-------------
ANNUAL REPORT
-------------
1995
1995
1995
1995
1995
Smith Barney
Telecommunications
Income Fund
--------------------------
December 31, 1995
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- -------------------------------------------
Smith Barney Telecommunications Income Fund
- -------------------------------------------
Dear Shareholder:
We are pleased to provide the annual report for the year ended December 31, 1995
for Smith Barney Telecommunications Income Fund. In this report, we briefly
cover the Fund's performance and discuss our outlook for its holdings which are
largely concentrated in the equities of Bell operating companies. A more
detailed summary of performance and current holdings can be found in the
appropriate sections that follow in the annual report.
As you know, Smith Barney Telecommunications Income Fund seeks to provide
shareholders with an attractive level of income and, secondarily, capital
growth. The Fund's 1995 annual total return was 42.93%, whereas the Standard &
Poor's 500-Stock Price Index (the "S&P 500," a capitalization-weighted measure
of 500 widely held common stocks listed on the New York Stock Exchange, American
Stock Exchange and over-the-counter market) had a total return of 37.53%. The
Fund outperformed the S&P 500 primarily because the future growth prospects of
the Bell operating companies improved. Their strengths in the promising wireless
business and proposed favorable telecommunications legislation have made them
more attractive to investors.
We are positive about the prospects for the Bell operating companies and believe
they will provide the Fund with a level monthly dividend. At present, the stocks
of the Bell operating companies have a dividend growth rate of 3% to 5%. In our
view, a modest yet steady earnings growth rate of 4% to 6% should help to keep
their stock prices fairly stable.
However, not all of the Bell operating companies share the same bright growth
prospects. Because of new technologies, the copper wire telephone business is
rapidly evolving and some Bell operating companies will face intense
competition. The Fund invested in select Bell operating companies, especially
those that are strong in the area of wireless communications. Although this is
1
<PAGE>
not yet a major business for the Bell operating companies, we believe this will
be an increasingly vital area and a major driver of future growth.
In closing, we look forward to serving your investment needs in 1996.
Sincerely,
/S/ Heath B. McLendon /S/ Guy R. Scott
Heath B. McLendon Guy R. Scott
Chairman and Investment Officer
Chief Executive Officer
January 12, 1996
2
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Historical Performance
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
-------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns+
=====================================================================================
<C> <C> <C> <C> <C> <C> <C>
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 $52.29 $66.71 $1.18
=====================================================================================
</TABLE>
It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Average Annual Return+
- --------------------------------------------------------------------------------
================================================================================
Year Ended 12/31/95 42.93%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/95 13.27
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/95 15.19
- --------------------------------------------------------------------------------
1/1/84* through 12/31/95 17.13
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return+
- --------------------------------------------------------------------------------
================================================================================
12/31/85 through 12/31/95 311.42%
================================================================================
+ 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+
- --------------------------------------------------------------------------------
December 1985 -- December 1995
[The following table was represented by a line chart in the printed material.]
Smith Barney Lipper Equity
Telecommunications Income Fund S&P 500 Index Income Index
------------------------------ ------------- ------------
12/85 10000 10000 10000
12/86 12499 11867 11823
12/87 12613 12490 11886
12/88 14772 14559 13911
12/89 22470 19165 17064
12/90 22066 18569 15678
12/91 22793 24216 19844
12/92 22275 26059 21779
12/93 29320 28678 25014
12/94 28784 29056 24788
12/95 41140 39961 32158
+ Hypothetical illustration of $10,000 invested in the Smith Barney
Telecommunications Income Fund on December 31, 1985, assuming reinvestment
of dividends and capital gains, if any, at net asset value through December
31, 1995. 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 December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 99.6%
Broadcast Radio and Television -- 3.8%
146,858 U.S. West Media Group $ 2,790,302
- --------------------------------------------------------------------------------
Telecommunications -- 95.8%
214,436 Airtouch Communications Inc.* 6,057,817
189,942 Ameritech Corp. 11,206,578
179,092 Bell Atlantic Corp. 11,976,778
304,394 Bellsouth Corp. 13,241,139
45,896 NYNEX Corp. 2,478,384
214,436 Pacific Telesis Group 7,210,410
231,008 SBC Communications Inc. 13,282,960
146,858 U.S. West Communications Inc. 5,250,174
- --------------------------------------------------------------------------------
70,704,240
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $15,640,417) 73,494,542
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 0.4%
$328,000 Chemical Bank, 5.800% due 1/2/96;
Proceeds at maturity -- $328,211;
(Fully collateralized by U.S. Treasury Notes,
6.125% due 5/31/97;
Market value -- $334,569) (Cost -- $328,000) 328,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $15,968,417)++ $73,822,542
================================================================================
* Non-income producing security.
