<PAGE>
SMITH BARNEY
TELECOMMUNICATIONS
GROWTH
1994 FUND
ANNUAL ........................................
REPORT
DECEMBER 31, 1994
[LOGO] SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
TELECOMMUNICATIONS SMITH BARNEY
GROWTH FUND ------------
A Member of TravelersGroup[LOGO]
TRUSTEES
Paul R. Ades
Herbert Barg
Alger B. Chapman
Dwight B. Crane
Frank G. Hubbard
Allan Johnson
Heath B. McLendon
Ken Miller
John F. White
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
This report is submitted for
the general information of the
Jessica M. Bibliowicz shareholders of Smith Barney
President Telecommunications Growth
Fund. It is not authorized for
Lewis E. Daidone distribution to prospective
Senior Vice President investors unless accompanied
and Treasurer or preceded by an effective
Prospectus for the Fund which
Christina T. Sydor contains information concerning
Secretary the Fund's investment policies,
fees, applicable sales charges
and expenses as well as
other pertinent information.
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
Recycled Fund 12, 207, 476, 452
Recyclable FD 00321 B5
<PAGE>
TELECOMMUNICATIONS GROWTH FUND
DEAR SHAREHOLDER:
We are pleased to provide you with the Annual Report, which includes the
portfolio of investments, for Smith Barney Telecommunications Growth Fund for
the year ended December 31, 1994. As you know, the Fund's primary objective is
to provide capital appreciation through common stock 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 total returns (distributions plus change in
share price) were down (6.37)% and (7.17)%, respectively, for 1994. By
comparison, the total return of the Standard & Poor's Daily Price Index of 500
Common Stocks (the "S&P 500"), an unmanaged index used to portray common stock
price movement of large U.S. companies, was 1.31%. The Fund underperformed this
index, after significant outperformance in 1992 and 1993, because the
stocks in the Fund underwent a market correction during 1994. The fundamentals
underlying the Fund did not deteriorate and remain very strong. 1994 was a year
of high anxiety and, thus, generally poor performance for stocks in the
telecommunications sector. Anxiety was generated by pending regulatory and
legislative actions, as well as by the unveiling of major capital spending
plans to upgrade phone networks to provide video, wireless and somewhat
ill-defined "information superhighway" services. With fears of entry barriers
coming down (deregulation and demonopolization are now common terminology) as
well as capital investment requirements accelerating, it was difficult for
investors to maintain faith that managements, amidst all the change and
spending, would continue to successfully operate their existing core businesses
and, at the same time, make value-enhancing long-term strategic decisions.
Indeed, as they are prone to do in a bearish market, many investors concluded
that the paybacks of strategic initiatives were too uncertain, too costly and
often dependent upon heroic assumptions. Consequently, the primary focus became
the near-term earnings per share dilution and its inflationary effect on
price/earnings ratios rather than the potential long-term benefits that might
be generated. In hindsight, just as investor sentiment was perhaps too
exuberant in 1993, we would argue that sentiment was too negative in 1994.
1
<PAGE>
We continue to believe that we are on the threshold of a telecommunications
revolution that will impact societies across the globe. Our goal in managing
your Fund is to participate in the growth opportunities in these
telecommunications areas. We have significant investments in the companies which
provide the new technologies of the 1990s and are the beneficiaries of the
capital spending necessary to provide these new technologies.
Thank you again for your continued confidence and investment in the Fund.
Sincerely,
Heath B. McLendon Guy R. Scott
Chairman of the Board Investment Administrator
and Investment
Officer
February 6, 1995
2
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS DECEMBER 31, 1994 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
INDUSTRY BREAKDOWN
Pie chart depicting the allocation of the Telecommunications Growth Fund
investment securities held at December 31, 1994 by industry classification.
The pie is broken in pieces representing industries in the following
percentages:
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Capital Goods 1.6%
Energy 3.3%
Technology 10.7%
Consumer Services 7.8%
Telecommunications 37.1%
Communications 33.8%
Repurchase Agreement and Net Other
Assets and Liabilities 5.7%
</TABLE>
<TABLE>
TOP TEN HOLDINGS
<CAPTION>
Percentage of
Company Net Assets
- -----------------------------------------------------------------------
<S> <C>
TELLABS INC. 4.1%
AIRTOUCH COMMUNICATIONS INC. 3.4
GENERAL INSTRUMENTS CORPORATION 3.2
ERICSSON L M TELEPHONE COMPANY, CLASS B, ADR 2.9
TELEPHONE & DATA SYSTEMS INC. 2.8
MCI COMMUNICATIONS CORPORATION 2.7
TELE-COMMUNICATIONS INC., CLASS A 2.7
MOTOROLA INC. 2.7
CAPITAL CITIES ABC INC. 2.6
SCIENTIFIC ATLANTA INC. 2.6
</TABLE>
3
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
- ---------------------------------------------------------------------------------------------------------
HISTORICAL PERFORMANCE -- CLASS A SHARES (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended Net Asset Value Capital Gains Dividends Distributions Total
December 31, Beginning Ending Distributed Paid from Capital Return*
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1985 $ 10.20 $12.64 $ 0.19 $0.45 -- 31.68%
- ---------------------------------------------------------------------------------------------------------
1986 12.64 11.05 3.39 0.32 -- 18.84
- ---------------------------------------------------------------------------------------------------------
1987 11.05 6.10 3.96 0.69 -- (3.53)
- ---------------------------------------------------------------------------------------------------------
1988 6.10 7.08 -- 0.10 -- 17.69
- ---------------------------------------------------------------------------------------------------------
1989 7.08 8.78 0.82 0.16 -- 37.85
- ---------------------------------------------------------------------------------------------------------
1990 8.78 7.36 0.10 0.14 -- (13.46)
- ---------------------------------------------------------------------------------------------------------
1991 7.36 8.68 0.14 0.06 $0.01 20.94
- ---------------------------------------------------------------------------------------------------------
1992 8.68 9.63 0.71 0.02 -- 19.41
- ---------------------------------------------------------------------------------------------------------
1993 9.63 12.86 0.17 -- -- 35.27
- ---------------------------------------------------------------------------------------------------------
1994 12.86 11.91 -- 0.13 -- (6.37)
=========================================================================================================
Total $ 9.48 $2.07 $0.01
=========================================================================================================
Cumulative Total Return -- (1/1/85 through 12/31/94) 287.68%
=========================================================================================================
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions at net asset value and do
not reflect deduction of the front-end sales charge (maximum 5.00%).
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS AND CAPITAL GAINS, IF ANY,
ANNUALLY.
<TABLE>
- -------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN** -- CLASS A SHARES (UNAUDITED)
- -------------------------------------------------------------------------------------
<CAPTION>
Without Sales
Charge With Sales Charge***
- -------------------------------------------------------------------------------------
<S> <C> <C>
Year Ended 12/31/94 (6.37)% (11.06)%
- -------------------------------------------------------------------------------------
Five Years Ended 12/31/94 9.62% 8.50%
- -------------------------------------------------------------------------------------
Ten Years Ended 12/31/94 14.51% 13.92%
=====================================================================================
<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 maximum 5.00%
sales charge.
NOTE: On November 6, 1992, existing shares of the Fund were designated
Class A shares. Class A shares are sold subject to a 5.00% sales charge
and a service fee of 0.25% of the value of the average daily net assets
attributable to that class. The Fund's annual rates of return would have
been lower had service fees been in effect prior to November 6, 1992.
