,317,340 on 1/3/1994,
collateralized by $1,230,000, U.S.
Treasury note 7.00% due 4/15/1999 $
1,317,000
-----------------------------------------------------------------------------
- ---
TOTAL REPURCHASE AGREEMENTS
(Cost $13,058,000)
13,058,000
-----------------------------------------------------------------------------
- ---
TOTAL INVESTMENTS (Cost $216,285,231*) 103.2%
241,928,005
OTHER ASSETS AND LIABILITIES (NET) (3.2)
(7,583,031)
-----------------------------------------------------------------------------
- ---
NET ASSETS 100.0% $
234,344,974
-----------------------------------------------------------------------------
- ---
<FN>
*Aggregate cost for Federal tax purposes.
**Restricted Security (Note 8).
+Non-income producing security.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31,
1993
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$216,285,231) (Note 1)
See accompanying schedule $
241,928,005
Cash
881
Receivable for Fund shares sold
5,356,016
Receivable for investment securities
sold
251,843
Dividends and interest receivable
125,992
- ------------------------------------------------------------------------------
- -
TOTAL ASSETS
247,662,737
- ------------------------------------------------------------------------------
- -
LIABILITIES:
Payable for investment securities
purchased $ 9,923,969
Dividends payable 2,981,196
Investment advisory fee payable (Note
2) 139,786
Distribution fee payable (Note 3) 92,398
Service organization fees payable (Note
3) 46,595
Payable for Fund shares redeemed 34,980
Transfer agent fees payable (Note 2) 24,000
Custodian fees payable (Note 2) 14,709
Accrued expenses and other payables 60,130
- ------------------------------------------------------------------------------
- -
TOTAL LIABILITIES
13,317,763
- ------------------------------------------------------------------------------
- -
NET ASSETS $
234,344,974
- ------------------------------------------------------------------------------
- -
NET ASSETS consist of:
Accumulated net realized loss on
investments sold $
(1,431,650)
Unrealized appreciation of investments
25,642,774
Par value
18,309
Paid-in capital in excess of par value
210,115,541
- ------------------------------------------------------------------------------
- -
TOTAL NET ASSETS $
234,344,974
- ------------------------------------------------------------------------------
- -
NET ASSET VALUE:
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($77,564,034 DIVIDED BY 6,029,686 shares of beneficial
interest outstanding)
$12.86
- ------------------------------------------------------------------------------
- -
MAXIMUM OFFERING PRICE PER SHARE ($12.86 DIVIDED BY
0.95)
(based on sales charges of 5% of the offering price on
December 31, 1993)
$13.54
- ------------------------------------------------------------------------------
- -
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($156,780,940 DIVIDED BY 12,279,495 shares of
beneficial interest outstanding)
$12.77
- ------------------------------------------------------------------------------
- -
<FN>
+Redemption price per share is equal to Net Asset Value less any applicable
contingent deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $49,162) $
620,540
Interest
374,841
- ------------------------------------------------------------------------------
- ---
TOTAL INVESTMENT INCOME
995,381
- ------------------------------------------------------------------------------
- ---
EXPENSES:
Investment advisory fee (Note 2) $735,588
Distribution fee (Note 3) 337,900
Service organization fees (Note 3) 245,833
Transfer agent fees (Notes 2 and 4) 124,992
Registration and filing fee 91,159
Custodian fees (Note 2) 35,424
Legal and audit fees 34,356
Trustees' fees and expenses (Note 2) 15,962
Other 67,591
- ------------------------------------------------------------------------------
- ---
TOTAL EXPENSES
1,688,805
- ------------------------------------------------------------------------------
- ---
NET INVESTMENT LOSS
(693,424)
- ------------------------------------------------------------------------------
- ---
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain on investments sold during the
year
1,939,922
Net unrealized appreciation during the year
17,492,121
- ------------------------------------------------------------------------------
- ---
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
19,432,043
- ------------------------------------------------------------------------------
- ---
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$18,738,619
- ------------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR
YEAR
ENDED
ENDED
12/31/93
12/31/92
<S> <C>
<C>
Net investment income/(loss) $ (693,424)
$ 187,101
Net realized gain on investments sold during the year* 1,939,922
1,988,063
Net unrealized appreciation of investments during the
year 17,492,121
4,069,850
- ------------------------------------------------------------------------------
- -------
Net increase in net assets resulting from operations 18,738,619
6,245,014
Distributions to shareholders from net investment
income:
Class A --
(84,443)
Class B --
(622)
Distributions to shareholders from net realized gains:
Class A (990,631)
(2,547,727)
Class B (1,990,565)
(32,770)
Net increase/(decrease) in net assets from:
Class A share transactions (Note 6) 27,602,810
(1,270,940)
Class B share transactions (Note 6) 153,451,184
582,501
- ------------------------------------------------------------------------------
- -------
Net increase in net assets 196,811,417
2,891,013
NET ASSETS:
Beginning of year 37,533,557
34,642,544
- ------------------------------------------------------------------------------
- -------
End of year (including undistributed net investment
income of $102,036 for the year ended 12/31/92) $234,344,974
$ 37,533,557
- ------------------------------------------------------------------------------
- -------
<FN>
*Net realized gain for Federal tax purposes was $1,939,922 and $2,386,350,
respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR
YEAR YEAR
ENDED
ENDED ENDED
12/31/93#
12/31/92** 12/31/91
<S> <C> <C>
<C>
Net Asset Value, beginning of year $ 9.63 $
8.68 $ 7.36
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment income/(loss) (0.04)
0.05 0.06
Net realized and unrealized gain/
(loss) on investments 3.44
1.63 1.47
- ------------------------------------------------------------------------------
- -------
Total from investment operations 3.40
1.68 1.53
- ------------------------------------------------------------------------------
- -------
Less distributions:
Distributions to shareholders from:
Dividends from net investment
income --
(0.02) (0.06)
Distributions from net realized
gain (0.17)
(0.71) (0.14)
Distributions from capital (Note 1) -- -
- - (0.01)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.17)
(0.73) (0.21)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of year $ 12.86 $
9.63 $ 8.68
- ------------------------------------------------------------------------------
- -------
Total return++ 35.27%
19.41% 20.94%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/
supplemental data:
Net assets, end of year (000's) $ 77,564 $
36,947 $ 34,643
Ratio of operating expenses to
average net assets 1.34%
1.31% 1.19%
Ratio of net investment income/
(loss) to average net assets (0.32)%
0.55% 0.67%
Portfolio turnover rate 25%
64% 111%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced operations on January 1, 1984.