++ Aggregate cost for Federal income tax purposes is $11,970,354.
See Notes to Financial Statements.
5
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities December 31, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $15,968,417) $ 73,822,542
Cash 61
Receivable for securities sold 1,513,314
Dividend and interest receivable 225,850
- --------------------------------------------------------------------------------
Total Assets 75,561,767
- --------------------------------------------------------------------------------
LIABILITIES:
Dividends payable 635,013
Investment advisory fees payable 34,232
Administration fees payable 12,444
Accrued expenses 39,290
- --------------------------------------------------------------------------------
Total Liabilities 720,979
- --------------------------------------------------------------------------------
Total Net Assets $74,840,788
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 625
Capital paid in excess of par value 15,817,994
Accumulated net realized gain on security transactions 1,168,044
Net unrealized appreciation of investments 57,854,125
- --------------------------------------------------------------------------------
Total Net Assets $74,840,788
================================================================================
Shares Outstanding 625,299
- --------------------------------------------------------------------------------
Net Asset Value (and redemption price) $119.69
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
6
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,786,517
Interest 56,279
- --------------------------------------------------------------------------------
Total Investment Income 2,842,796
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 373,600
Administration fees (Note 2) 135,855
Audit and legal 25,000
Shareholder communications 23,000
Trustees' fees 22,000
Shareholder and system servicing fees 20,000
Custody 14,000
Other 32,547
- --------------------------------------------------------------------------------
Total Expenses 646,002
- --------------------------------------------------------------------------------
Net Investment Income 2,196,794
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 11,018,659
Cost of securities sold 3,205,234
- --------------------------------------------------------------------------------
Net Realized Gain 7,813,425
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 43,496,750
End of year 57,854,125
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 14,357,375
- --------------------------------------------------------------------------------
Net Gain on Investments 22,170,800
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $24,367,594
================================================================================
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
===================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income $ 2,196,794 $ 2,564,672
Net realized gain+ 7,813,425 2,301,558
Increase (decrease) in net unrealized appreciation 14,357,375 (6,098,127)
- -----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations 24,367,594 (1,231,897)
- -----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (2,198,544) (2,586,399)
Net realized gains (7,065,562) (3,845,617)
- -----------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (9,264,106) (6,432,016)
- -----------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net asset value of shares issued for
reinvestment of dividends 3,354,745 2,242,015
Cost of shares reacquired (4,873,243) (4,892,206)
- -----------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (1,518,498) (2,650,191)
- -----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 13,584,990 (10,314,104)
NET ASSETS:
Beginning of year 61,255,798 71,569,902
- -----------------------------------------------------------------------------------
End of year* $74,840,788 $61,255,798
===================================================================================
* Includes undistributed net investment income of: -- $1,750
===================================================================================
+ Net realized gains for Federal income tax purposes are $8,233,606 and
$2,559,893, respectively.
See Notes to Financial Statements.
8
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 annual report.
The significant accounting policies consistently followed by the Fund are:
(a) securities 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; (c) short-term 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) short-term investments and 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) 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 from these amounts.
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
9
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
the Trust. The Fund pays SBSAan 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.
The Trust and SBMFM had entered into a sub-administration agreement with
Boston Advisors. Under this agreement, SBMFM paid Boston Advisors a portion of
its administration fee at a rate agreed upon from time to time between SBMFM and
Boston Advisors. As of July 31, 1995, this relationship was terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Trust shares and primary broker for its portfolio agency transactions. For the
year ended December 31, 1995, SB received brokerage commissions of $5,960.
All officers and one Trustee of the Trust are employees of SB.