</TABLE>
4
<PAGE>
GROWTH OF $10,000 INVESTED IN CLASS A SHARES
OF SMITH BARNEY TELECOMMUNICATIONS GROWTH FUND+
- ------------------------------------------------------------------------------
January 1, 1985 - December 31, 1994
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS A)
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 Class A shares on January 1, 1985 through
December 31, 1994 as compared with the growth of a $10,000 investment in
Standard & Poor's 500 Index, the Lipper Science & Technology Index and the
Lipper Growth Fund 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 GROWTH OF $10,000
INVESTED IN CLASS A INVESTMENT IN THE LIPPER SCIENCE & INVESTMENT IN THE
MONTH SHARES OF THE STANDARD & POOR'S TECHNOLOGY LIPPER GROWTH
ENDED FUND 500 INDEX INDEX FUND INDEX
<S> <C> <C> <C> <C>
11/84 $10,000 - - -
12/84 $9,500 $10,000 $10,000 $10,000
03/85 $10,446 $10,918 $10,920 $10,742
06/85 $11,322 $11,720 $11,702 $10,764
09/85 $10,439 $11,240 $11,222 $10,320
12/85 $12,510 $13,174 $13,032 $12,137
03/86 $14,450 $15,032 $15,035 $13,382
06/86 $15,726 $15,919 $15,838 $13,728
09/86 $14,327 $14,808 $14,565 $12,056
12/86 $14,867 $15,634 $15,098 $12,728
03/87 $16,864 $18,973 $17,980 $16,270
06/87 $17,837 $19,924 $18,401 $16,348
09/87 $19,289 $21,239 $19,383 $17,507
12/87 $14,342 $16,457 $15,252 $13,152
03/88 $15,485 $17,391 $16,458 $14,016
06/88 $16,651 $18,548 $17,415 $14,961
09/88 $16,237 $18,611 $17,364 $14,126
12/88 $16,879 $19,183 $17,659 $14,306
03/89 $18,987 $20,542 $19,064 $15,016
06/89 $21,565 $22,354 $20,735 $16,305
09/89 $23,531 $24,743 $22,887 $17,991
12/89 $23,268 $25,252 $22,695 $17,887
03/90 $21,254 $24,493 $22,047 $17,664
06/90 $21,943 $26,032 $23,652 $19,384
09/90 $18,101 $22,458 $19,846 $14,495
12/90 $20,136 $24,468 $21,565 $16,464
03/91 $22,051 $28,015 $25,156 $20,426
06/91 $21,039 $27,948 $24,907 $19,155
09/91 $23,039 $29,441 $26,777 $21,052
12/91 $24,353 $31,906 $29,163 $24,139
03/92 $24,830 $31,101 $28,651 $23,557
06/92 $24,269 $31,690 $28,236 $21,996
09/92 $24,886 $32,691 $28,988 $22,866
12/92 $29,080 $34,335 $31,358 $26,698
03/93 $32,462 $35,835 $32,570 $27,253
06/93 $35,059 $36,005 $33,417 $30,052
09/93 $39,377 $36,934 $35,135 $32,666
12/93 $39,337 $37,792 $35,808 $33,003
3/94 $35,391 $36,364 $34,602 $32,444
6/94 $35,177 $36,513 $33,915 $30,119
9/94 $38,817 $38,295 $35,579 $34,571
12/94 $36,829 $38,286 $35,177 $36,388
<FN>
+ Illustration of $10,000 invested in Class A shares on January 1, 1985 through December 31, 1994
assuming deduction of the maximum 5.00% sales charge at the time of investment and reinvestment
of dividends and capital gains at net asset value.
THE STANDARD & POOR'S 500 STOCK INDEX ("S&P 500") is a market capitalization index 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
as a mutual fund.
THE LIPPER SCIENCE & TECHNOLOGY FUND INDEX is a net asset value weighted index of the 10 largest
funds within the Science and Technology investment objective.
THE LIPPER GROWTH FUND INDEX is a net asset value weighted index of the 30 largest growth mutual
funds.
NOTE: All figures cited here represent past performance and do not guarantee future results.
5
</TABLE>
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE -- CLASS B SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended Net Asset Value Capital Gains Dividends Total
December 31 Beginning Ending Distributed Paid Return*
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------
11/6/92 -
12/31/92 $ 9.33 $ 9.63 $ 0.71 $0.01 10.98%
- ---------------------------------------------------------------------------------
1993 9.63 12.77 0.17 -- 34.34
- ---------------------------------------------------------------------------------
1994 12.77 11.82 -- 0.03 (7.17)
- ---------------------------------------------------------------------------------
Total $ 0.88 $0.04
- ---------------------------------------------------------------------------------
Cumulative Total Return - (11/6/92 through 12/31/94) 38.40%
- ---------------------------------------------------------------------------------
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions
at net asset value and do not assume deduction of any contingent deferred
sales charge ("CDSC").
</TABLE>
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN** -- CLASS B SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Without CDSC With CDSC***
<S> <C> <C>
- -----------------------------------------------------------------------------
Year Ended 12/31/94 (7.17)% (11.80)%
- -----------------------------------------------------------------------------
Inception (11/6/92) through 12/31/94 16.32% 15.14%
- -----------------------------------------------------------------------------
<FN>
** All average total return figures shown reflect the reinvestment of
dividends and capital gains distributions at net asset value.
*** Average annual total return figures assume the deduction of the
applicable CDSC which is described in the prospectus.
NOTE: The Fund began offering Class B shares on November 6, 1992. Class
B shares are subject to a maximum 5.00% CDSC and service and distribution
fees of 0.25% and 0.75%, respectively, of the value of the average daily
net assets attributable to that class.
</TABLE>
6
<PAGE>
GROWTH OF $10,000 INVESTED IN CLASS B SHARES
OF SMITH BARNEY TELECOMMUNICATIONS GROWTH FUND+
- --------------------------------------------------------------------------------
November 6, 1992 - December 31, 1994
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS B)
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 Class B shares on January 1, 1985 through
December 31, 1994 as compared with the growth of a $10,000 investment in
Standard & Poor's 500 Index, the Lipper Science & Technology Index and the
Lipper Growth Fund 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 GROWTH OF $10,000
INVESTED IN CLASS B INVESTMENT IN THE LIPPER SCIENCE & INVESTMENT IN THE
MONTH SHARES OF THE STANDARD & POOR'S TECHNOLOGY LIPPER GROWTH
ENDED FUND 500 INDEX INDEX FUND 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 $10,703
12/92 $11,098 $10,467 $10,665 $11,131
03/93 $12,377 $10,924 $11,077 $11,363
06/93 $13,323 $10,976 $11,365 $12,530
09/93 $14,947 $11,259 $11,949 $13,620
12/93 $14,909 $11,521 $12,179 $13,760
3/94 $13,379 $11,086 $11,768 $13,527
6/94 $13,274 $11,131 $11,535 $12,557
9/94 $14,617 $11,674 $12,100 $14,414
12/94 $13,840 $11,672 $11,964 $15,171
<FN>
+ Illustration of $10,000 invested in Class B shares on November 6, 1992 through December 31,
1994 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.
++ Value does not assume deduction of applicable CDSC.
+++ Value assumes deduction of applicable CDSC (assuming redemption on December 31, 1994).
THE STANDARD & POOR'S 500 STOCK INDEX ("S&P 500") is a market capitalization index 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 as a mutual fund.
LIPPER SCIENCE & TECHNOLOGY FUND INDEX is a net asset value weighted index of the 10
largest funds within the Science and Technology investment objective.
THE LIPPER GROWTH FUND INDEX is a net asset value weighted index of the 30 largest growth mutual
funds.
Index information is available at month-end only; therefore, the closest month-end to inception
date of the class has been used.
NOTE: All figures cited here represent past performance and do not guarantee future results.
</TABLE>
7
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
HISTORICAL PERFORMANCE -- CLASS C SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Period Ended Net Asset Value Capital Gains Dividends Total
December 31 Beginning Ending Distributed Paid Return*
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
(11/7/94)
through 12/31/94 $12.70 $12.00 -- $0.03 (5.24)%
- --------------------------------------------------------------------------------
<FN>
* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not reflect the deduction of any
contingent deferred sales charge ("CDSC").
</TABLE>
- --------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN** -- CLASS C SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Without CDSC With CDSC***
<S> <C> <C>
- -----------------------------------------------------------------------------
Inception (11/7/94) through 12/31/94 (5.24)% (6.85)%
- -----------------------------------------------------------------------------
<FN>
** All cumulative total return figures shown reflect the reinvestment of
dividends and capital gains distributions at net asset value.
*** Cumulative total return figures assume deduction of the maximum
applicable CDSC which is described in the prospectus.
