SEMI-ANNUAL REPORT
================================================================================
Smith Barney
Telecommunications
Income Fund
------------------
June 30, 1996
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- -------------------------------------------
Smith Barney Telecommunications Income Fund
- -------------------------------------------
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the Smith Barney
Telecommunications Income Fund for the period ended June 30, 1996. In this
report, we briefly cover the Fund's performance and discuss our outlook for the
Bell operating companies, which make up a large percentage of the Fund's
holdings. A more detailed summary of the Fund's performance and current holdings
can be found in the appropriate sections that follow in the semi-annual report.
Market and Performance Update
As you know, the Smith Barney Telecommunication Income Fund's holdings are
largely concentrated in stocks of the Bell operating companies, several of which
have recently merged with each other. Bell Atlantic, which provides
telecommunications service in seven Mid-Atlantic states, and NYNEX,
headquartered in New York City, which serves New York State and the Northeast,
excluding most of Connecticut, announced a definitive merger agreement in late
April. The merger will form the largest local exchange company in the United
States with over 37 million access lines (23% of the nation's total), revenues
of $30 billion and a combined value of $70 billion. In addition,
California-based Pacific Telesis Group, and the Southwestern-based Bell
operating company, SBC Communications Inc. have agreed to merge, and regulatory
approval is expected by the first quarter of 1997.
The Smith Barney Telecommunications Income Fund's total return for the six
months ended June 30, 1996 was -3.68%. By comparison, the Standard and Poor's
500 Index (S&P 500), an unmanaged capitalization-weighted index of 500 widely
held stocks, posted a total return of 10.09% for the same period. The Fund
underperformed the S&P 500 largely due to a sharp decline in the prices of
telecommunication stocks since early February. After posting strong gains
throughout 1995 and reaching record highs in January 1996, the stocks of Bell
operating companies retreated. One factor that had fueled the strong gains in
these stocks was proposed future telecommunications legislation that would allow
Bell operating companies to provide long-distance service outside of their
regions, as well as manufacture telecommunications equipment through a separate
subsidiary, thus improving prospects for future earnings growth. As uncertainty
arose over whether or not Congress would actually pass the bill, stock prices
began to decline significantly. In addition, Bell operating companies' stocks
are viewed as stable but slow growth companies, which have only about one-half
the earnings growth rate of
1
<PAGE>
the S&P 500. In the last six months the best-performing stocks were high growth
companies. Moreover, the uncertainty of deregulation and the potential of
increased competition in the telecommunications business has heightened investor
concerns.
Outlook
We are optimistic about the prospects for the telecommunications industry, and
in particular, the Bell operating companies. Strong second quarter results and
continued earnings growth potential should be positive for these companies. In
addition, the increased focus of many of the Bell operating companies on
cellular and long distance telephone service, should be an important source of
future earnings growth. However, not all Bell operating companies have the same
prospects. As a result, we have emphasized those companies we believe to have
the brightest future, particularly those with expertise in wireless
communication, an exciting industry with outstanding long-term growth potential.
In closing, we would like to thank you for investing in the Smith Barney
Telecommunications Income Fund. We look forward to continuing to help you
achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Guy R. Scott
Heath B. McLendon Guy R. Scott
Chairman and Investment Officer
Chief Executive Officer
July 15, 1996
2
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns+
===========================================================================================
<C> <C> <C> <C> <C> <C> <C>
6/30/96 $ 119.69 $ 111.67 $ 1.60 $ 1.93 $ 0.00 (3.68)%++
- -------------------------------------------------------------------------------------------
12/31/95 95.62 119.69 3.58 11.50 0.00 42.93
- -------------------------------------------------------------------------------------------
12/31/94 107.62 95.62 4.05 6.06 0.00 (1.83)
- -------------------------------------------------------------------------------------------
12/31/93 102.67 107.62 4.42 6.87 0.00 16.00
- -------------------------------------------------------------------------------------------
12/31/92 110.75 102.67 4.55 15.23 0.00 10.89
- -------------------------------------------------------------------------------------------
12/31/91 129.06 110.75 6.05 14.62 1.18 3.30
- -------------------------------------------------------------------------------------------
12/31/90 140.93 129.06 5.79 3.20 0.00 (1.80)
- -------------------------------------------------------------------------------------------
12/31/89 99.10 140.93 5.85 2.81 0.00 52.11
- -------------------------------------------------------------------------------------------
12/31/88 90.28 99.10 5.40 0.99 0.00 17.12
- -------------------------------------------------------------------------------------------
12/31/87 99.20 90.28 7.20 2.92 0.00 0.91
- -------------------------------------------------------------------------------------------
12/31/86 86.19 99.20 5.40 2.51 0.00 24.99
===========================================================================================
Total $53.89 $68.64 $ 1.18
===========================================================================================
</TABLE>
It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Average Annual Total Return+
- --------------------------------------------------------------------------------
================================================================================
Six Months Ended 6/30/96++ (3.68)%
- --------------------------------------------------------------------------------
Year Ended 6/30/96 22.37
- --------------------------------------------------------------------------------
Five Years Ended 6/30/96 13.35
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/96 12.25
- --------------------------------------------------------------------------------
1/1/84* through 6/30/96 16.04
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return+
- --------------------------------------------------------------------------------
================================================================================
6/30/86 through 6/30/96 217.51%
================================================================================
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value
* Commencement of operations.
3
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in
the Smith Barney Telecommunications Income Fund vs.