**On November 6, 1992 the Fund commenced selling Class B shares. Those shares
in
existence prior to November 6, 1992 were designated Class A shares.
#The average monthly shares method was used to calculate per share data as
the
undistributed net investment income method does not accord with results of
operations for this year.
+Per share data and the number of shares outstanding reflect a 7-for-1 stock
dividend issued on August 7, 1989, to shareholders of record at the close of
business on August 4, 1989.
++Total return represents aggregate total return for the year indicated and
does not reflect any applicable sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR
YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
ENDED ENDED
12/31/90 12/31/89+ 12/31/88+ 12/31/87+ 12/31/86+
12/31/85+ 12/31/84+*
<S> <C> <C> <C> <C>
<C> <C>
$ 8.78 $ 7.08 $ 6.10 $ 11.05 $ 12.64
$ 10.20 $ 8.75
-------------------------------------------------------------------------
- ------------
0.14 0.17 0.12 0.31 0.26
0.33 0.54
(1.32) 2.51 0.96 (0.61) 1.86
2.75 0.91
-------------------------------------------------------------------------
- ------------
(1.18) 2.68 1.08 (0.30) 2.12
3.08 1.45
-------------------------------------------------------------------------
- ------------
(0.14) (0.16) (0.10) (0.69) (0.32)
(0.45) --
(0.10) (0.82) -- (3.96) (3.39)
(0.19) --
-- -- -- -- --
- -- --
-------------------------------------------------------------------------
- ------------
(0.24) (0.98) (0.10) (4.65) (3.71)
(0.64) --
-------------------------------------------------------------------------
- ------------
$ 7.36 $ 8.78 $ 7.08 $ 6.10 $ 11.05
$ 12.64 $ 10.20
-------------------------------------------------------------------------
- ------------
(13.46)% 37.85% 17.69% (3.53)% 18.84%
31.68% 16.62%
-------------------------------------------------------------------------
- ------------
$ 33,130 $ 40,595 $ 30,253 $ 30,160 $ 38,840
$ 38,516 $ 32,915
1.20% 1.17% 1.21% 1.06% 1.08%
1.32% 1.29%
1.77% 1.93% 1.72% 2.63% 2.14%
2.95% 5.66%
107% 94% 49% 115% 71%
108% 67%
-------------------------------------------------------------------------
- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR
PERIOD
ENDED
ENDED
12/31/93#
12/31/92*
<S> <C>
<C>
Net Asset Value, beginning of period $ 9.63
$ 9.33
- ------------------------------------------------------------------------------
- -------
Income from investment operations:
Net investment loss (0.14)
(0.00)**
Net realized and unrealized gain on investments 3.45
1.02
- ------------------------------------------------------------------------------
- -------
Total from investment operations 3.31
1.02
- ------------------------------------------------------------------------------
- -------
Less distributions:
Distributions to shareholders from:
Dividends from net investment income --
(0.01)
Distributions from net realized gains (0.17)
(0.71)
- ------------------------------------------------------------------------------
- -------
Total distributions (0.17)
(0.72)
- ------------------------------------------------------------------------------
- -------
Net Asset Value, end of period $ 12.77
$ 9.63
- ------------------------------------------------------------------------------
- -------
Total return+++ 34.34%
10.98%
- ------------------------------------------------------------------------------
- -------
Ratios to average net assets/supplemental data:
Net assets, end of period (000's) $156,781
$ 586
Ratio of operating expenses to average net assets 2.18%
2.21%++
Ratio of net investment loss to average net assets
(1.16)% (0.38)%++
Portfolio turnover rate 25%
64%
- ------------------------------------------------------------------------------
- -------
<FN>
*The Fund commenced selling Class B shares on November 6, 1992.
**Amount represents less than $0.01 per share.
#The average monthly shares method was used to calculate per share data as
the
undistributed net investment income method does not accord with results of
operations for this year.
++Annualized.
+++Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Telecommunications Trust (the "Trust") was organized as
an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts by an Agreement and Declaration of Trust dated June 2, 1983. The
Trust is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 (the "1940 Act"), as amended, as a
non-diversified, open-end management investment company, consisting of two
portfolios, Telecommunications Growth Fund (the "Fund") and Telecommunications
Income Fund, each with a separate investment objective. Each commenced
operations on January 1, 1984, by issuing shares of the Trust in a tax-free
exchange for shares of American Telephone & Telegraph Company with rights to
the
divested Bell regional operating companies attached. As of November 6, 1992,
the
Fund offered two classes of shares to the general public: Class A shares and
Class B shares. Class A shares are sold with a front-end sales charge. Class B
shares may be subject to a contingent deferred sales charge. Beginning on or
about September 30, 1994, Class B shares will automatically convert to Class A
shares eight years after the original purchase date. Both classes of shares
have
identical rights and privileges except with respect to the effect of the
respective sales charges, 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 privilege 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 the preparation of
its
financial statements:
PORTFOLIO VALUATION: Investments in securities which are traded on a national
securities exchange are valued at the last reported sales price or, in the
absence of a recorded sale, at the mean of the closing bid and asked prices.
Over-the-counter securities are valued at the closing bid price. Short-term
investments with maturities of 60 days or less from the valuation date are
valued on the basis of amortized cost.
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
17
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
seller to repurchase, 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 arrangement results in a fixed rate of return that is not subject to
market
fluctuations 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 potential loss to
the
Fund in the event that 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, acting under
the
supervision of the Board of Trustees, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Fund enters
into
repurchase agreements to evaluate potential risks.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Dividend income and distributions to
shareholders
are recorded on the ex-dividend date. Interest income is recorded on the
accrual
basis. Realized gains or losses on sales of investments are recorded on the
identified cost basis. Investment income, realized and unrealized gains and
losses are allocated based upon relative net assets of each class.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income determined on a class level, if any, of the Fund are declared once a
year, normally at the end of the year in which it was earned or at the
beginning
of the next year. Distributions determined on a Fund level, if any, of any net
short and long-term capital gains earned by the Fund will be made annually
after
the close of the fiscal year in which they are earned. Additional
distributions
of net investment income and capital gains from the Fund may be made at the
discretion of the Trust's Board of Trustees in order to avoid the application
of
a 4% nondeductible excise tax on certain undistributed amounts of 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
18
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
Permanent differences incurred during the year ended December 31, 1993
resulted
from a tax basis net operating loss and were reclassified into net realized
gains at year end.