NOTE: On November 7, 1994, the Fund began offering Class C shares. Class
C shares may be subject to a MAXIMUM 1.00% contingent deferred sales
charge if redeemed within twelve months of purchase and are subject to
annual service and distribution fees of 0.25% and 0.75%, respectively, of
the value of the average daily net assets attributable to that class.
As of December 31, 1994, no Class Y shares had been sold.
</TABLE>
8
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
MARKET VALUE
SHARES (NOTE 1)
<C> <S> <C>
- -----------------------------------------------------------------------------------------
COMMON STOCK -- 94.3%
TELECOMMUNICATIONS -- 37.1%
314,000 AirTouch Communications Inc.+ $ 9,145,250
140,000 Analog Devices Inc.+ 4,917,500
114,000 C-TEC Corporation, Class B+ 2,208,750
291,000 Hong Kong Telecommunications Ltd., ADR 5,565,375
402,700 MCI Communications Corporation 7,399,612
65,000 Newbridge Networks Corporation+ 2,486,250
70,000 Perusahaan Perseroan Indonesian Sattelite, ADR+ 2,502,500
57,000 Philippine Long Distance Telephone Company+ 3,085,125
47,160 SBC Communications Inc.+ 1,904,085
158,550 Sprint Corporation 4,379,943
100,000 Tele Danmark A/S, Class B, ADR+ 2,550,000
41,500 Telcom Corporation Argentina Stet-France, ADR++ 2,147,625
82,900 Telecom Corporation New Zealand Ltd., ADR 4,258,987
40,000 TelecomAsia Corporation Pub. Ltd++. 1,120,000
101,000 Telecommunication Brasillinas, ADR. 4,545,000
36,500 Telefonica de Argentina SA, ADR, Class B++ 1,934,500
127,000 Telefonica de Espana SA, ADR 4,460,875
130,200 Telefonos de Mexico SA, ADR 5,338,200
476,000 Telekom Malaysia, ADR 3,224,907
166,000 Telephone & Data Systems Inc. 7,656,750
200,000 Tellabs Inc.+ 11,150,000
270,000 Thai Telephone & Telecommunications++ 1,828,322
192,000 Vodafone Group Plc, ADR 6,456,000
------------
100,265,556
------------
COMMUNICATIONS -- 33.8%
196,300 Advanced Information Services, ADR 2,723,663
32,750 Associated Group Inc., Class A+ 769,625
32,750 Associated Group Inc., Class B+ 769,625
82,000 Capital Cities/ABC Inc. 6,990,500
101,333 Cellular Communications Inc.+ 3,394,656
117,500 Cellular Communications Inc., Series A+ 6,286,250
60,000 Century Telephone Enterprises, Inc. 1,770,000
150,000 Clearnet Communications Inc., Class A+ 1,181,250
218,700 Comcast Corporation, Class A+ 3,362,513
109,350 Comcast Corporation, Class A Special+ 1,715,428
90,000 Contel Cellular Inc.+ 2,244,375
140,000 Ericsson LM Telephone Company, Class B, ADR 7,717,500
9
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) DECEMBER 31, 1994
MARKET VALUE
SHARES (NOTE 1)
- -----------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCK (CONTINUED)
COMMUNICATIONS (CONTINUED)
16,800 Grupo Iusacell SA, Series D, ADR+ $ 268,800
134,200 Grupo Iusacell SA, Series L, ADR+ 2,499,475
137,500 Grupo Televisa SA, ADR 4,365,625
272,000 Intermedia Communications, Florida, Inc.+ 3,196,000
51,000 LIN Broadcasting Corporation+ 6,808,500
25,500 LIN Television Corporation+ 580,125
171,200 MFS Communications Company, Inc.+ 5,606,800
206,000 NEXTEL Communications Inc., Class A+ 2,961,250
81,500 Rogers Cantel Mobile Communications, Inc., Class B+ 2,376,238
328,000 Scientific-Atlanta, Inc. 6,888,000
50,000 Telewest Communication Plc., ADR+ 1,325,000
134,500 Time Warner, Inc. 4,724,313
163,500 Vanguard Cellular Systems Inc., Class A+ 4,210,125
20,000 Viacom Inc., Class A+ 832,500
137,400 Viacom Inc., Class B+ 5,581,875
------------
91,150,011
------------
TECHNOLOGY -- 10.7%
160,000 Apple Computer Inc. 6,240,000
105,000 Chipcom Corp+ 5,250,000
285,000 General Instruments Corporation+ 8,550,000
124,000 Motorola Inc. 7,176,500
48,000 PeopleSoft Inc.+ 1,812,000
------------
29,028,500
------------
CONSUMER SERVICES -- 7.8%
245,000 Bell Cablemedia Plc., ADR+ 4,961,250
100,000 Comcast UK Cable Partners Ltd.+ 1,600,000
145,000 International Family Entertainment Inc., Class B+ 1,830,625
80,000 Peoples Choice TV Corporation+ 1,260,000
333,400 Tele-Communications Inc., Class A+ 7,251,450
236,200 United International Holdings Inc., Class A+ 4,133,500
------------
21,036,825
------------
ENERGY -- 3.3%
780,000 Global Marine Inc.+ 2,827,500
64,200 Schlumberger, Ltd. 3,234,075
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) DECEMBER 31, 1994
MARKET VALUE
SHARES (NOTE 1)
<C> <S> <C> <C>
- ----------------------------------------------------------------------------------------------------
COMMON STOCK (CONTINUED)
ENERGY (CONTINUED)
142,000 Varco International, Inc.+ $ 887,500
210,000 Weatherford International, Inc.+ 2,047,500
------------
8,996,575
------------
CAPITAL GOODS -- 1.6%
337,000 Rowan Inc.+ 2,064,125
119,300 Tidewater, Inc. 2,207,050
------------
4,271,175
- ----------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (COST $239,672,120) 254,748,642
- ----------------------------------------------------------------------------------------------------
FACE
VALUE
- ----------
REPURCHASE AGREEMENTS -- 5.7%
$13,519,000 Agreement with Salomon Brothers, 5.750% dated
12/30/94 to be repurchased at $13,527,637 on 1/3/95,
collaterallized by $13,527,637 U.S. Treasury Notes,
5.875% due 5/31/96 13,519,000
1,803,000 Agreement with Union Bank of Switzerland, 5.625%
dated 12/30/94 to be repurchased at $1,804,127 on
1/3/95, collaterallized by $1,804,127 U.S. Treasury Notes,
6.125% due 7/31/96 1,803,000
- ----------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS (COST $15,322,000) 15,322,000
- ----------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $254,994,120*) 100.0% 270,070,642
- ----------------------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 0.0 (21,230)
- ----------------------------------------------------------------------------------------------------
NET ASSETS 100.0% $270,049,412
- ----------------------------------------------------------------------------------------------------
<FN>
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
++ Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended.
These securities may be resold in transactions exempt from registration to qualified institutional
buyers.
Abbreviations:
ADR -- American Depositary Receipts.