Standard & Poor's 500 Index and Lipper Equity Income Fund Index+
- --------------------------------------------------------------------------------
June 1986 -- June 1996
[The following table appeared as a line graph in the printed material]
Smith Barney
Telecommunications
Income Fund S&P 500 Index Lipper Equity Income Index
----------- ------------- --------------------------
6/30/86 10000 10000 10160
12/86 10015 9821 11587
12/87 10106 10337 11621
12/88 11836 12049 13637
12/89 18004 15861 14606
12/90 17680 15368 15600
12/91 18263 20041 19899
12/92 20252 21567 21837
12/93 23493 23735 25078
12/94 23063 24047 24846
12/95 32964 33072 32259
6/96 31750 36409 34563
+ Hypothetical illustration of $10,000 invested in the Smith Barney
Telecommunications Income Fund on June 30, 1986, assuming reinvestment of
dividends and capital gains, if any, at net asset value through June 30,
1996. The Standard & Poor's 500 Index is composed of widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange and
the over-the-counter market. Figures for the index include reinvestment of
dividends. The Lipper Equity Income Fund Index is a net asset value
weighted index of the 30 largest funds in the Equity Income category. The
indexes are unmanaged and are not subject to the same management and
trading expenses as a mutual fund.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
4
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 97.4%
Broadcast Radio and Television -- 3.9%
146,858 U.S. West Media Group $ 2,680,158
- --------------------------------------------------------------------------------
Telecommunications -- 93.5%
164,436 Airtouch Communications Inc.+ 4,645,317
189,942 Ameritech Corp. 11,277,806
179,092 Bell Atlantic Corp. 11,417,115
304,394 Bellsouth Corp. 12,898,696
45,896 NYNEX Corp. 2,180,060
184,436 Pacific Telesis Group 6,224,715
231,008 SBC Communications Inc. 11,377,144
146,858 U.S. West Communications Inc. 4,681,099
- --------------------------------------------------------------------------------
64,701,952
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $15,122,237) 67,382,110
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 2.6%
$1,777,000 Citibank, 5.396% due 7/1/96; Proceeds at
maturity -- $1,777,799; (Fully collateralized
by U.S. Treasury Notes, 6.375% due 5/15/99;
Market value -- $1,812,729) (Cost -- $1,777,000) 1,777,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $16,899,237*) $69,159,110
================================================================================
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is $12,800,415.
See Notes to Financial Statements.
5
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $16,899,237) $ 69,159,110
Dividend and interest receivable 101,469
- --------------------------------------------------------------------------------
Total Assets 69,260,579
- --------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 972,008
Payable to bank 412,399
Investment advisory fees payable 30,360
Administration fees payable 11,040
Accrued expenses 56,282
- --------------------------------------------------------------------------------
Total Liabilities 1,482,089
- --------------------------------------------------------------------------------
Total Net Assets $ 67,778,490
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 607
Capital paid in excess of par value 13,696,302
Overdistributed net investment income (96,110)
Accumulated net realized gain on security transactions 1,917,818
Net unrealized appreciation of investments 52,259,873
- --------------------------------------------------------------------------------
Total Net Assets $ 67,778,490
================================================================================
Shares Outstanding 606,966
- --------------------------------------------------------------------------------
Net Asset Value, Per Share (and redemption price) $ 111.67
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996
INVESTMENT INCOME:
Dividends $ 1,173,095
Interest 31,987
- --------------------------------------------------------------------------------
Total Investment Income 1,205,082
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 193,147
Administration fees (Note 2) 70,235
Shareholder communications 12,432
Audit and legal 9,945
Shareholder and system servicing fees 8,522
Trustees' fees 5,719
Custody 1,492
Other 27,692
- --------------------------------------------------------------------------------
Total Expenses 329,184
- --------------------------------------------------------------------------------
Net Investment Income 875,898
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 2,458,821
Cost of securities sold 518,180
- --------------------------------------------------------------------------------
Net Realized Gain 1,940,641
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 57,854,125
End of period 52,259,873
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (5,594,252)
- --------------------------------------------------------------------------------
Net Loss on Investments (3,653,611)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (2,777,713)
================================================================================
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30, 1996 (unaudited)
and the Year Ended December 31, 1995.
1996 1995
================================================================================
OPERATIONS:
Net investment income $ 875,898 $ 2,196,794
Net realized gain+ 1,940,641 7,813,425
Increase (decrease) in net unrealized
appreciation (5,594,252) 14,357,375
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations (2,777,713) 24,367,594
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (972,008) (2,198,544)
Net realized gains (1,190,867) (7,065,562)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (2,162,875) (9,264,106)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net asset value of shares issued for
reinvestment of dividends 459,949 3,354,745
Cost of shares reacquired (2,581,659) (4,873,243)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (2,121,710) (1,518,498)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (7,062,298) 13,584,990
NET ASSETS:
Beginning of period 74,840,788 61,255,798
- --------------------------------------------------------------------------------
End of period* $ 67,778,490 $ 74,840,788
================================================================================
* Includes overdistributed net investment
income of: $ (96,110) --
================================================================================
+ Net realized gains for Federal income tax purposes is $1,992,923 for the
six months ended June 30, 1996 and $8,233,606 for the year ended December
31, 1995.
See Notes to Financial Statements.
8
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Telecommunications Income Fund ("Fund"), a separate
investment fund of the Smith Barney Telecommunications Trust ("Trust"), a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as a non-diversified, open-end management investment company.