FEDERAL TAXES: It is the Fund's policy 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 by distributing
substantially all of its taxable income to its shareholders. Therefore, no
Federal income tax provision is required.
RECLASSIFICATIONS: During the current year, the Fund adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies." Accordingly, certain reclassifications have been made to the
components of capital in the Statement of Net Assets to conform with the
accounting and reporting guidelines of this statement. Distributions in excess
of book basis accumulated realized gains or undistributed net investment
income
that were the result of permanent book and tax accounting differences have
been
reclassified to paid-in capital. In addition, amounts distributed in excess of
undistributed net investment income as determined for financial statement
purposes but as distributions from net investment income or net realized gains
for tax purposes, previously having been reported as distributions from paid-
in
capital, have been reclassified to reflect the tax characterization.
Accordingly, amounts as of December 31, 1992 have been restated to reflect an
increase in paid-in capital and a decrease in accumulated net realized gains
of
$107,274. The Statement of Changes in Net Assets and Financial Highlights for
prior periods have not been restated to reflect this change in presentation.
Net
investment income, net realized gains and net assets on a book and tax basis
were not affected by this change.
19
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
The Trust has entered into an investment advisory agreement (the "Advisory
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Advisory Agreement, the Fund pays a monthly fee at the annual rate of
0.75%
of the value of its average daily net assets.
For the year ended December 31, 1993, the Fund incurred total brokerage
commissions of $162,253 of which $63,935 was paid to Smith Barney Shearson
Inc.
("Smith Barney Shearson") and its predecessor Shearson Lehman Brothers Inc.
("Shearson Lehman Brothers") and $18,090 was paid to Boston Institutional
Services Inc., a wholly owned subsidiary of The Boston Company, Inc.
For the year ended December 31, 1993, Smith Barney Shearson received from
investors $593,003 representing commissions (sales charges) on sales of Class
A
shares.
A contingent deferred sales charge ("CDSC") is generally payable by a
shareholder in connection with the redemption of Class B shares within five
years (eight years in the case of purchases by certain 401(k) plans) after the
date of purchase. In circumstances in which the CDSC is imposed, the amount of
the charge ranges between 5% and 0% of net asset value depending on the number
of years since the date of purchase. For the year ended December 31, 1993,
Smith
Barney Shearson received from investors $68,168 in CDSCs on the redemption of
Class B shares.
No officer, director or employee of Smith Barney Shearson, Boston Advisors or
any parent or subsidiary of those corporations receives any compensation from
the Trust for serving as a Trustee or officer of the Trust. The Trust pays
each
of its Trustees who is not an officer, director or employee of Smith Barney
Shearson or Boston Advisors or any parent or subsidiary of those corporations
$4,500 annually plus $250 for each meeting attended and reimburses each such
Trustee for travel and out-of-pocket expenses.
20
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Trust's transfer agent.
3. DISTRIBUTION AGREEMENT
Smith Barney Shearson acts as distributor of the Fund's shares pursuant to a
distribution agreement with the Fund, and sells shares of the Fund through
Smith
Barney Shearson or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, as amended, the Fund has adopted a
Services and Distribution Plan (the "Plan"). Under this Plan, the Fund
compensates Smith Barney Shearson for servicing shareholder accounts for both
Class A and Class B shareholders, and covers expenses incurred in distributing
Class B shares. Smith Barney Shearson is paid an annual services fee with
respect to Class A and Class B shares of the Fund at the rate of .25% of the
value of the average daily net assets of each respective class of shares.
Smith
Barney Shearson is also paid an annual distribution fee with respect to Class
B
shares at the rate of .75% of the value of the average daily net assets
attributable to those shares. During the year ended December 31, 1993, the
Fund
incurred $133,200 in service fees for Class A shares. During the year ended
December 31, 1993, the Fund incurred $112,633 in service fees and $337,900 in
distribution fees for Class B shares.
The Trust entered into a distribution agreement as of July 30, 1993 with Smith
Barney Shearson. Smith Barney Shearson is a wholly owned subsidiary of Smith
Barney Shearson Holdings Inc. ("Holdings") which in turn is a wholly owned
subsidiary of The Travelers Inc. ("Travelers"). Prior to July 30, 1993, the
Fund
was distributed by Shearson Lehman Brothers. Substantially all of the domestic
retail brokerage and asset management businesses of Shearson Lehman Brothers
were acquired by Travelers (which at that time was known as Primerica
Corporation) and Smith Barney, Harris Upham & Co. Incorporated as of July 30,
1993 and Smith Barney, Harris Upham & Co. Incorporated was renamed Smith
Barney
Shearson.
21
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class
of
shares are prorated between the classes based upon the relative net assets of
each class. Operating expenses directly attributable to a class of shares are
charged to that class' operations. In addition to the above servicing and
distribution fees, class specific operating expenses include transfer agent
fees
of $44,916 and $80,076 for Class A and Class B shares, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
obligations, aggregated $172,773,536 and $22,469,726, respectively, during the
year ended December 31, 1993.
At December 31, 1993, aggregate gross unrealized appreciation for all
securities
in which there was an excess of value over tax cost was $31,417,528, and
aggregate gross unrealized depreciation for all securities in which there was
an
excess of tax cost over value was $5,774,754.
6. SHARES OF BENEFICIAL INTEREST
The Trustees have authority to issue an unlimited number of shares of
beneficial
interest of the Trust, with par value of $.001 per share. Each Fund
constitutes
a sub-trust under an amended and restated Master Trust Agreement. Shares of
two
sub-trusts have been authorized by the Trustees of the Trust. The shares of
the
Fund which are divided into two classes, Class A and Class B, are described
herein.