11
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1994
<S> <C> <C>
ASSETS:
Investments, at value (Cost $254,994,120) (Note 1)
See accompanying schedule $270,070,642
Cash 1,001
Receivable for Fund shares sold 399,145
Dividends and interest receivable 239,655
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS 270,710,443
- ------------------------------------------------------------------------------------------------
LIABILITIES:
Investment advisory fee payable (Note 2) $125,191
Distribution fee payable (Note 3) 117,712
Dividends payable 106,020
Payable for Fund shares redeemed 102,346
Service fees payable (Note 3) 56,905
Administration fee payable (Note 2) 45,524
Transfer agent fees payable (Note 2) 37,026
Custodian fees payable (Note 2) 12,000
Accrued expenses and other payables 58,307
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 661,031
- ------------------------------------------------------------------------------------------------
NET ASSETS $270,049,412
- ------------------------------------------------------------------------------------------------
NET ASSETS consist of:
Accumulated net realized loss on investments sold $ (7,505,910)
Unrealized appreciation of investments 15,076,522
Par value 22,801
Paid-in capital in excess of par value 262,455,999
- ------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $270,049,412
- ------------------------------------------------------------------------------------------------
NET ASSET VALUE:
CLASS A SHARES:
Net Asset Value and redemption price per share
($83,917,855 / 7,047,820 shares of beneficial interest outstanding) $11.91
- ------------------------------------------------------------------------------------------------
Maximum offering price per share ($11.91 / 0.95)
(based on sales charge of 5.00% of the offering price on
December 31, 1994) $12.54
- ------------------------------------------------------------------------------------------------
CLASS B SHARES:
Net Asset Value and offering price per share+
($185,980,329 / 15,740,770 shares of beneficial interest outstanding) $11.82
- ------------------------------------------------------------------------------------------------
CLASS C SHARES:
Net Asset Value and offering price per share+
($151,228 / 12,601 shares of beneficial interest outstanding) $12.00
- ------------------------------------------------------------------------------------------------
<FN>
+ Redemption price per share is equal to net asset value less any applicable contingent deferred
sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of withholding tax of $142,312) $ 1,717,758
Interest 847,139
- -----------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 2,564,897
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $1,481,035
Distribution fee (Note 3) 1,413,126
Service fees (Note 3) 673,198
Administration fee (Note 2) 538,558
Transfer agent fees (Notes 2 and 4) 463,142
Custodian fees (Note 2) 49,207
Legal and audit fees 38,505
Trustees' fees and expenses (Note 2) 18,408
Other 219,189
- -----------------------------------------------------------------------------------------
TOTAL EXPENSES 4,894,368
- -----------------------------------------------------------------------------------------
NET INVESTMENT LOSS (2,329,471)
- -----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(NOTES 1 AND 5):
Net realized loss on investments during the year (5,848,735)
Net unrealized depreciation of investments during the year (10,566,252)
- -----------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (16,414,987)
- -----------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(18,744,458)
- -----------------------------------------------------------------------------------------
13
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
YEAR YEAR
ENDED ENDED
12/31/94 12/31/93
<S> <C> <C>
Net investment loss $ (2,329,471) $ (693,424)
Net realized gain/(loss) on investments during the year (5,848,735) 1,939,922
Net unrealized appreciation/(depreciation) of investments during
the year (10,566,252) 17,492,121
- ---------------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from operations (18,744,458) 18,738,619
Distributions to shareholders from net investment income:
Class A (910,324) --
Class B (540,581)
Class C (392) --
Distributions to shareholders from net realized gain on investments:
Class A -- (990,631)
Class B -- (1,990,565)
Class C -- --
Net increase in net assets from Fund share transactions (Note 6):
Class A 12,894,874 27,602,810
Class B 42,850,730 153,451,184
Class C 154,589 --
- ---------------------------------------------------------------------------------------------------
Net increase in net assets 35,704,438 196,811,417
NET ASSETS:
Beginning of year 234,344,974 37,533,557
- ---------------------------------------------------------------------------------------------------
End of year $270,049,412 $234,344,974
- ---------------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/94# 12/31/93# 12/31/92* 12/31/91 12/31/90
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 12.86 $ 9.63 $ 8.68 $ 7.36 $ 8.78
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income/(loss) (0.04) (0.04) 0.05 0.06 0.14
Net realized and unrealized gain/(loss) on
investments (0.78) 3.44 1.63 1.47 (1.32)
- ---------------------------------------------------------------------------------------------------------
Total from investment operations (0.82) 3.40 1,68 1.53 (1.18)
- ---------------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.13) -- (0.02) (0.06) (0.14)
Distributions from net realized capital gains -- (0.17) (0.71) (0.14) (0.10)
Distributions from capital (Note 1) -- -- -- (0.01) --
- ---------------------------------------------------------------------------------------------------------
Total distributions (0.13) (0.17) (0.73) (0.21) (0.24)
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.91 $ 12.86 $ 9.63 $ 8.68 $ 7.36
- ---------------------------------------------------------------------------------------------------------
Total return++ (6.37)% 35.27% 19.41% 20.94% (13.46)%
- ---------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of year (000's) $83,918 $77,564 $36,947 $34,643 $33,130
Ratio of operating expenses to average net
assets 1.24% 1.34% 1.31% 1.19% 1.20%
Ratio of net investment income/(loss) to
average net assets (0.29)% (0.32)% 0.55% 0.67% 1.77%
Portfolio turnover rate 19% 25% 64% 111% 107%
- ---------------------------------------------------------------------------------------------------------
<FN>
* On November 6, 1992 the Fund commenced selling Class B shares. Any shares outstanding prior to
November 6, 1992 were designated as 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.
++ Total return represents aggregate total return for the periods indicated and does not reflect any
applicable sales charge.
15
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS Continued
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED
12/31/89+ 12/31/88+ 12/31/87+ 12/31/86+ 12/31/85+
<S> <C> <C> <C> <C> <C>
Net Asset Value, beginning of year $ 7.08 $ 6.10 $ 11.05 $ 12.64 $ 10.20
- -----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income/(loss) 0.17 0.12 0.31 0.26 0.33
Net realized and unrealized gain/(loss) on
investments 2.51 0.96 (0.61) 1.86 2.75
- -----------------------------------------------------------------------------------------------------
Total from investment operations 2.68 1.08 (0.30) 2.12 3.08
- -----------------------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.16) (0.10) (0.69) (0.32) (0.45)
Distributions from net realized capital gains (0.82) -- (3.96) (3.39) (0.19)
Distributions from capital (Note 1) -- -- -- -- --
- -----------------------------------------------------------------------------------------------------
Total distributions (0.98) (0.10) (4.65) (3.71) (0.64)
- -----------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 8.78 $ 7.08 $ 6.10 $ 11.05 $ 12.64
- -----------------------------------------------------------------------------------------------------
Total return++ 37.85% 17.69% (3.53)% 18.84% 31.68%
- -----------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of year (000's) $40,595 $30,253 $30,160 $38,840 $38,516
Ratio of operating expenses to average net
assets 1.17% 1.21% 1.06% 1.08% 1.32%
Ratio of net investment income/(loss) to
average net assets 1.93% 1.72% 2.63% 2.14% 2.95%
Portfolio turnover rate 94% 49% 115% 71% 108%
- -----------------------------------------------------------------------------------------------------
<FN>
+ 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 periods indicated and does not reflect any
applicable sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.
YEAR YEAR PERIOD
ENDED ENDED ENDED
12/31/94# 12/31/93# 12/31/92*
<S> <C> <C> <C>
Net Asset Value, beginning of year $12.77 $ 9.63 $ 9.33
- --------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.14) (0.14) (0.00)**
Net realized and unrealized gain/(loss) on investments (0.78) 3.45 1.02
- --------------------------------------------------------------------------------------------------------
Total from investment operations (0.92) 3.31 1.02
- --------------------------------------------------------------------------------------------------------
Less Distributions:
Dividends from net investment income (0.03) -- (0.01)
Distributions from net realized capital gains -- (0.17) (0.71)
- --------------------------------------------------------------------------------------------------------
Total distributions (0.03) (0.17) (0.72)
- --------------------------------------------------------------------------------------------------------
Net Asset Value, end of year $ 11.82 $ 12.77 $ 9.63
- --------------------------------------------------------------------------------------------------------
Total return++ (7.17)% 34.34% 10.98%
- --------------------------------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of year (000's) $185,980 $156,781 $ 586
Ratio of operating expenses to average net assets 2.07% 2.18% 2.21%+
Ratio of net investment loss to average net assets (1.11)% (1.16)% (0.38)%+
Portfolio turnover rate 19% 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 period.
+ Annualized.
++ Total return represents aggregate total return for the periods indicated and does not reflect any
applicable sales charge.
17
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD.
PERIOD
ENDED
12/31/94*#
<S> <C>
Net Asset Value, beginning of period $12.70
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (0.01)
Net realized and unrealized loss on investments (0.66)
- --------------------------------------------------------------------------------
Total from investment operations (0.67)
- --------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (0.03)
- --------------------------------------------------------------------------------
Total distributions (0.03)
- --------------------------------------------------------------------------------
Net Asset Value, end of period $12.00
- --------------------------------------------------------------------------------
Total return++ (5.24)%
- --------------------------------------------------------------------------------
Ratios/supplemental data:
Net assets, end of period (000's) $ 151
Ratio of operating expenses to average net assets 2.08%+
Ratio of net investment loss to average net assets (1.13)%+
Portfolio turnover rate 19%
- ------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class C shares on November 7, 1994.