The Trust consists of the Fund and one other separate investment fund, the Smith
Barney Telecommunications Growth Fund. The financial statements and financial
highlights for the other fund are presented in a separate semi-annual report.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price were reported are valued at current quoted
bid prices; securities that have a maturity of more than 60 days are valued at
prices based on market quotations for securities of similar type, yield and
maturity; (c) securities maturing within 60 days are valued at cost plus
accreted discount, or minus amortized premium, as applicable; (d) dividend
income is recorded on the ex-dividend date and interest income is recorded on
the accrual basis; (e) dividends and distributions to shareholders are recorded
on the ex-dividend date; (f) gains or losses on the sale of securities are
calculated using the specific identification method; (g) the Fund intends to
comply with the applicable provisions of the Internal Revenue Code of 1986, as
amended, pertaining to regulated investment companies and to make distributions
of taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; (h) 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; and (i) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
9
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT AND OTHER
TRANSACTIONS
Smith Barney Strategy Advisors Inc. ("SBSA"), a wholly owned subsidiary of
Smith Barney Mutual Funds Management Inc. ("SBMFM") which, in turn, is a
subsidiary of Smith Barney Holdings Inc. ("SBH"), acts as investment adviser to
the Trust. The Fund pays SBSA an investment advisory fee calculated at an annual
rate of 0.55% of the average daily net assets. This fee is calculated daily and
paid monthly.
SBSA has entered into a sub-advisory agreement with The Boston Company
Advisors, Inc. ("Boston Advisors"). Pursuant to the sub-advisory agreement,
Boston Advisors is responsible for the day-to-day portfolio operations and
investment decisions for the Fund. As a result, SBSA will pay Boston Advisors a
monthly fee calculated at the annual rate of 0.275% of daily net assets.
SBMFM acts as the administrator of the Trust for which it receives a fee
calculated at an annual rate of 0.20% of the average daily net assets of each
fund. This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Trust shares and primary broker for its portfolio agency transactions. For the
six months ended June 30, 1996, SB received no brokerage commissions.
All officers and one Trustee of the Trust are employees of SB.
3. INVESTMENTS
During the six months ended June 30, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases --
- --------------------------------------------------------------------------------
Sales $2,458,821
================================================================================
At June 30, 1996, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were approximately
as follows:
================================================================================
Gross unrealized appreciation $56,358,695
Gross unrealized depreciation --
- --------------------------------------------------------------------------------
Net unrealized appreciation $56,358,695
================================================================================
10
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
5. SHARES OF BENEFICIAL INTEREST
At June 30, 1996, the Trust had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share.
Transactions in shares of the Fund were as follows:
Six Months Ended Year Ended
June 30, 1996 December 30, 1995
================================================================================
Shares issued on reinvestment 4,233 30,235
Shares redeemed (22,566) (45,522)
- --------------------------------------------------------------------------------
Net Decrease (18,333) (15,287)
================================================================================
6. CONCENTRATION OF CREDIT RISK
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 economic and business cycle risks associated with the concentration of the
Fund in only one industry could mean that adverse conditions could substantially
impact the income earned by the Fund and the value of the Fund's holdings.
11
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
1996(1) 1995 1994 1993 1992 1991
=========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 119.69 $ 95.62 $ 107.62 $ 102.67 $ 110.75 $ 129.06
- -------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 1.44 3.58 4.02 3.94 4.91 5.74
Net realized and unrealized gain (loss) (5.93) 35.57 (5.91) 12.30 6.79 (2.20)
- -------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (4.49) 39.15 (1.89) 16.24 11.70 3.54
- -------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (1.60) (3.58) (4.05) (4.42) (4.55) (6.05)
Net realized gains (1.93) (11.50) (6.06) (6.87) (15.23) (14.62)
Capital -- -- -- -- -- (1.18)
- -------------------------------------------------------------------------------------------------------------------------
Total Distributions (3.53) (15.08) (10.11) (11.29) (19.78) (21.85)
- -------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 111.67 $ 119.69 $ 95.62 $ 107.62 $ 102.67 $ 110.75
- -------------------------------------------------------------------------------------------------------------------------
Total Return (3.68)%++ 42.93% (1.83)% 16.00% 10.89% 3.30%
- -------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 67,778 $ 74,841 $ 61,256 $ 71,570 $ 70,637 $ 79,419
- -------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.94%+ 0.95% 0.95% 0.93% 0.92% 0.90%
Net investment income 2.50+ 3.23 3.80 3.47 4.41 4.57
- -------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 00% 00% 00% 00% 2% 18%
=========================================================================================================================
Average commissions per share
paid on equity transactions(2) $ 0.06 $ 0.06 -- -- -- --
=========================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1996 (unaudited).
(2) As of October 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
12
<PAGE>
Smith Barney SMITH BARNEY
Telecommunications ------------
Income Fund
A Member of Travelers Group [Logo]
Trustees
Paul R. Ades
Herbert Barg
Alger B. Chapman
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Ken Miller
John F. White
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
Guy R. Scott
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Adviser
Smith Barney Strategy
Advisers Inc.
Administrator
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNCBank, N.A.
Shareholder Servicing
Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general
information of the shareholders of Smith
Barney Telecommunications Income Fund.
It is not authorized for distribution to
prospective investors unless accompanied
or preceded by a current Prospectus for
the Fund, which contains information
concerning the Fund's investment
policies and expenses as well as other
pertinent information.
Smith Barney
Telecommunications
Income Fund
388 Greenwich Street
New York, New York 10013
FD0412 8/96
SEMI-ANNUAL REPORT
================================================================================
Smith Barney
Telecommunications
Growth Fund
----------------------------------------
June 30, 1996
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the Smith Barney
Telecommunications Growth Fund for the period ended June 30, 1996. In this
report, we briefly cover the Fund's performance and discuss our outlook for its
holdings. A more detailed summary of performance and current holdings can be
found in the appropriate sections that follow in the semi-annual report.
Market and Performance Update
The main investment objectives of the Telecommunications Growth Fund are to
provide shareholders with capital growth, and secondarily, to provide income
opportunities in the telecommunications industry through a diversified
portfolio. The Fund broadly defines the "telecommunications industry" to include
not only traditional telecommunications companies, but also broadcasting
companies, publishers and computer equipment and software companies. During the
past six months, the stocks of telephone companies underperformed, retreating
from record highs in January. Stocks of many telephone companies declined as
uncertainty arose over proposed telecommunications legislation. The proposed
bill would allow local telephone companies to offer long distance service
outside of their regions, and thus increase future earnings potential.