22
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
PERIOD ENDED
12/31/93
12/31/92
CLASS A SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 3,444,398 $ 42,291,699
135,738 $ 1,214,496
Issued as reinvestment of dividends -- --
7,669 73,318
Issued as reinvestment of capital gains
distribution 70,818 910,725
232,439 2,222,112
Redeemed (1,321,071) (15,599,614)
(531,263) (4,780,866)
- ------------------------------------------------------------------------------
- -------
Net increase/(decrease) 2,194,145 $ 27,602,810
(155,417) $(1,270,940)
- ------------------------------------------------------------------------------
- -------
<CAPTION>
YEAR ENDED
PERIOD ENDED
12/31/93
12/31/92*
CLASS B SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Sold 13,201,046 $165,712,928
63,226 $ 606,247
Issued as reinvestment of dividends -- --
65 617
Issued as reinvestment of capital gains
distribution 152,728 1,950,330
3,403 32,537
Redeemed (1,135,129) (14,212,074)
(5,844) (56,900)
- ------------------------------------------------------------------------------
- -------
Net increase 12,218,645 $153,451,184
60,850 $ 582,501
- ------------------------------------------------------------------------------
- -------
<FN>
*On November 6, 1992, the Fund commenced selling Class B shares. Any shares
outstanding prior to November 6, 1992 were designated Class A shares.
</TABLE>
7. CONCENTRATION OF CREDIT
Because the Fund concentrates its investments in one industry, its portfolio
may
be subject to greater risk and market fluctuations than a portfolio of
securities representing a broader range of investment alternatives. The risks
could adversely affect the ability and inclination of the issuers within the
telecommunications industry to declare or pay dividends or interest and the
ability of holders of securities to realize any value from the assets of the
issuer upon liquidation or bankruptcy.
8. RESTRICTED SECURITIES
The Fund's investments in the following securities are restricted as to resale
and are valued under the direction of the Trust's Board of Trustees in good
23
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
faith, at fair value, taking into consideration all indications of value
available. The following table shows the security description, acquisition
date,
fair value, percentage of total net assets, aggregate cost and value per unit
of
each restricted security:
<TABLE>
<CAPTION>
PERCENTAGE
ACQUISITION FAIR OF TOTAL
VALUE
SECURITY DATE SHARES VALUE NET ASSETS
COST PER UNIT
<S> <C> <C> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Telecom
Argentina
Stet-France,
ADR 10/08/93 25,000 $ 1,575,000 0.67% $
1,065,625 $ 63.00
Telecomasia
Corporation
Pub. Ltd.,
ADR 11/15/93 40,000 2,110,000 0.90
874,800 52.75
Telefonica De
Argentina
SA, ADR,
Class B 10/08/93 21,000 1,533,000 0.65
1,021,125 73.00
- ------------------------------------------------------------------------------
- -------
$ 5,218,000 2.22% $
2,961,550
- ------------------------------------------------------------------------------
- -------
</TABLE>
The Fund's investment policies prohibit it from investing more than 10% of the
market or other fair value of its total assets in illiquid securities,
including
securities that are not readily marketable, securities that are restricted as
to
disposition under Federal securities laws or otherwise, repurchase agreements
maturing in more than seven days, interest only and principal only
mortgage-backed securities, certain options traded in the over-the-counter
market and the securities to which such options relate. In purchasing
securities
which could not be sold by the Fund without registration under the Securities
Act of 1933, as amended, the Fund will endeavor to obtain the right to
registration at the expense of the issuer. There generally will be a lapse of
time between the decision by the Fund to sell any such security and the
registration of the security permitting the sale. During any such period, the
security will be subject to market fluctuations.
9. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Continental Bank N.A. under an Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992, primarily for
temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. Under this
Agreement, the Fund may borrow up to the lesser of $25 million or 20% of its
net
assets. Interest is payable either at the bank's Money Market Rate or the
London
Interbank Offered Rate (LIBOR) plus .375%
24
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
on an annualized basis. The Fund and the other affiliated entities are charged
an aggregate commitment fee of $125,000 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 year ended December 31,
1993, the Fund did not borrow under the Agreement.
25
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ---------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND:
We have audited the accompanying statements of assets and liabilities of Smith
Barney Shearson Telecommunications Growth Fund, including the schedule of
portfolio investments, as of December 31, 1993, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years then ended and the financial highlights for each of the
ten years then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1993 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Smith
Barney Shearson Telecommunications Growth Fund as of December 31 1993, the
results of its operations for the year then ended, the changes in its net
assets
for each of the two years then ended and the financial highlights for each of
the ten years then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
Boston, Massachusetts
February 10, 1994
26
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ---------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED)
FISCAL YEAR ENDED, DECEMBER 31, 1993
The amount of long term capital gain paid for the fiscal year ended December
31,
1993 was $2,233,214 for Smith Barney Shearson Telecommunications Growth Fund.
The above figure may differ from that cited elsewhere in this report due to
differences in the calculation of income and gains for Securities and Exchange
Commission (book) purposes and Internal Revenue Service (tax).
27
<PAGE>
Smith Barney Shearson
Telecommunications Growth Fund
- ------------------------------------------
PARTICIPANTS
TRANSFER AGENT
TSSG
Exchange Place
Boston, Massachusetts 02109
DISTRIBUTOR
Smith Barney Shearson
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISOR
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
AUDITORS AND COUNSEL
Coopers & Lybrand
One Post Office Square
Boston, Massachusetts 02109
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
CUSTODIAN
Boston Safe Deposit and
Trust Company
One Boston Place
Boston, Massachusetts 02108
28
<PAGE>
TELECOMMUNICATIONS
GROWTH FUND
TRUSTEES
Paul R. Ades
Herbert Barg
Allan Johnson
Ken Miller
Heath B. McLendon
John F. White
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
AND INVESTMENT OFFICER
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT,
SECRETARY AND TREASURER
THIS REPORT IS SUBMITTED FOR THE INFORMATION OF THE SHAREHOLDERS OF SMITH
BARNEY
SHEARSON TELECOMMUNICATIONS GROWTH FUND. IT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE
PROSPECTUS FOR THE FUND WHICH CONTAINS INFORMATION CONCERNING THE FUND'S
INVESTMENT POLICIES AND APPLICABLE SALES CHARGES AND EXPENSES AS WELL AS OTHER
PERTINENT INFORMATION.