+ Annualized.
++ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
# 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 period.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Telecommunications Trust (the "Trust") (formerly known as Smith
Barney Shearson Telecommunications 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 (the "1940 Act"), as a non-diversified, open-end management
investment company, consisting of two portfolios, Smith Barney
Telecommunications Growth Fund (the "Fund") and Smith Barney Telecommunications
Income Fund (formerly known as Smith Barney Shearson Telecommunications Growth
Fund and Smith Barney Shearson Telecommunications Income Fund, respectively),
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. Effective November 7, 1994, the Fund
began offering Class C and Class Y shares and continued to offer Class A shares
and Class B shares. As of December 31, 1994, no Class Y shares had been sold.
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 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. All 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 seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby
19
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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 or sub-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 4.00% 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 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, 1994, resulting from a tax basis net operating loss were
reclassified to paid-in capital at year end.
20
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS
Prior to the close of business on July 26, 1994, the Trust on behalf of the Fund
was party to an investment advisory agreement with The Boston Company Advisors,
Inc. ("Boston Advisors"), an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). Under this agreement, the Fund paid a monthly fee at an
annual rate of 0.75% of the value of its average daily net assets.
As of the close of business on July 26, 1994, Smith Barney Strategy Advisers
Inc. ("SBSA"), a division of Smith Barney Mutual Funds Management Inc. ("SBMFM")
(formerly known as Smith, Barney Advisers, Inc.), succeeded Boston Advisors as
the Fund's investment adviser. SBMFM is a wholly owned subsidiary of Smith
Barney Holdings Inc.("Holdings"), which is in turn a wholly owned subsidiary of
The Travelers Inc. The new investment advisory agreement contains substantially
the same terms and conditions as the predecessor agreement. SBSA receives a
monthly fee paid at the annual rate of 0.55% of the value of the Fund's average
daily net assets.
As of the close of business on July 26, 1994, Boston Advisors was appointed as
the Fund's sub-investment adviser pursuant to a written agreement (the
"Sub-Advisory Agreement"). Under the terms of the Sub-Advisory Agreement, SBSA
pays Boston Advisors a monthly fee at an annual rate based on the value of the
Fund's average daily net assets.
Prior to April 21, 1994, Boston Advisors provided the Fund with administration
services under the terms of the Advisory Agreement between the Fund and Boston
Advisors. On April 21, 1994, SBMFM succeeded Boston Advisors as the Fund's
administrator. For administration services rendered, the Fund pays SBMFM a
monthly fee at an annual rate of 0.20% of the value of the Fund's average daily
net assets.
21
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
On April 21, 1994, the Fund and SBMFM also entered into a sub-administration
agreement (the "Sub-Administration Agreement") with Boston Advisors. 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 year ended December 31, 1994, the Fund incurred total brokerage
commissions of $155,050 of which $40,204 was paid to Smith Barney Inc. ("Smith
Barney").
For the year ended December 31, 1994, Smith Barney received from investors
$294,730 representing commissions (sales charges) on sales of Class A shares.
A 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 5.00% and 1.00% of net
asset value depending on the number of years since the date of purchase. Class C
has a 1.00% CDSC if redeemed within one year of purchase date. For the year
ended December 31, 1994, Smith Barney received from investors $1,038,991 in CDSC
on the redemption of Class B shares.
No officer, director or employee of Smith Barney, or any of its affiliates
receives any compensation from the Trust for serving as a Trustee or officer of
the Trust. The Trust pays each Trustee who is not an officer, director or
employee of Smith Barney or any of its affiliates $4,500 per annum 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. DISTRIBUTION PLAN
Smith Barney 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 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 Fund compensates Smith
Barney for servicing shareholder accounts for Class A, Class B and Class C
shareholders,
22
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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 those
shares. For the year ended December 31, 1994, the Fund paid service fees of
$202,156 and $471,010 for Class A and Class B shares, respectively, and $32 for
the period ended December 31, 1994 for Class C shares. For the year ended
December 31, 1994, the Fund paid $1,413,030 in distribution fees for Class B
shares and during the period ended December 31, 1994 paid $96 in distribution
fees for Class C shares.
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
class. Operating expenses directly attributable to a class of shares are charged
to that class' operations. In addition to the above service and distribution
fees, class specific operating expenses include transfer agent fees. For the
year ended December 31, 1994, the Fund paid transfer agent fees of $96,306,
$366,810, and $26 for Class A, Class B and Class C shares, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding short-term
securities, aggregated $112,881,235 and $46,924,897, respectively, during the
year ended December 31, 1994.
At December 31, 1994, aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $40,224,496, and
aggregate gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $25,147,974.
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 are
23
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
divided into four classes, Class A, Class B, Class C and Class Y. Changes in
shares of beneficial interest in the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/94 12/31/93
CLASS A SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Sold 2,118,919 $ 26,465,297 3,444,398 $ 42,291,699
Issued as reinvestment of dividends 69,569 828,566 -- --
Issued as reinvestment of capital
gains distribution -- -- 70,818 910,725
Redeemed (1,170,354) (14,398,989) (1,321,071) (15,599,614)
- --------------------------------------------------------------------------------------------------
Net increase 1,018,134 $ 12,894,874 2,194,145 $ 27,602,810
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/94 12/31/94
CLASS B SHARES: SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Sold 6,989,940 $ 85,839,378 13,201,046 $165,712,928
Issued as reinvestment of dividends 43,682 516,322 -- --
Issued as reinvestment of capital
gains distribution -- -- 152,728 1,950,330
Redeemed (3,572,347) (43,504,970) (1,135,129) (14,212,074)
- --------------------------------------------------------------------------------------------------
Net increase 3,461,275 $ 42,850,730 12,218,645 $153,451,184
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
12/31/94*
CLASS C SHARES: SHARES AMOUNT
<S> <C> <C>
- --------------------------------------------------------------
Sold 12,569 $154,200
Issued as reinvestment of dividends 32 389
- --------------------------------------------------------------
Net increase 12,601 $154,589
- --------------------------------------------------------------
<FN>
* The Fund commenced selling Class C shares on November 7, 1994.
As of December 31, 1994, no Class Y shares had been sold.
</TABLE>
24
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
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. CAPITAL LOSS CARRYFORWARD
As of December 31, 1994, the Fund had available for Federal tax purposes an
unused capital loss carryforward of $5,387,295 expiring in the year 2002.
9. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Bank of America (formerly known as Continental Bank 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 disposition of securities. The Fund may borrow up to
the lesser of $25 million or 25% of its net assets, adjusted for the purposes of
the Agreement. However, pursuant to the Fund's prospectus, the Fund may only
borrow up to 10% of its net assets. Interest is payable either at the bank's
Money Market Rate or the London Interbank Offered Rate (LIBOR) plus 0.375% on an
annualized basis. Under the terms of the Agreement, as amended, the Fund and the
other affiliated 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 year ended December 31, 1994, the Fund did not borrow under the Agreement.
25
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES AND SHAREHOLDERS OF SMITH BARNEY
TELECOMMUNICATIONS TRUST (SMITH BARNEY TELECOMMUNICATIONS GROWTH FUND):
We have audited the accompanying statement of assets and liabilities of Smith
Barney Telecommunications Trust (Smith Barney Telecommunications Growth Fund)
(formerly Smith Barney Shearson Telecommunications Trust (Smith Barney Shearson
Telecommunications Growth Fund)), including the schedule of portfolio
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
ten years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust'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, 1994 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 Telecommunications Trust (Smith Barney Telecommunications Growth Fund) as
of December 31, 1994, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the ten years in the period then ended,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 3, 1995
26
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FISCAL YEAR ENDED DECEMBER 31, 1994
Of the distributions made by the Fund during the fiscal year ended December 31,
1994, 19.62% qualify for the dividends-received deduction available to corporate
shareholders.