Much of the capital growth in the Fund can be attributed to our investments in
the technology sector, which performed well, especially during the second
quarter. Internet and Intranet-related stocks, which account for over 10% of the
Fund, were particularly strong. The total six-month return for the
Telecommunications Growth Fund was 8.50%, and underperformed versus the 10.09%
gain in the Standard and Poor's 500 Stock Index ("S&P 500"). (The S&P 500 is an
unmanaged capitalization-weighted index of 500 widely held stocks and is a
common stock benchmark.) During the period covered by this report, the
Telecommunications Growth Fund continued to focus on stocks of companies within
the telecommunications industry that are directly involved in areas such as
software, networking and on-line services that we believe have excellent growth
potential. Stocks such as Microsoft, MFS Communication and Tellabs Inc., which
are some of the Fund's top holdings, are examples of such companies. Because of
their technological prowess, we believe these companies have the potential to
deliver higher future earnings growth and provide competitive returns to
investors over the long term.
1
<PAGE>
Merger Update
As we informed you in a recent letter, the Board of Trustees of the
Telecommunications Growth Fund has approved a proposal to merge its assets into
the Smith Barney Special Equities Fund. If you have not received your proxy
materials regarding this proposed fund merger, you should receive these
materials shortly. When you receive your ballot, we ask that you take the time
to read it carefully, fill it out and send it back at your earliest convenience.
In closing, we thank you for your investment in the Smith Barney
Telecommunications Growth Fund and look forward to continuing to help you
achieve your financial goals.
Sincerely,
/s/Heath B. McLendon /s/Guy R. Scott
Heath B. McLendon Guy R. Scott
Chairman and Investment Officer
Chief Executive Officer
July 17, 1996
2
<PAGE>
Smith Barney Telecommunications Growth Fund
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- -------------------------------------------------------------------------------------------------------
Net Asset Value
----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
=======================================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/96 $ 12.71 $ 13.79 $ 0.00 $ 0.00 $ 0.00 8.50%+
- -------------------------------------------------------------------------------------------------------
12/31/95 11.91 12.71 0.00 0.21 0.00 8.54
- -------------------------------------------------------------------------------------------------------
12/31/94 12.86 11.91 0.13 0.00 0.00 (6.37)
- -------------------------------------------------------------------------------------------------------
12/31/93 9.63 12.86 0.00 0.17 0.00 35.27
- -------------------------------------------------------------------------------------------------------
12/31/92 8.68 9.63 0.02 0.71 0.00 19.41
- -------------------------------------------------------------------------------------------------------
12/31/91 7.36 8.68 0.06 0.14 0.01 20.94
- -------------------------------------------------------------------------------------------------------
12/31/90 8.78 7.36 0.14 0.10 0.00 (13.46)
- -------------------------------------------------------------------------------------------------------
12/31/89 7.08 8.78 0.16 0.82 0.00 37.85
- -------------------------------------------------------------------------------------------------------
12/31/88 6.10 7.08 0.10 0.00 0.00 17.69
- -------------------------------------------------------------------------------------------------------
12/31/87 11.05 6.10 0.69 3.96 0.00 (3.53)
- -------------------------------------------------------------------------------------------------------
12/31/86 12.64 11.05 0.32 3.39 0.00 18.84
=======================================================================================================
Total $ 1.62 $ 9.50 $ 0.01
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- -------------------------------------------------------------------------------------------------------
Net Asset Value
----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
=======================================================================================================
6/30/96 $ 12.51 $ 13.51 $ 0.00 $ 0.00 $ 0.00 7.99%+
- -------------------------------------------------------------------------------------------------------
12/31/95 11.82 12.51 0.00 0.21 0.00 7.67
- -------------------------------------------------------------------------------------------------------
12/31/94 12.77 11.82 0.03 0.00 0.00 (7.17)
- -------------------------------------------------------------------------------------------------------
12/31/93 9.63 12.77 0.00 0.17 0.00 34.34
- -------------------------------------------------------------------------------------------------------
Inception*-12/31/92 9.33 9.63 0.01 0.71 0.00 10.98+
=======================================================================================================
Total $ 0.04 $ 1.09 $ 0.00
=======================================================================================================
- -------------------------------------------------------------------------------------------------------
Historical Performance -- Class C Shares
- -------------------------------------------------------------------------------------------------------
Net Asset Value
----------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
=======================================================================================================
6/30/96 $ 12.71 $ 13.73 $ 0.00 $ 0.00 $ 0.00 8.03%+
- -------------------------------------------------------------------------------------------------------
12/31/95 12.00 12.71 0.00 0.21 0.00 7.73
- -------------------------------------------------------------------------------------------------------
Inception*-12/31/94 12.70 12.00 0.03 0.00 0.00 (5.24)+
=======================================================================================================
Total $ 0.03 $ 0.21 $ 0.00
=======================================================================================================
</TABLE>
It is the Fund's policy to distribute dividends and capital gains, if any,
annually.