[LOGO]
Smith Barney Shearson
Mutual Funds
Two World Trade Center
New York, New York 10048
Fund 12
FD0321 B4
<PAGE>
Smith Barney Shearson
1993 Telecommunications
ANNUAL Income
REPORT Fund
........................................
DECEMBER 31, 1993
[LOGO]
<PAGE>
Telecommunications Income Fund
DEAR SHAREHOLDER:
We are pleased to provide the Annual Report for the Smith
Barney Shearson Telecommunications Income Fund for the year
ended December 31, 1993. As you
know, the Fund's primary objective is to provide an attractive level
of investment income; growth of capital is a secondary objective.
The
Fund's holdings are concentrated in stocks of Bell Operating
companies, with a minority portion of the assets in other
dividend-paying equities.
The Fund's aggregate total return without the deduction of the
applicable sales charge (income plus change in share price) was
16.0%for 1993. By comparison, Standard & Poor's Daily Price Index of
500 Common Stocks (the "S&P 500"), an unmanaged index used to
portray
the common stock price movement of large U.S. companies that
historically have paid dividends on their stock, was up 10.0%. The
Fund outperformed this index because Bell Operating companies'
stocks,
which comprise 89% of the portfolio, provide dividend yields between
4.5% and 5.5% compared to the dividend yield of the S&P 500 of 2.7%.
In this current low interest rate environment, stocks with above
market yields performed very well.
We are optimistic on the prospects for the Bell Operating
companies and believe they will continue to provide the Fund with a level
monthly dividend. They provide an attractive current dividend yield and a
dividend growth rate of 3%-5%. Their modest but steady earnings growth rate of
4%-6%, should help keep their stock prices fairly stable. However, the basic
copper wire telephone business is evolving because of new technologies. Not
all
Bell Operating companies have the same prospects and we have committed our
investment resources to those we believe have the brightest future.
We hope the Fund can provide you with a level of income that is higher than
that
available on money market funds* or other short-term instruments. We are also
encouraged by the long term growth potential of our holdings. Thank you again
for your confidence in the Fund.
Sincerely,
Guy R. Scott
Investment Administrator
FEBRUARY 17, 1994
* Money market funds seeks to maintain a net asset value of $1.00. Share
prices
on Telecommunications Income Fund will fluctuate.
1
<PAGE>
A line graph depicting the total growth (including reinvestment of dividends
and
capital gains) of a hypothetical investment of $10,000 in Telecommunications
Income Fund's shares on January 1, 1984 through December 31, 1993 as compared
with the growth of a $10,000 investment in Standard & Poor's 500 Index and the
Lipper Equity Income Index. The plot points used to draw the line graph were
as
follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000
GROWTH OF $10,000
GROWTH OF $10,000 INVESTMENT IN THE
INVESTMENT IN THE
MONTH INVESTED IN THE SHARES STANDARD & POOR'S
LIPPER EQUITY
ENDED OF THE FUND 500 INDEX
INCOME INDEX
<S> <C> <C> <C>
12/31/83 -- $10,000
$ 10,000
01/01/84 $10,000 --
- --
01/84 10,761 9,944
10,000
03/84 10,346 9,760
9,768
06/84 10,169 9,511
9,590
09/84 11,485 10,433
10,422
12/84 12,166 10,629
10,870
03/85 12,984 11,605
11,607
06/85 14,512 12,459
12,471
09/85 13,715 11,948
12,191
12/85 16,218 14,004
13,573
03/86 18,222 15,980
15,122
06/86 20,240 16,921
15,635
09/86 19,581 15,741
15,303
12/86 20,271 16,618
15,881
03/87 20,947 20,167
17,612
06/87 21,108 21,179
17,759
09/87 23,229 22,576
18,276
12/87 20,455 17,491
15,712
03/88 21,450 18,484
16,779
06/88 23,283 19,715
17,603
09/88 23,793 19,780
17,864
12/88 23,956 20,385
18,184
03/89 26,092 21,829
19,208
06/89 29,400 23,752
20,518
09/89 32,836 26,292
21,922
12/89 36,440 26,832
22,057
03/90 33,157 26,025
21,396
06/90 33,348 27,659
21,940
09/90 32,996 23,862
19,741
12/90 35,785 25,998
20,961
03/91 36,566 29,768
23,307
06/91 34,345 29,697
23,498
09/91 34,668 31,282
24,930
12/91 36,965 33,902
26,532
03/92 33,796 33,047
26,419
06/92 36,667 33,674
27,059
09/92 39,783 34,736
27,798
12/92 40,990 36,481
29,080
03/93 44,905 38,071
30,917
06/93 45,639 38,254
31,417
09/93 49,401 39,239
32,666
12/93 47,549 40,173
33,045
</TABLE>
+ Illustration of $10,000 invested in Fund shares on January 1, 1984
(commencement of operations) assuming reinvestment of dividends and capital
gains at net asset value through December 31, 1993, compared to The Lipper
Equity Income Index and The Standard & Poor's 500 Index.
The Lipper Equity Income Fund Index is a net asset value weighted index of
the
30 largest equity income mutual funds.
The Standard & Poor's Composite Index of 500 Common Stocks ("S&P 500) is
composed of 500 widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and over-the-counter market. It is useful
in
depicting the general movement of the stock market, but because it is
unmanaged the S&P 500 is not subject to the same management and trading
expenses of a mutual fund.
NOTE: All figures cited here and on the other pages represent past
performance
and do not guarantee future results.
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS MONTHLY AND CAPITAL GAINS, IF
ANY,
ANNUALLY.
- --------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN* (UNAUDITED)
<TABLE>
<S> <C>
Year Ended 12/31/93 16.00%
- ------------------------------------------------------------------------
Five Years Ended 12/31/93 14.69%
- ------------------------------------------------------------------------
Inception (1/1/84) through 12/31/93 16.88%
- ------------------------------------------------------------------------
<FN>
*All average annual total return figures shown reflect reinvestment of
dividends
and capital gains at net asset value.
</TABLE>
2
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ---------------------------------------------------------------------------
TOP TEN HOLDINGS DECEMBER 31, 1993
(UNAUDITED)
<TABLE>
<CAPTION>
Percentage
of
Company Net
Assets
<S> <C>
--------------------------------------------------------------------
BELL ATLANTIC CORPORATION
22.9%
PACIFIC TELESIS GROUP
16.2
BELLSOUTH CORPORATION
15.7
SOUTHWESTERN BELL CORPORATION
14.3
AMERITECH CORPORATION
14.2
U.S. WEST, INC.