27
<PAGE>
Smith Barney
TELECOMMUNICATIONS GROWTH FUND
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
On July 26, 1994, a special meeting of the shareholders of the Fund was held for
the purpose of voting on the following matters:
1. To approve or disapprove for the Fund a new investment advisory
agreement between the Trust, on behalf of the Fund, and SBSA (formerly,
Smith Barney Shearson Strategy Advisers Inc.) ("Proposal 1"); and
2. To approve or disapprove for the Fund the Sub-Advisory Agreement
between the Trust, on behalf of the Fund, SBSA, as investment adviser, and
Boston Advisors ("Proposal 2").
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
<S> <C> <C> <C>
- -------------------------------------------------------------
Affirmative 9,846,300.731 44.480% 88.849%
Against 329,904.417 1.490% 2.976%
Abstain 906,026.061 4.092% 8.175%
- -------------------------------------------------------------
Total 11,082,231.209 50.064% 100.000%
- -------------------------------------------------------------
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
<S> <C> <C> <C>
- -------------------------------------------------------------
Affirmative 9,739,906.492 44.000% 87.888%
Against 381,361.171 1.722% 3.441%
Abstain 960,963.546 4.341% 8.671%
- -------------------------------------------------------------
Total 11,082,231.209 50.046% 100.000%
- -------------------------------------------------------------
</TABLE>
28
<PAGE>
SMITH BARNEY
TELECOMMUNICATIONS
INCOME
FUND
1994
ANNUAL ...................................
REPORT
DECEMBER 31, 1994
[LOGO] SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERYDAY.
<PAGE>
TELECOMMUNICATIONS INCOME FUND
DEAR SHAREHOLDER:
We are pleased to provide you with the Annual Report, which includes the
portfolio of investments, for Smith Barney Telecommunications Income Fund for
the year ended December 31, 1994. 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 largely concentrated in stocks of
Bell operating companies.
The Fund's aggregate total return (distributions plus change in share price)
was (1.83)% for 1994. By comparison, the total return of Standard & Poor's
Corporation Daily Price Index of 500 Common Stocks (the "S&P 500"), an
unmanaged index used to portray common stock price movement of large U.S.
companies that historically have paid dividends on their stock, was 1.31%. The
Fund underperformed this index because Bell operating companies' stocks, which
comprise 95% of the portfolio, are viewed as yield stocks and are sensitive to
changes in the levels of interest rates. When interest rates rise sharply, as
they did in 1994, the prices of the stocks in the Fund tend to decline or rise
less rapidly than those of the S&P 500.
We are optimistic about the prospects for the Bell operating companies. They
provide an attractive current dividend yield and a dividend growth rate of
3% to 5%. Their modest but steady earnings growth rate of 4% to 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, particularly in the
area of wireless communication. Although wireless communication is not the Bell
operating companies' major business, it is important to their future growth.
We hope the Fund will provide you with an attractive dividend return. Thank you
again for your confidence in the Fund.
Sincerely,
/s/ Heath B. McLendon /s/ Guy R. Scott
Heath B. McLendon Guy R. Scott
Chairman of the Board Investment Administrator
and Investment Officer
February 6, 1995
1
<PAGE>
<TABLE>
GROWTH OF $10,000 INVESTED IN SMITH BARNEY
TELECOMMUNICATIONS INCOME FUND+
- --------------------------------------------------------------------------------------
January 1, 1985 - December 31, 1994
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000 GROWTH OF $10,000
INVESTED IN THE INVESTMENT IN THE INVESTMENT IN THE
MONTH CLASS A SHARES OF THE STANDARD & POOR'S LIPPER EQUITY
ENDED FUND 500 INDEX INCOME INDEX
<S> <C> <C> <C>
12/84 $10,000 $10,000 $10,000
03/85 $10,672 $10,918 $10,677
06/85 $11,928 $11,720 $11,472
09/85 $11,273 $11,240 $11,214
12/85 $13,330 $13,174 $12,485
03/86 $14,978 $15,032 $13,910
06/86 $16,637 $15,919 $14,382
09/86 $16,095 $14,808 $14,076
12/86 $16,662 $15,634 $14,608
03/87 $17,218 $18,973 $16,198
06/87 $17,350 $19,924 $16,334
09/87 $19,093 $21,239 $16,811
12/87 $16,813 $16,457 $14,451
03/88 $17,631 $17,391 $15,433
06/88 $19,137 $18,548 $16,192
09/88 $19,557 $18,611 $16,431
12/88 $19,691 $19,183 $16,725
03/89 $21,446 $20,542 $17,667
06/89 $24,166 $22,354 $18,872
09/89 $26,990 $24,743 $20,163
12/89 $29,952 $25,252 $20,288
03/90 $27,254 $24,493 $19,680
06/90 $27,411 $26,032 $20,181
09/90 $27,121 $22,458 $18,157
12/90 $29,414 $24,468 $19,278
03/91 $30,056 $28,015 $21,433
06/91 $28,230 $27,948 $21,609
09/91 $28,495 $29,441 $22,927
12/91 $30,383 $31,906 $24,400
03/92 $27,779 $31,101 $24,298
06/92 $30,138 $31,690 $24,888
09/92 $32,699 $32,691 $25,570
12/92 $33,692 $34,335 $26,752
03/93 $36,910 $35,835 $28,440
06/93 $37,513 $36,005 $28,901
09/93 $40,605 $36,934 $30,050
12/93 $39,083 $37,792 $30,383
3/94 $37,429 $36,364 $29,254
6/94 $39,867 $36,513 $29,606
9/94 $39,556 $38,295 $30,848
12/94 $38,369 $38,286 $30,112
<FN>
+ Illustration of $10,000 invested in Fund shares on January 1, 1985 through December 31, 1994,
assuming reinvestment of dividends and capital gains at net asset value.
LIPPER EQUITY INCOME FUND INDEX is a net asset value weighted index of the 30
largest equity income mutual funds.
STANDARD & POOR'S 500 STOCK INDEX ("S&P 500") is a market capitalization index 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
as a mutual fund.
NOTE: All figures cited here and on the other pages represent past performance and do not guarantee
future results.
</TABLE>
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS QUARTERLY AND CAPITAL GAINS, IF
ANY, ANNUALLY.
<TABLE>
- -----------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN* (UNAUDITED)
- -----------------------------------------------------------------------------
<S> <C>
Year Ended 12/31/94 (1.83)%
- -----------------------------------------------------------------------------
Five Years Ended 12/31/94 5.08%
- -----------------------------------------------------------------------------
Ten Years Ended 12/31/94 14.39%
- -----------------------------------------------------------------------------
<FN>
* All average annual total return figures shown reflect the reinvestment of
dividends and capital gains at net asset value.
</TABLE>
2
<PAGE>
Smith Barney
Telecommunications Income Fund
<TABLE>
- -----------------------------------------------------------------------
TOP TEN HOLDINGS DECEMBER 31, 1994 (UNAUDITED)
- -----------------------------------------------------------------------
<CAPTION>
Percentage of
Company Net Assets
- -----------------------------------------------------------------------
<S> <C>
BELL ATLANTIC CORPORATION 21.0%
BELLSOUTH CORPORATION 17.1
SOUTHWESTERN BELL CORPORATION 16.3
AMERITECH CORPORATION 14.5
AIRTOUCH COMMUNICATIONS 10.2
PACIFIC TELESIS GROUP 10.0
U.S. WEST, INC. 8.5
NYNEX CORPORATION 2.8
GENERAL ELECTRIC CAPITAL CORPORATION 1.5
SEARS ROEBUCK & COMPANY 1.5
</TABLE>
3
<PAGE>
Smith Barney
Telecommunications Income Fund
<TABLE>
- -------------------------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS DECEMBER 31, 1994
- -------------------------------------------------------------------------------------------
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK - 100.3%
TELECOMMUNICATIONS - 100.3%
214,436 AirTouch Communications+ $ 6,245,449
219,942 Ameritech Corporation 8,880,158
258,092 Bell Atlantic Corporation 12,840,077
193,697 BellSouth Corporation 10,483,850
45,896 NYNEX Corporation 1,686,678
214,436 Pacific Telesis Group 6,111,426
247,008 Southwestern Bell Corporation 9,972,948
146,858 U.S. West, Inc. 5,231,816
- ------------------------------------------------------------------------------------------
TOTAL COMMON STOCK (Cost $18,160,852) 61,452,402
==========================================================================================
CONVERTIBLE PREFERRED STOCK - 1.5% (COST $684,800)
16,000 Sears Roebuck & Company, Convertible
Preferred, Series A, Depository Shares
Representing 1/4 share, PERCS 890,000
- ------------------------------------------------------------------------------------------
FACE VALUE
COMMERCIAL PAPER - 1.5% (Cost $916,000)
916,000 General Electric Capital Corporation, 5.800% due 1/3/95 916,000
- ------------------------------------------------------------------------------------------
TOTAL INVESTMENTS (COST $19,761,652*) 103.3% 63,258,402
==========================================================================================
OTHER ASSETS AND LIABILITIES (NET) (3.3) (2,002,604)
==========================================================================================
NET ASSETS 100.0% $61,255,798
==========================================================================================
<FN>
* Aggregate cost for Federal tax purposes was $15,343,407.