3
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
---------------------------------
Class A Class B Class C
================================================================================
Six Months Ended 6/30/96+ 8.50% 7.99% 8.03%
- --------------------------------------------------------------------------------
Year Ended 6/30/96 8.64 7.72 7.75
- --------------------------------------------------------------------------------
Five Years Ended 6/30/96 15.34 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/96 10.86 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 6/30/96 14.31 13.93 10.27
================================================================================
With Sales Charge(2)
---------------------------------
Class A Class B Class C
================================================================================
Six Months Ended 6/30/96+ 3.06% 2.99% 7.03%
- --------------------------------------------------------------------------------
Year Ended 6/30/96 3.21 2.72 6.75
- --------------------------------------------------------------------------------
Five Years Ended 6/30/96 14.18 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 6/30/96 10.11 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 6/30/96 13.84 13.54 6.12
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (6/30/86 through 6/30/96) 175.78%
- --------------------------------------------------------------------------------
Class B (Inception* through 6/30/96) 60.95
- --------------------------------------------------------------------------------
Class C (Inception* through 6/30/96) 10.27
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 5.00% and Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed within one
year from initial purchase and declines thereafter by 1.00% per year until
no CDSC is incurred. Class C shares reflect the deduction of a 1.00% CDSC,
which applies if shares are redeemed within the first year of purchase.
* Inception dates for Class A, B and C shares are January 2, 1984, November
6, 1992 and November 7, 1994, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
4
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of
the Smith Barney Telecommunications Growth Fund vs.
Standard & Poor's 500 Index, Lipper Science &Technology Fund Average
and Lipper Growth Fund Index
- --------------------------------------------------------------------------------
[The table below was represented as a line graph in the printed material.]
June 1986 -- June 1996
Growth and Income S&P 500 Lipper Growth Lipper Science
----------------- ------- ------------- --------------
6/30/86 9500 10000 10000 10000
12/86 8981 9821 9819 9421
12/87 8664 10337 9829 9826
12/88 10197 12049 11218 10552
12/89 14057 15861 14299 13071
12/90 12164 15368 13525 12969
12/91 14712 20041 17437 19026
12/92 17568 21567 19843 21997
12/93 23764 23735 22221 27581
12/94 22249 24047 21872 31925
12/95 24150 33072 29012 43734
6/30/96 26202 36409 31330 47184
+ Hypothetical illustration of $10,000 invested in Class A shares on June 30,
1986, assuming deduction of the maximum 5.00% sales charge at the time of
investment and reinvestment of dividends and capital gains, if any, at net
asset value through June 30, 1996. The Standard & Poor's 500 Index is
composed of widely held common stocks listed on the New York Stock
Exchange, American Stock Exchange and the over-the-counter market. Figures
for the index include reinvestment of dividends. The Lipper Science
&Technology Fund Average is composed of the Fund's peer group of 44 mutual
funds investing within the science and technology investment objective
category as of June 30, 1996. The Lipper Growth Fund Index is a net asset
value weighted index of the 30 largest funds within the Growth category.
The indexes are unmanaged and are not subject to the same management and
trading expenses as a mutual fund. The performance of the Fund's other
classes may be greater or less than the Class A shares' performance
indicated on this chart, depending on whether greater or lesser sales
charges and fees were incurred by shareholders investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
5
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Portfolio Highlights (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
[The table below was represented as a pie graph in the printed material.]
Portfolio Breakdown
Capital Goods 5.7%
Communications 15.1%
Computer Software 11.5%
Consumer Services 9.4%
Energy 11.0%
Other Common Stock 1.4%
Repurchase Agreements 25.6%
Technology 12.8%
Telecommunications 7.5%
Top Ten Common Stock Holdings
Percentage of
Total Investments
================================================================================
Global Marine Inc. 3.9%
Microsoft Corp. 3.8
General Instrument Corp. 3.0
MFS Communications Co., Inc. 3.0
Schlumberger, Ltd. 2.8
Ericsson LM Telephone Co., Class B Shares, ADR 2.8
Tellabs Inc. 2.8
Tele-Communications Inc., Class A Shares 2.7
Scientific-Atlanta, Inc. 2.7
Netscape Communications Corp. 2.6
================================================================================
6
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================================
<C> <S> <C>
COMMON STOCKS -- 74.4%
Biopharmaceuticals -- 0.4%
75,000 Biotransplant Inc.+ $ 609,375
25,000 Oravax Inc.+ 212,500
- ------------------------------------------------------------------------------------------------
821,875
- ------------------------------------------------------------------------------------------------
Capital Goods -- 5.7%
200,000 General Instruments Corp.+ 5,775,000
328,000 Scientific-Atlanta, Inc. 5,084,000
- ------------------------------------------------------------------------------------------------
10,859,000
- ------------------------------------------------------------------------------------------------
Communications -- 15.1%
154,000 AirTouch Communications Inc.+ 4,350,500
130,000 DSC Communications Corp.+ 3,916,250
250,000 Ericsson LM Telephone Co., Class B Shares, ADR 5,375,000
150,400 MFS Communications Co., Inc.+ 5,658,800
107,000 Nokia Corp. ADR 3,959,000
80,000 Tellabs Inc.+ 5,350,000
- ------------------------------------------------------------------------------------------------
28,609,550
- ------------------------------------------------------------------------------------------------
Computer Software -- 11.5%
150,000 Fractal Design Corp.+ 2,193,750
60,000 Microsoft Corp.+ 7,207,500
80,000 Netscape Communications Corp.+ 4,980,000
37,500 Open Market Inc.+ 914,063
96,000 Oracle Corp.+ 3,786,000
130,000 Spyglass Inc.+ 2,786,875
- ------------------------------------------------------------------------------------------------
21,868,188
- ------------------------------------------------------------------------------------------------
Consumer Services -- 9.4%
110,000 CMG Information Services Inc.+ 2,970,000
218,700 Comcast Corp., Class A Shares 4,018,612
109,350 Comcast Corp., Class A Shares Special 2,022,975
16,800 Grupo Iusacell, SA ADR, Series D+ 147,000
117,400 Grupo Iusacell, SA ADR, Series L+ 1,262,050
283,400 Tele-Communications Inc., Class A Shares+ 5,136,625
83,350 Tele-Communications Liberty Media, Class A Shares+ 2,208,775
- ------------------------------------------------------------------------------------------------
17,766,037
- ------------------------------------------------------------------------------------------------
Electronics -- 1.0%
90,000 Macromedia Inc.+ 1,968,750
- ------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================================
<C> <S> <C>
Energy -- 11.0%
530,000 Global Marine Inc.+ $ 7,353,750
337,000 Rowan Companies, Inc.+ 4,970,750
64,200 Schlumberger, Ltd. 5,408,850
105,000 Weatherford International, Inc.+ 3,150,000
- ------------------------------------------------------------------------------------------------