9.4
NYNEX CORPORATION
2.6
GENERAL ELECTRIC CAPITAL CORPORATION
1.9
SEARS ROEBUCK & COMPANY
1.3
FEDERAL PAPER BOARD, INC.
1.2
</TABLE>
3
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ------------------------------------------
PORTFOLIO OF INVESTMENTS DECEMBER 31,
1993
<TABLE>
<CAPTION>
MARKET VALUE
SHARES
(NOTE 1)
<C> <S>
<C>
-----------------------------------------------------------------------------
- --------
COMMON STOCK -- 96.5%
TELECOMMUNICATIONS -- 95.3%
132,471 Ameritech Corporation
$ 10,167,149
278,092 Bell Atlantic Corporation
16,407,428
193,697 BellSouth Corporation
11,210,214
45,896 NYNEX Corporation
1,841,577
214,436 Pacific Telesis Group
11,579,544
247,008 Southwestern Bell Corporation
10,250,832
146,858 U.S. West, Inc.
6,737,111
-----------------------------------------------------------------------------
- --------
68,193,855
-----------------------------------------------------------------------------
- --------
BASIC INDUSTRIES -- 1.2%
40,000 Federal Paper Board, Inc.
850,000
-----------------------------------------------------------------------------
- --------
TOTAL COMMON STOCK
(Cost $19,664,978)
69,043,855
-----------------------------------------------------------------------------
- --------
CONVERTIBLE PREFERRED STOCK --1.3% (Cost $684,000)
16,000 Sears Roebuck & Company, Convertible Preferred,
Series A, Depository Shares Representing
1/4 share, PERCS
900,000
-----------------------------------------------------------------------------
- --------
<CAPTION>
FACE VALUE
<C> <S>
<C>
-----------------------------------------------------------------------------
- --------
COMMERCIAL PAPER -- 1.9% (Cost $1,382,000)
$1,382,000 General Electric Capital Corporation,
3.200% due 1/3/94
1,382,000
-----------------------------------------------------------------------------
- --------
TOTAL INVESTMENTS (Cost $21,730,978*) 99.7%
71,325,855
OTHER ASSETS AND LIABILITIES (NET) 0.3
244,047
-----------------------------------------------------------------------------
- --------
NET ASSETS 100.0%
$ 71,569,902
-----------------------------------------------------------------------------
- --------
<FN>
*Aggregate cost for Federal tax purposes was $17,054,398.
PERCS - Preferred Equity Redemption Cumulative Stock.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31,
1993
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost
$21,730,978) (Note 1)
See accompanying schedule $
71,325,855
Cash
842
Receivable for investment securities
sold
2,910,143
Receivable for dividends reinvested
1,468,900
Dividends and Interest receivable
232,655
- ------------------------------------------------------------------------------
- -
TOTAL ASSETS
75,938,395
- ------------------------------------------------------------------------------
- -
LIABILITIES:
Dividends payable $ 4,230,566
Payable for Fund shares redeemed 49,072
Investment advisory fee payable (Note
2) 35,164
Accrued legal and audit fees 22,540
Administration fee payable (Note 2) 12,787
Custodian fees payable (Note 2) 8,446
Transfer agent fees payable (Note 2) 2,700
Accrued expenses and other payables 7,218
- ------------------------------------------------------------------------------
- -
TOTAL LIABILITIES
4,368,493
- ------------------------------------------------------------------------------
- -
NET ASSETS $
71,569,902
- ------------------------------------------------------------------------------
- -
NET ASSETS consist of:
Undistributed net investment income $
23,477
Accumulated net realized gain on
investments sold
1,285,724
Unrealized appreciation of investments
49,594,877
Par value
665
Paid-in capital in excess of par value
20,665,159
- ------------------------------------------------------------------------------
- -
TOTAL NET ASSETS $
71,569,902
- ------------------------------------------------------------------------------
- -
NET ASSET VALUE, offering price and redemption price per
share
($71,569,902 DIVIDED BY 665,030 shares of beneficial
interest outstanding)
$107.62
- ------------------------------------------------------------------------------
- -
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends and Interest $
3,285,128
- ------------------------------------------------------------------------------
- ---
EXPENSES:
Investment advisory fee (Note 2) $560,089
Legal and audit fees 37,845
Custodian fees (Note 2) 28,917
Transfer agent fees (Note 2) 24,713
Trustees' fees and expenses (Note 2) 15,962
Other 29,842
- ------------------------------------------------------------------------------
- ---
TOTAL EXPENSES
697,368
- ------------------------------------------------------------------------------
- ---
NET INVESTMENT INCOME
2,587,760
- ------------------------------------------------------------------------------
- ---
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTES 1 AND 3):
Net realized gain on investments sold during the
year
2,578,741
Net unrealized appreciation of investments
during the year
5,834,676
- ------------------------------------------------------------------------------
- ---
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS:
8,413,417
- ------------------------------------------------------------------------------
- ---
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$11,001,177
- ------------------------------------------------------------------------------
- ---
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ---------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR
YEAR
ENDED
ENDED
12/31/93
12/31/92
<S> <C>
<C>
Net investment income $ 2,587,760
$ 3,279,030
Net realized gain on investments sold during the year* 2,578,741
5,559,216
Net unrealized appreciation/(depreciation) of
investments during the year 5,834,676
(1,216,600)
- ------------------------------------------------------------------------------
- -------
Net increase in net assets resulting from operations 11,001,177
7,621,646
Distributions to shareholders from:
Net investment income (2,919,439)
(3,037,515)
Net realized gains on investments (4,519,452)
(10,114,571)
Net decrease in net assets from Fund share transactions
(Note 5) (2,629,290)
(3,251,555)
- ------------------------------------------------------------------------------
- -------
Net decrease in net assets (10,068,181)
(16,403,641)
NET ASSETS:
Beginning of year 70,636,906
79,418,901
- ------------------------------------------------------------------------------
- -------
End of year (including undistributed net investment
income of
$23,477 and $241,515, respectively) $71,569,902
$ 70,636,906
- ------------------------------------------------------------------------------
- -------
<FN>
*Net realized gain for Federal tax purposes was $2,637,495 and $5,703,185,
respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ---------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/93 12/31/92 12/31/91
<S> <C> <C> <C>
Net Asset Value, beginning of
year $102.67 $110.75 $129.06
- ---------------------------------------------------------------------
Income from investment
operations:
Net investment income 3.94 4.91 5.74
Net realized and unrealized
gain/(loss) on investments 12.30 6.79 (2.20)
- ---------------------------------------------------------------------
Total from investment
operations 16.24 11.70 3.54
Less distributions:
Distributions to shareholders
from:
Dividends from net investment
income (4.42) (4.55) (6.05)
Distributions from net realized
gains (6.87) (15.23) (14.62)
Distributions from capital -- -- (1.18)
Distributions in excess of net
realized gains -- -- --
- ---------------------------------------------------------------------
Total distributions (11.29) (19.78) (21.85)
- ---------------------------------------------------------------------
Net Asset Value, end of year $107.62 $102.67 $110.75
- ---------------------------------------------------------------------
Total return+ 16.00% 10.89% 3.30%
- ---------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of year (000's) $71,570 $70,637 $79,419
Ratio of operating expenses to
average net assets 0.93% 0.92% 0.90%
Ratio of net investment income
to average net assets 3.47% 4.41% 4.57%
Portfolio turnover rate 0% 2% 18%
- ---------------------------------------------------------------------
<FN>
*The Fund commenced operations on January 1, 1984.