+ Non-income producing security.
PERCS - Preferred Equity Redemption Cumulative Stock.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney
Telecommunications Income Fund
<TABLE>
- -----------------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investments, at value (Cost $19,761,652) (Note 1)
See accompanying schedule $63,258,402
Cash 75
Dividends and interest receivable 269,212
- -----------------------------------------------------------------------------------------
TOTAL ASSETS 63,527,689
=========================================================================================
LIABILITIES:
Dividends payable $2,174,987
Investment advisory fee payable (Note 2) 29,312
Payable for Fund shares redeemed 19,000
Administration fee payable (Note 2) 10,659
Custodian fees payable (Note 2) 6,000
Transfer agent fees payable (Note 2) 2,120
Accrued expenses and other payables 29,813
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,271,891
=========================================================================================
NET ASSETS $61,255,798
=========================================================================================
NET ASSETS consist of:
Undistributed net investment income $ 1,750
Unrealized appreciation of investments 43,496,750
Par value 641
Paid-in capital in excess of par value 17,756,657
- -----------------------------------------------------------------------------------------
TOTAL NET ASSETS $61,255,798
=========================================================================================
NET ASSET VALUE, offering price and redemption price per share
($61,255,798 / 640,586 shares of beneficial interest
outstanding) $95.62
=========================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney
Telecommunications Income Fund
<TABLE>
- -----------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME:
Dividends and interest $ 3,208,597
- -----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $371,440
Administration fee (Note 2) 135,069
Legal and audit fees 37,903
Transfer agent fees (Note 2) 23,802
Custodian fees (Note 2) 23,736
Trustees' fees and expenses (Note 2) 18,408
Other 33,567
- -----------------------------------------------------------------------------------------
TOTAL EXPENSES 643,925
- -----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,564,672
=========================================================================================
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 1 AND 3):
Net realized gain on investments sold during the year 2,301,558
Net unrealized depreciation of investments during the year (6,098,127)
=========================================================================================
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (3,796,569)
=========================================================================================
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,231,897)
=========================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney
Telecommunications Income Fund
<TABLE>
- -----------------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- -----------------------------------------------------------------------------------------
<CAPTION>
YEAR YEAR
ENDED ENDED
12/31/94 12/31/93
<S> <C> <C>
Net investment income $ 2,564,672 $ 2,587,760
Net realized gain on investments sold during the year* 2,301,558 2,578,741
Net unrealized appreciation/(depreciation) of investments
during the year (6,098,127) 5,834,676
- -----------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
operations (1,231,897) 11,001,177
Distributions from net investment income (2,586,399) (2,919,439)
Distributions from net realized gain on investments (3,845,617) (4,519,452)
Net decrease in net assets from Fund share transactions
(Note 4) (2,650,191) (2,629,290)
- -----------------------------------------------------------------------------------------
Net decrease in net assets (9,082,207) (10,068,181)
NET ASSETS:
Beginning of year 71,569,902 70,636,906
- -----------------------------------------------------------------------------------------
End of year (including undistributed net investment income
of $1,750 and $23,477, respectively) $61,255,798 $71,569,902
=========================================================================================
<FN>
* Net realized gain for Federal tax purposes was $2,559,893 and $2,637,495, respectively.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney
Telecommunications Income Fund
<TABLE>
- --------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------------
FOR A FUND SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
12/31/94 12/31/93 12/31/92
<S> <C> <C> <C>
Net asset value, beginning of year $107.62 $102.67 $110.75
- --------------------------------------------------------------------------------------
Income from investment operations:
Net investment income 4.02 3.94 4.91
Net realized and unrealized gain/(loss) on
investments (5.91) 12.30 6.79
- --------------------------------------------------------------------------------------
Total from investment operations (1.89) 16.24 11.70
- --------------------------------------------------------------------------------------
Less distributions:
Dividends from net investment income (4.05) (4.42) (4.55)
Distributions from net realized capital gains (6.06) (6.87) (15.23)
Distributions from capital -- -- --
Distributions in excess of net realized gains -- -- --
- --------------------------------------------------------------------------------------
Total distributions (10.11) (11.29) (19.78)
- --------------------------------------------------------------------------------------
Net asset value, end of year $ 95.62 $107.62 $102.67
======================================================================================
Total return+ (1.83)% 16.00% 10.89%
======================================================================================
Ratios/supplemental data:
Net assets, end of year (000's) $61,256 $71,570 $70,637
Ratio of operating expenses to average net
assets 0.95% 0.93% 0.92%
Ratio of net investment income to average net
assets 3.80% 3.47% 4.41%
Portfolio turnover rate 0% 0% 2%
======================================================================================
<FN>
+ Total return represents aggregate total return for the period indicated.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney
Telecommunications Income Fund
<TABLE>
- --------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR YEAR
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
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>
$129.06 $140.93 $ 99.10 $ 90.28 $ 99.20 $ 86.19 $ 70.16
- --------------------------------------------------------------------------------------
5.74 6.10 5.18 5.55 5.87 5.54 5.30
(2.20) (8.98) 45.31 9.66 (4.67) 15.38 16.87
- --------------------------------------------------------------------------------------
3.54 (2.88) 50.49 15.21 1.20 20.92 22.17
- --------------------------------------------------------------------------------------
(6.05) (5.79) (5.85) (5.40) (7.20) (5.40) (5.34)
(14.62) (3.20) (2.65) (0.99) (2.92) (2.51) (0.80)
(1.18) -- -- -- -- -- --
-- -- (0.16) -- -- -- --
- --------------------------------------------------------------------------------------
(21.85) (8.99) (8.66) (6.39) (10.12) (7.91) (6.14)
- --------------------------------------------------------------------------------------
$110.75 $129.06 $140.93 $ 99.10 $ 90.28 $ 99.20 $ 86.19
=====================================================================================
3.30% (1.80 )% 52.11% 17.12% 0.91% 24.99% 33.30%
=====================================================================================
$79,419 $94,854 $109,970 $82,546 $80,349 $95,439 $88,926
0.90% 0.92% 0.89% 0.95% 0.97% 0.96% 1.07%
4.57% 4.81% 4.32% 5.70% 5.84% 5.68% 6.91%
18% 3% 5% 3% 6% 15% 21%
=====================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney
Telecommunications Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Telecommunications Trust (the "Trust") (formerly known as Smith
Barney Shearson Telecommunications 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 (the "1940 Act"), as a non-diversified, open-end management
investment company consisting of two portfolios, Smith Barney Telecommunications
Growth Fund and Smith Barney Telecommunications Income Fund (the "Fund")
(formerly known as Smith Barney Shearson Telecommunications Growth Fund and
Smith Barney Shearson Telecommunications Income Fund, respectively), 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 or sub-investment
adviser, acting under the supervision of the Board of Trustees,
10
<PAGE>
Smith Barney
Telecommunications Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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 quarterly and are paid on the last
Friday of the calendar quarter. 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 4.00%
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.