20,883,350
- ------------------------------------------------------------------------------------------------
Technology -- 12.8%
133,000 Anadigics, Inc.+ 3,873,625
92,000 Inso Corp.+ 4,818,500
90,000 McAfee Asssociates Inc.+ 4,410,000
65,000 Newbridge Networks Corp.+ 4,257,500
185,000 Softkey International Inc.+ 3,503,438
160,000 Triquint Semiconductors Inc.+ 3,320,000
- ------------------------------------------------------------------------------------------------
24,183,063
- ------------------------------------------------------------------------------------------------
Telecommunications -- 7.5%
74,000 American Portable Telecom Inc.+ 795,500
43,600 Mcleod Inc., Class A Shares+ 1,046,400
177,700 MCI Communications Corp. 4,553,562
100,000 Panamsat Corp.+ 2,900,000
118,550 Sprint Corp. 4,979,100
- ------------------------------------------------------------------------------------------------
14,274,562
- ------------------------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $122,283,100) 141,234,375
================================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================================
REPURCHASE AGREEMENTS -- 25.6%
$43,925,000 Chase Manhattan Bank, 5.328% due 7/1/96; Proceeds at maturity--
$43,944,503; (Fully collateralized by U.S. Treasury Notes,
5.750% due 9/30/97; Market value -- $44,822,032) 43,925,000
</TABLE>
See Notes to Financial Statements.
8
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) June 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
================================================================================================
<C> <S> <C>
REPURCHASE AGREEMENTS -- 25.6% (continued)
$ 4,756,000 Morgan Stanley & Co., Inc., 5.304% due 7/1/96; Proceeds at maturity--
$4,758,102; (Fully Collateralized by U.S. Treasury Notes,
6.875% due 3/31/00; Market value-- $4,851,971) $ 4,756,000
- ------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $48,681,000) 48,681,000
================================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $170,964,100*) $189,915,375
================================================================================================
</TABLE>
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
9
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) June 30, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost-- $122,283,100) $ 141,234,375
Repurchase agreement (Cost-- $48,681,000) 48,681,000
Cash 1,773
Receivable for securities sold 3,699,865
Dividends and interest receivable 184,378
- --------------------------------------------------------------------------------
Total Assets 193,801,391
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 1,571,970
Investment advisory fees payable 89,891
Distribution fees payable 64,837
Administration fees payable 32,687
Accrued expenses 85,205
- --------------------------------------------------------------------------------
Total Liabilities 1,844,590
- --------------------------------------------------------------------------------
Total Net Assets $ 191,956,801
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 14,111
Capital paid in excess of par value 151,879,476
Accumulated net investment loss (986,965)
Accumulated net realized gain on security transactions 22,098,904
Net unrealized appreciation of investments 18,951,275
- --------------------------------------------------------------------------------
Total Net Assets $ 191,956,801
================================================================================
Shares Outstanding:
Class A 4,653,692
----------------------------------------------------------------------------
Class B 9,394,434
----------------------------------------------------------------------------
Class C 62,705
----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 13.79
----------------------------------------------------------------------------
Class B* $ 13.51
----------------------------------------------------------------------------
Class C** $ 13.73
----------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net aset value per share) $ 14.52
================================================================================
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from initial purchase (See Note 2).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
10
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended June 30,1996
INVESTMENT INCOME:
Dividends $ 533,721
Interest 406,273
- --------------------------------------------------------------------------------
Total Investment Income 939,994
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 804,159
Investment advisory fee (Note 2) 583,919
Administration fees (Note 2) 212,334
Shareholder and system servicing fees 58,587
Custody 24,000
Audit and legal 23,884
Shareholder communications 12,814
Registration fees 10,983
Trustees' fees 9,000
Other 187,279
- --------------------------------------------------------------------------------
Total Expenses 1,926,959
- --------------------------------------------------------------------------------
Net Investment Loss (986,965)
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS (NOTE3):
Realized Gain From Security Transactions (excluding
short-term securities):
Proceeds from sales 130,560,398
Cost of securities sold 117,055,498
- --------------------------------------------------------------------------------
Net Realized Gain 13,504,900
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 14,438,525
End of period 18,951,275
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 4,512,750
- --------------------------------------------------------------------------------
Net Gain on Investments 18,017,650
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 17,030,685
================================================================================
See Notes to Financial Statements.
11
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended June 30,1996 (unaudited)
and the Year Ended December 31, 1995
<TABLE>
<CAPTION>
1996 1995
==================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment loss $ (986,965) $ (1,893,489)
Net realized gain 13,504,900 21,753,455
Increase (decrease) in net unrealized appreciation 4,512,750 (637,997)
- --------------------------------------------------------------------------------------------------
Increase in Net Assets
From Operations 17,030,685 19,221,969
- --------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- --
Net realized gains -- (3,980,765)
- --------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders -- (3,980,765)
- --------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 20,911,907 24,781,672
Net asset value of shares issued for reinvestment of dividends -- 3,764,024
Cost of shares reacquired (73,221,310) (86,600,793)
- --------------------------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (52,309,403) (58,055,097)
- --------------------------------------------------------------------------------------------------
Decrease in Net Assets (35,278,718) (42,813,893)
NET ASSETS:
Beginning of period 227,235,519 270,049,412
- --------------------------------------------------------------------------------------------------
End of period* $ 191,956,801 $ 227,235,519
==================================================================================================
*Includes net investment loss of: $ (986,965) $ --
- --------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
12
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Telecommunications Growth Fund ("Fund"), a separate
investment fund of the Smith Barney Telecommunications Trust ("Trust"), a
Massachusetts business trust, is registered under the Investment Company Act of
1940, as amended, as a non-diversified, open-end management investment company.