+Total return represents aggregate total return for the year indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- --------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR
YEAR
ENDED ENDED ENDED ENDED ENDED ENDED
ENDED
12/31/90 12/31/89 12/31/88 12/31/87 12/31/86 12/31/85
12/31/84*
<S> <C> <C> <C> <C> <C>
<C>
$140.93 $ 99.10 $ 90.28 $ 99.20 $ 86.19 $ 70.16
$ 61.25
---------------------------------------------------------------------------
- ----------
6.10 5.18 5.55 5.87 5.54 5.30
5.36
(8.98) 45.31 9.66 (4.67) 15.38 16.87
7.71
---------------------------------------------------------------------------
- ----------
(2.88) 50.49 15.21 1.20 20.92 22.17
13.07
(5.79) (5.85) (5.40) (7.20) (5.40) (5.34)
(4.16)
(3.20) (2.65) (0.99) (2.92) (2.51) (0.80)
- --
-- -- -- -- -- --
- --
-- (0.16) -- -- -- --
- --
---------------------------------------------------------------------------
- ----------
(8.99) (8.66) (6.39) (10.12) (7.91) (6.14)
(4.16)
---------------------------------------------------------------------------
- ----------
$129.06 $ 140.93 $ 99.10 $ 90.28 $ 99.20 $ 86.19
$ 70.16
---------------------------------------------------------------------------
- ----------
(1.80%) 52.11% 17.12% 0.91% 24.99% 33.30%
21.66%
---------------------------------------------------------------------------
- ----------
$94,854 $109,970 $82,546 $80,349 $95,439 $88,926
$76,825
0.92% 0.89% 0.95% 0.97% 0.96% 1.07%
1.05%
4.81% 4.32% 5.70% 5.84% 5.68% 6.91%
8.14%
3% 5% 3% 6% 15% 21%
53%
---------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Telecommunications Trust (the "Trust") was organized as
an
unincorporated business trust under the laws of the Commonwealth of
Massachusetts by an Agreement and Declaration of Trust dated June 2, 1983. The
Trust is registered with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company consisting of two portfolios, Telecommunications
Growth Fund and Telecommunications Income Fund (the "Fund"), each with a
separate investment objective. Each Fund commenced operations on January 1,
1984, by issuing shares of the Trust in a tax-free exchange for shares of
American Telephone & Telegraph Company with rights to the divested Bell
regional
operating companies attached. The following is a summary of significant
accounting policies consistently followed by the Fund in the preparation of
its
financial statements:
PORTFOLIO VALUATION: Investments in securities which are traded on a national
securities exchange are valued at the last reported sales price or, in the
absence of a recorded sale, at the mean of the closing bid and asked prices.
Over-the-counter securities are valued at the closing bid price. Short-term
investments with maturities of 60 days or less from the valuation date are
valued on the basis of amortized cost.
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
repurchase, 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
arrangement results in a fixed rate of return that is not subject to market
fluctuations 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 potential loss to
the
Fund in the event that 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,
10
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
acting under the supervision of the Board of Trustees, reviews the value of
the
collateral and the creditworthiness of those banks and dealers with which the
Fund enters into repurchase agreements to evaluate potential risks.
SECURITIES TRANSACTIONS AND INVESTMENT INCOME: Securities transactions are
recorded as of the trade date. Dividend income and distributions to
shareholders
are recorded on the ex-dividend date. Interest income is recorded on the
accrual
basis. Realized gains or losses on sales of investments are determined on the
basis of identified cost.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS: Dividends from net investment
income, if any, of the Fund are declared monthly and are paid on the last day
of
the Smith Barney Shearson Inc. ("Smith Barney Shearson") statement month.
Distributions, if any, of any net short- and long-term capital gains earned by
the Fund will be made annually after the close of the fiscal year in which
they
are earned. Additional distributions of net investment income and capital
gains
from the Fund may be made at the discretion of the Trust's Board of Trustees
in
order to avoid the application of a 4% nondeductible excise tax on certain
undistributed amounts of ordinary income and capital gains.
Income distributions and capital gain distributions 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.
Permanent differences incurred during the year ended December 31, 1993,
resulting from different book and tax accounting have been reclassified to
paid-in-capital at year end.
FEDERAL TAXES: It is the Fund's policy 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 by distributing
substantially all of its taxable income to its shareholders. Therefore, no
Federal income tax provision is required.
11
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
RECLASSIFICATIONS: During the current year, the Fund adopted Statement of
Position 93-2 "Determination, Disclosure, and Financial Statement Presentation
of Income, Capital Gain, and Return of Capital Distributions by Investment
Companies." Accordingly, certain reclassifications have been made to the
components of capital in the Statement of Net Assets to conform with the
accounting and reporting guidelines of this statement. Distributions in excess
of book basis accumulated realized gains or undistributed net investment
income
that were the result of permanent book and tax accounting differences have
been
reclassified to paid-in capital. In addition, amounts distributed in excess of
undistributed net investment income as determined for financial statement
purposes, but as distributions from net investment income or net realized
gains
for tax purposes, previously having been reported as distributions from paid-
in
capital, have been reclassified to reflect the tax characterization.