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.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE AND OTHER TRANSACTIONS
Prior to the close of business on June 15, 1994, the Trust on behalf of the Fund
was party to an investment advisory agreement with The Boston Company Advisors,
Inc. ("Boston Advisors"), an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). Under this agreement, the Fund paid a monthly fee at an
annual rate of 0.75% of the value of its average daily net assets.
11
<PAGE>
Smith Barney
Telecommunications Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
As of the close of business on June 15, 1994, Smith Barney Strategy Advisers
Inc. ("SBSA"), a division of Smith Barney Mutual Funds Management Inc.,
("SBMFM") (formerly known as Smith, Barney Advisers, Inc.), succeeded Boston
Advisors as the Fund's investment adviser. SBMFM is a wholly owned subsidiary of
Smith Barney Holdings Inc. ("Holdings") which is in turn a wholly owned
subsidiary of The Travelers Inc. The new investment advisory agreement contains
substantially the same terms and conditions as the predecessor agreement. SBSA
receives a monthly fee paid at the annual rate of 0.55% of the value of the
Fund's average daily net assets.
As of the close of business on June 15, 1994, Boston Advisors was appointed as
the Fund's sub-investment adviser pursuant to a written agreement (the
"Sub-Advisory Agreement"). Under the terms of the Sub-Advisory Agreement, SBSA
pays Boston Advisors a monthly fee based on the value of the Fund's average
daily net assets.
Prior to April 21, 1994, Boston Advisors provided the Fund with administration
services under the terms of the Advisory Agreement between the Fund and Boston
Advisors. On April 21, 1994, SBMFM succeeded Boston Advisors as the Fund's
administrator. For administration services rendered, the Fund pays SBMFM a
monthly fee at the annual rate of 0.20% of the value of the Fund's average daily
net assets.
On April 21, 1994, the Fund entered into a sub-administration agreement (the
"Sub-Administration Agreement") with Boston Advisors. Under the
Sub-Administration Agreement, Boston Advisors is paid by SBMFM at a rate agreed
upon from time to time between SBMFM and Boston Advisors.
For the year ended December 31, 1994, the Fund incurred total brokerage
commissions of $8,075, of which $2,000 was paid to Smith Barney Inc. ("Smith
Barney").
No officer, director or employee of Smith Barney or any of its affiliates
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 or any of its affiliates $4,500 per annum plus $250
per 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.
12
<PAGE>
Smith Barney
Telecommunications Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
3. PURCHASES AND SALES OF SECURITIES
Proceeds from sales of securities, excluding short-term obligations, aggregated
$3,804,923 during the year ended December 31, 1994. No purchases were made
during the year ended December 31, 1994.
At December 31, 1994, aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $47,914,995.
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. The Fund, however, has
not offered additional shares since its inception, except for shares purchased
through the reinvestment of dividends. 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.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
12/31/94 12/31/93
SHARES AMOUNT SHARES AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Issued as reinvestment of dividends 8,675 $ 883,503 8,738 $ 970,506
Issued as reinvestment of capital gains 13,862 1,358,512 14,430 1,557,844
Redeemed (46,981) (4,892,206) (46,167) (5,157,640)
- ---------------------------------------------------------------------------------------------
Net decrease (24,444) $(2,650,191) (22,999) $(2,629,290)
=============================================================================================
</TABLE>
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 Bank of America (formerly known as Continental Bank N.A.)
under an
13
<PAGE>
Smith Barney
Telecommunications Income Fund
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
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 disposition of securities. The Fund may borrow up to the
lesser of $25 million or 25% of its net assets, adjusted for the purposes of the
Agreement. However, pursuant to the Fund's prospectus, the Fund may only borrow
up to 10% of its net assets. Interest is payable either at the bank's Money
Market Rate or the London Interbank Offered Rate (LIBOR) plus 0.375% on an
annualized basis. The Fund and the other affiliated 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. At December 31, 1994, the Fund had no
outstanding borrowings. During the year ended December 31, 1994, the Fund had an
average outstanding daily balance of $8,496 with interest rates ranging from
4.625% to 6.375%. Interest expense totalled $424, which has been offset against
interest income on the Statement of Operations for the year ended December 31,
1994.
14
<PAGE>
Smith Barney
Telecommunications Income Fund
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF
SMITH BARNEY TELECOMMUNICATIONS TRUST
(SMITH BARNEY TELECOMMUNICATIONS INCOME FUND):
We have audited the accompanying statement of assets and liabilities of Smith
Barney Telecommunications Trust (Smith Barney Telecommunications Income Fund)
(formerly Smith Barney Shearson Telecommunications Trust (Smith Barney Shearson
Telecommunications Income Fund)), including the schedule of portfolio
investments, as of December 31, 1994, and the related statement of operations
for the year then ended, the statement of changes in net assets for each of the
two years in the period then ended, and the financial highlights for each of the
ten years in the period then ended. These financial statements and financial
highlights are the responsibility of the Trust'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, 1994 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 Telecommunications Trust (Smith Barney Telecommunications Income Fund) as
of December 31, 1994, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended,
and the financial highlights for each of the ten years in the period then ended,
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 3, 1995
15
<PAGE>
Smith Barney
Telecommunications Income Fund
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FISCAL YEAR ENDED DECEMBER 31, 1994
- --------------------------------------------------------------------------------
Of the distributions made by the Fund, during the fiscal year ended December 31,
1994, 98.83% qualify for the dividends-received deduction available to corporate
shareholders.
The amount of long-term capital gains paid for the fiscal year ended December
31, 1994 was $3,845,896.
16
<PAGE>
Smith Barney
Telecommunications Income Fund
- --------------------------------------------------------------------------------
ADDITIONAL INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
On June 15, 1994, a special meeting of the shareholders of the Fund was held for
the purpose of voting on the following matters:
1. To approve or disapprove for the Fund a new investment advisory
agreement between the Trust, on behalf of the Fund, and SBSA (formerly,
Smith Barney Shearson Strategy Advisers Inc.) ("Proposal 1"); and
2. To approve or disapprove for the Fund the Sub-Advisory Agreement
between the Trust, on behalf of the Fund, SBSA, as investment adviser, and
Boston Advisors ("Proposal 2").
<TABLE>
The results of the vote on Proposal 1 were as follows:
<CAPTION>
% OF
NO. OF OUTSTANDING % OF SHARES
VOTE SHARES SHARES VOTED
- -----------------------------------------------------------
<S> <C> <C> <C>
Affirmative 388,182.943 59.753% 92.950%
Against 5,331.454 0.821% 1.276%
Abstain 24,112.514 3.712% 5.774%
- -----------------------------------------------------------
Total 417,626.911 64.286% 100.000%
===========================================================
</TABLE>
<TABLE>
The results of the vote on Proposal 2 were as follows:
<CAPTION>
% OF
NO. OF OUTSTANDING % OF SHARES
VOTE SHARES SHARES VOTED
- -----------------------------------------------------------
<S> <C> <C> <C>
Affirmative 385,269.291 59.305% 92.252%
Against 6,349.919 0.977% 1.521%
Abstain 26,007.071 4.004% 6.227%
- -----------------------------------------------------------
Total 417,626.911 64.286% 100.000%
===========================================================
</TABLE>
17
<PAGE>
TELECOMMUNICATIONS SMITH BARNEY
INCOME FUND ------------
A Member of TravelersGroup [LOGO]
TRUSTEES
Paul R. Ades
Herbert Barg
Alger B. Chapman
Dwight B. Crane
Frank G. Hubbard
Allan Johnson
Heath B. McLendon
Ken Miller
John F. White
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
1994
Jessica M. Bibliowicz ANNUAL
President REPORT
Lewis E. Daidone This report is submitted for
Senior Vice President the general information of the
and Treasurer shareholders of Smith Barney
Telecommunications Income Fund.
Christina T. Sydor It is not a prospectus, circular
Secretary or representation intended for use
in the purchase or sale of shares
of the Fund or of any securities
mentioned in this report.
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
[RECYCLE LOGO] Recycled Fund 11
Recyclable FD 0494A B5