The Trust consists of the Fund and one other separate investment fund, the Smith
Barney Telecommunications Income Fund. The financial statements and financial
highlights for the other fund are presented in a separate semi-annual report.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price were reported are valued at the current
quoted bid prices; (c) investments that have a maturity of more than 60 days are
valued at prices based on market quotations for securities of similar type,
yield and maturity; (d) securities maturing within 60 days are valued at cost
plus accreted discount, or minus amortized premium, as applicable; (e) dividend
income is recorded on ex-dividend date and interest income is recorded on the
accrual basis; (f) gains or losses on the sale of securities are calculated
using the specific identification method; (g) dividends and distributions to
shareholders are recorded on the ex-dividend date; (h) the accounting records
are maintained in U.S. dollars. All assets and liabilities denominated in
foreign currencies are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, and income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank; (i) direct expenses
are charged to each fund and each class; management fees and general fund
expenses are allocated on the basis of relative net assets; (j) the Fund intends
to comply with the applicable provisions of the Internal Revenue Code of 1986,
as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; (k) the character of income and gains to be
distributed are determined in accordance with income tax regulations which may
differ from generally accepted accounting principles. At December 31, 1995,
reclassifications are made to the Fund's capital accounts to reflect permanent
book/tax differences and income and gains available for distributions under
income tax regulations. Accordingly, a portion of accumulated net investment
loss amounting to $220,713 has been
13
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
reclassified to paid-in capital. Net investment income, net realized gains and
net assets were not affected by this change; and (l) estimates and assumptions
are required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION AGREEMENT
AND OTHER TRANSACTIONS
Smith Barney Strategy Advisors Inc. ("SBSA"), a wholly owned subsidiary of
Smith Barney Mutual Funds Management Inc. ("SBMFM") which, in turn, is a
subsidiary of Smith Barney Holdings Inc. ("SBH"), acts as investment adviser to
the Fund. The Fund pays SBSAan advisory fee calculated at an annual rate of
0.55% of the average daily net assets. This fee is calculated daily and paid
monthly.
SBSA has entered into a sub-advisory agreement with The Boston Company
Advisors, Inc. ("Boston Advisors"). Pursuant to the sub-advisory agreement,
Boston Advisors is responsible for the day-to-day portfolio operations and
investment decisions for the Fund. As a result, SBSA will pay Boston Advisors a
monthly fee calculated at the annual rate of 0.275% of the average daily net
assets.
SBMFM acts as the administrator of the Trust for which it receives a fee
calculated at an annual rate of 0.20% of the average daily net assets of each
fund. This fee is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
six months ended June 30, 1996, SB received brokerage commissions of $31,296 and
sales charges of approximately $19,000 on sales of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B
shares, which applies if redemption occurs less than one year from initial
purchase and declines thereafter by 1.00% per year until no CDSC is incurred.
Class C shares have a 1.00% CDSC, which applies if redemption occurs within the
first year of purchase. For the six months ended June 30, 1996, CDSCs paid to SB
for Class B shares were approximately $405,000.
14
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Pursuant to a Distribution Plan, the Fund pays a service fee with respect
to Class A, B and C shares calculated at the annual rate of 0.25% of the average
daily net assets for each respective class. The Fund also pays a distribution
fee with respect to Class B and C shares calculated at the annual rate of 0.75%
of the average daily net assets for each class, respectively. For the six months
ended June 30, 1996, total Distribution Plan fees incurred were:
Class A Class B Class C
================================================================================
Distribution Plan Fees $85,837 $713,189 $5,133
================================================================================
All officers and one Trustee of the Trust are employees of SB.
3. INVESTMENTS
During the six months ended June 30, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ 33,355,739
- --------------------------------------------------------------------------------
Sales 130,560,398
================================================================================
At June 30, 1996, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
================================================================================
Gross unrealized appreciation $ 32,810,886
- --------------------------------------------------------------------------------
Gross unrealized depreciation (13,859,611)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 18,951,275
================================================================================
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. Government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
15
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
5. SHARES OF BENEFICIAL INTEREST
At June 30, 1996, the Trust had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share. The Fund has the
ability to issue multiple classes of shares. Each share of a class represents an
identical interest and has the same rights, except that each class bears certain
direct expenses, including those specifically related to the distribution of its
shares.
At June 30, 1996, total paid-in capital amounted to the following for each
class:
Class A Class B Class C
================================================================================
Total Paid-in Capital $37,310,117 $113,797,540 $785,930
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1996 December 31, 1995
-------------------------- --------------------------
Shares Amount Shares Amount
=========================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 833,386 $ 11,182,825 439,191 $ 5,782,257
Shares issued on reinvestment -- -- 89,091 1,112,742
Shares redeemed (1,769,768) (23,635,622) (1,986,028) (24,990,603)
- -----------------------------------------------------------------------------------------
Net Decrease (936,382) $(12,452,797) (1,457,746) $(18,095,604)
=========================================================================================
Class B
Shares sold 700,446 $ 9,222,741 1,428,073 $ 18,024,709
Shares issued on reinvestment -- -- 214,141 2,633,929
Shares redeemed (3,715,808) (48,920,122) (4,973,188) (61,409,297)
- -----------------------------------------------------------------------------------------
Net Decrease (3,015,362) $(39,697,381) (3,330,974) $(40,750,659)
=========================================================================================
Class C
Shares sold 38,049 $ 506,341 76,994 $ 974,706
Shares issued on reinvestment -- -- 1,389 17,353
Shares redeemed (50,465) (665,566) (15,863) (200,893)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) (12,416) $ (159,225) 62,520 $ 791,166
=========================================================================================
</TABLE>
6. 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 economic and business cycle risks associated with the concentration of the
Fund in only one industry could mean that adverse conditions could substantially
impact the income earned by the Fund and the value of the Fund's holdings.