Accordingly, amounts as of December 31, 1992 have been restated to reflect an
increase in paid-in capital, an increase in undistributed net investment
income
and a decrease in accumulated net realized gains of $395,071, $113,641 and
$508,712, respectively. The Statement of Changes in Net Assets and Financial
Highlights for prior periods have not been restated to reflect this change in
presentation. Net investment income, net realized gains and net assets on a
book
and tax basis were not affected by this change.
2. INVESTMENT ADVISORY FEE AND OTHER RELATED PARTY TRANSACTIONS
The Trust has entered into an investment advisory agreement (the "Advisory
Agreement") with The Boston Company Advisors, Inc. ("Boston Advisors"), an
indirect wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). Under
the Advisory Agreement, the Fund pays a monthly fee at an annual rate of 0.75%
of the value of its average daily net assets.
For the year ended December 31, 1993, the Fund incurred total brokerage
commissions of $8,474, of which $3,500 was paid to Smith Barney Shearson and
its
predecessor Shearson Lehman Brothers Inc.
No officer, director or employee of Smith Barney Shearson, Boston Advisors or
any parent or subsidiary of those corporations receives any compensation from
the Trust for serving as a Trustee or officer of the Trust.
12
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The Trust pays each of its Trustees who is not an officer, director or
employee
of Smith Barney Shearson or Boston Advisors or any of their affiliates $4,500
annually plus $250 for each meeting attended and reimburses each such Trustee
for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation, serves as the Trust's transfer agent.
3. PURCHASES AND SALES OF SECURITIES
Proceeds from sales of securities, excluding short-term obligations,
aggregated
$7,020,574, during the year ended December 31, 1993. No purchases were made
during the year ended December 31, 1993.
At December 31, 1993, aggregate gross unrealized appreciation for all
securities
in which there was an excess of value over tax cost was $54,271,457.
4. SHARES OF BENEFICIAL INTEREST
The Trustees have authority to issue an unlimited number of shares of
beneficial
interest of the Trust, with par value of $.001 per share. Each Fund
constitutes
a sub-trust under an Amended and Restated Master Trust Agreement. Shares of
two
sub-trusts have been authorized by the Trustees of the Trust. The shares of
the
Fund are described herein.
Transactions in shares of the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED
12/31/93
12/31/92
Shares Amount
Shares Amount
<S> <C> <C> <C>
<C>
- ------------------------------------------------------------------------------
- -------
Issued as reinvestment of dividends 8,738 $ 970,506
8,316 $ 894,586
Issued as reinvestment of capital gains 14,430 1,557,844
30,352 3,154,928
Redeemed (46,167) (5,157,640)
(67,734) (7,301,069)
- ------------------------------------------------------------------------------
- -------
Net decrease (22,999) $ (2,629,290)
(29,066) $ (3,251,555)
- ------------------------------------------------------------------------------
- -------
</TABLE>
13
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- -------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. CONCENTRATION OF CREDIT
Because the Fund concentrates its investments in one industry, its portfolio
may
be subject to greater risk and market fluctuations than a portfolio of
securities representing a broader range of investment alternatives. The risks
could adversely affect the ability and inclination of the issuers within the
telecommunications industry to declare or pay dividends and the ability of
holders of common stock to realize any value from the assets of the issuer
upon
liquidation or bankruptcy.
6. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Continental Bank N.A. under an Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992, primarily for
temporary
or emergency purposes, including the meeting of redemption requests that
otherwise might require the untimely disposition of securities. Under this
Agreement, the Fund may borrow up to the lesser of $25 million or 20% of its
net
assets. Interest is payable either at the bank's Money Market Rate or the
London
Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. The Fund and
the other affiliated entities are charged an aggregate commitment fee of
$125,000 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 year ended December 31, 1993, the Fund did not borrow under
the
Agreement.
14
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ---------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND TRUSTEES OF
SMITH BARNEY SHEARSON TELECOMMUNICATIONS INCOME FUND:
We have audited the accompanying statements of assets and liabilities of Smith
Barney Shearson Telecommunications Income Fund, including the schedule of
portfolio investments, as of December 31, 1993, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years then ended and the financial highlights for each of the
ten years then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express
an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on
a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1993 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant
estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Smith
Barney Shearson Telecommunications Income Fund as of December 31, 1993, the
results of operations for the year then ended, the changes in its net assets
for
each of the two years then ended and the financial highlights for each of the
ten years then ended, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
Boston, Massachusetts
February 10, 1994
15
<PAGE>
Smith Barney Shearson
Telecommunications Income Fund
- ---------------------------------------------------------------------------
TAX INFORMATION
FISCAL YEAR ENDED DECEMBER 31, 1993 (UNAUDITED)
The amount of long term capital gain paid for the fiscal year ended December
31,
1993 was $4,519,452 for Smith Barney Shearson Telecommunications Income Fund.
16
<PAGE>
TELECOMMUNICATIONS
INCOME FUND
TRUSTEES
Paul R. Ades
Herbert Barg
Allan Johnson
Ken Miller
Heath B. McLendon
John F. White
OFFICERS
Heath B. McLendon
CHAIRMAN OF THE BOARD
AND INVESTMENT OFFICER
Stephen J. Treadway
PRESIDENT
Richard P. Roelofs
EXECUTIVE VICE PRESIDENT,
SECRETARY AND TREASURER
THIS REPORT IS SUBMITTED FOR THE INFORMATION OF THE SHAREHOLDERS OF SMITH
BARNEY
SHEARSON TELECOMMUNICATIONS INCOME FUND. IT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS ACCOMPANIED OR PRECEDED BY AN EFFECTIVE
PROSPECTUS FOR THE FUND WHICH CONTAINS INFORMATION CONCERNING THE FUND'S
INVESTMENT POLICIES AND APPLICABLE SALES CHARGES AND EXPENSES AS WELL AS OTHER
PERTINENT INFORMATION.
[LOGO]
Smith Barney Shearson
Mutual Funds
Two World Trade Center
New York, New York 10048
Fund 11
FD0494 B4