16
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1996(1) 1995 1994(2) 1993(2) 1992 1991
============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.71 $ 11.91 $ 12.86 $ 9.63 $ 8.68 $ 7.36
- ----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.02) (0.03) (0.04) (0.04) 0.05 0.06
Net realized and unrealized gain (loss) 1.10 1.04 (0.78) 3.44 1.63 1.47
- ----------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.08 1.01 (0.82) 3.40 1.68 1.53
- ----------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.13) -- (0.02) (0.06)
Net realized gains -- (0.21) -- (0.17) (0.71) (0.14)
Capital -- -- -- -- -- (0.01)
- ----------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.21) (0.13) (0.17) (0.73) (0.21)
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.79 $ 12.71 $ 11.91 $ 12.86 $ 9.63 $ 8.68
- ----------------------------------------------------------------------------------------------------------------------------
Total Return 8.50%++ 8.54% (6.37)% 35.27% 19.41% 20.94%
- ----------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 64,161 $ 71,059 $ 83,918 $ 77,564 $ 36,947 $ 34,643
- ----------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.27%+ 1.27% 1.24% 1.34% 1.31% 1.19%
Net investment income (loss) (0.37)+ (0.23) (0.29) (0.32) 0.55 0.67
- ----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 27% 19% 25% 64% 111%
============================================================================================================================
Average commissions per share paid
on equity transactions(3) $ 0.05 $ 0.05 -- -- -- --
============================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1996 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since use of the undistributed method does not accord with results of
operations. (3) As of October 1995, the SEC instituted new guidelines
requiring the disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
17
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares 1996(1) 1995 1994(2) 1993(2) 1992(3)
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 12.51 $ 11.82 $ 12.77 $ 9.63 $ 9.33
- -----------------------------------------------------------------------------------------------------------------------------------
Income From Operations:
Net investment loss (0.08) (0.12) (0.14) (0.14) (0.00)*
Net realized and unrealized gain (loss) 1.08 1.02 (0.78) 3.45 1.02
- -----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.00 0.90 (0.92) 3.31 1.02
- -----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.03) -- (0.01)
Net realized gains -- (0.21) -- (0.17) (0.71)
- -----------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.21) (0.03) (0.17) (0.72)
- -----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.51 $ 12.51 $ 11.82 $ 12.77 $ 9.63
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return 7.99%++ 7.67% (7.17)% 34.34% 10.98%++
- -----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $126,935 $155,222 $185,980 $156,781 $ 586
- -----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.08%+ 2.02% 2.07% 2.18% 2.21%+
Net investment loss (1.20)+ (0.98) (1.11) (1.16) (0.38)+
- -----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate .17% .27% .19% .25% .64%
===================================================================================================================================
Average commissions per share paid on
equity transactions(4) $ 0.05 $ 0.05 -- -- --
===================================================================================================================================
</TABLE>
(1) For the six months ended June 30, 1996 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since use of the undistributed method does not accord with results of
operations.
(3) For the period from November 6, 1992 (inception date) to December 31, 1992.
(4) As of October 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
18
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
Class C Shares 1996(1) 1995 1994(2)(3)
================================================================================
Net Asset Value, Beginning of Period $ 12.71 $ 12.00 $ 12.70
- --------------------------------------------------------------------------------
Income From Operations:
Net investment loss (0.08) (0.13) (0.01)
Net realized and unrealized gain (loss) 1.10 1.05 (0.66)
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.02 0.92 (0.67)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.03)
Net realized gains -- (0.21) --
- --------------------------------------------------------------------------------
Total Distributions -- (0.21) (0.03)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $ 13.73 $ 12.71 $ 12.00
- --------------------------------------------------------------------------------
Total Return 8.03%++ 7.73% (5.24)%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 861 $ 955 $ 151
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.08%+ 2.02% 2.08%+
Net investment loss (1.17)+ (0.98) (1.13)+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate .17% .27% .19%
================================================================================
Average commissions per share paid
on equity transactions(4) $ 0.05 $ 0.05 --
================================================================================
(1) For the six months ended June 30, 1996 (unaudited)
(2) Per share amounts have been calculated using the monthly average shares
method, which more appropriately presents the per share data for the period
since use of the undistributed method does not accord with results of
operations.
(3) For the period from November 7, 1992 (inception date) to December 31, 1994.
(4) As of October 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
19
<PAGE>
Smith Barney SMITH BARNEY
Telecommunications ------------
Growth Fund A Member of the TravelersGroup [Logo]
Trustees
Paul R. Ades
Herbert Barg
Alger B. Chapman
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Ken Miller
John F. White
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Adviser
Smith Barney Strategy
Advisers Inc.
Administrator
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNCBank, N.A.
Shareholder Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general
information of the shareholders of
Smith Barney Telecommunications Growth
Fund. It is not authorized for distribution to
prospective investors unless accompanied or
preceded by a current Prospectus for the
Fund, which contains information
concerning the Fund's investment policies
and expenses as well as other pertinent
information.
Smith Barney
Telecommunications
Growth Fund
388 Greenwich Street
New York, New York 10013
FD0414 8/96