3. INVESTMENTS
During the year ended December 31, 1995, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ --
- --------------------------------------------------------------------------------
Sales 11,018,659
================================================================================
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were approximately
as follows:
================================================================================
Gross unrealized appreciation $61,852,188
Gross unrealized depreciation --
- --------------------------------------------------------------------------------
Net unrealized appreciation $61,852,188
================================================================================
10
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (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 December 31, 1995, 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:
Year Ended Year Ended
December 31, 1995 December 31, 1994
================================================================================
Shares issued on reinvestment 30,235 22,537
Shares redeemed (45,522) (46,981)
- --------------------------------------------------------------------------------
Net Decrease (15,287) (24,444)
================================================================================
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 dividends paid 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 year:
</TABLE>
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
===========================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $95.62 $107.62 $102.67 $110.75 $129.06
- -------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 3.58 4.02 3.94 4.91 5.74
Net realized and unrealized gain (loss) 35.57 (5.91) 12.30 6.79 (2.20)
- -------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 39.15 (1.89) 16.24 11.70 3.54
- -------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (3.58) (4.05) (4.42) (4.55) (6.05)
Net realized gains (11.50) (6.06) (6.87) (15.23) (14.62)
Capital -- -- -- -- (1.18)
- -------------------------------------------------------------------------------------------
Total Distributions (15.08) (10.11) (11.29) (19.78) (21.85)
- -------------------------------------------------------------------------------------------
Net Asset Value, End of Year $119.69 $95.62 $107.62 $102.67 $110.75
- -------------------------------------------------------------------------------------------
Total Return 42.93% (1.83)% 16.00% 10.89% 3.30%
- -------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $74,841 $61,256 $71,570 $70,637 $79,419
- -------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.95% 0.95% 0.93% 0.92% 0.90%
Net investment income 3.23 3.80 3.47 4.41 4.57
- -------------------------------------------------------------------------------------------
Portfolio Turnover Rate 0% 0% 0% 2% 18%
===========================================================================================
Average commissions paid on
equity security transactions(1) $0.06 -- -- -- --
===========================================================================================
</TABLE>
(1) New SEC disclosure guidelines require that average commissions per share be
calculated and presented for the current year only.
12
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees of
Smith Barney Telecommunications Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Smith Barney Telecommunications
Income Fund of Smith Barney Telecommunications Trust as of December 31, 1995,
and the related statements of operations, changes in net assets, and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year ended
December 31, 1994 and the financial highlights for each of the years in the
four-year period then ended were audited by other auditors whose report thereon,
dated February 3, 1995, expressed an unqualified opinion on that statement of
changes in net assets and those financial highlights.
We conducted our audit 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, 1995, by correspondence with the custodian. As to securities sold
but not delivered, we performed other appropriate auditing procedures. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Smith Barney
Telecommunications Income Fund of Smith Barney Telecommunications Trust as of
December 31, 1995, and the results of its operations, changes in its net assets
and its financial highlights for the year then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 22, 1996
13
<PAGE>
Smith Barney Telecommunications Income Fund
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
Change in Independent Auditor: On October 20, 1994, based upon the
recommendation of the Audit Committee of the Fund, the Board of Trustees
determined not to retain Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat Marwick LLP. During
the Fund's two most recent fiscal years, Coopers & Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor were the reports
qualified or modified as to uncertainty, audit scope, or accounting principles.
Further, during this same period there were no disagreements with Coopers &
Lybrand on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have caused it to make reference
to the subject matter of such disagreements in connection with its audit
reports. The Fund has requested Coopers & Lybrand to provide a letter to the
Securities and Exchange Commission stating whether Coopers & Lybrand agrees with
the foregoing statements, and to provide the Fund with a copy of such letter. A
copy of this letter is available upon request by calling the Fund at (212)
723-9218.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
The amount of long-term capital gains paid by the Fund to its shareholders
for the fiscal year ended December 31, 1995, was $7,065,562.
14
<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
Allan R. Johnson
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
PNC Bank
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
FD0321 2/96
-------------
ANNUAL REPORT
-------------
1995
1995
1995
1995
1995
Smith Barney
Telecommunications
Growth Fund
---------------------
December 31, 1995
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- -------------------------------------------
Smith Barney Telecommunications Growth Fund
- -------------------------------------------
Dear Shareholder:
We are pleased to provide the annual report for the period ended December 31,
1995 for Smith Barney Telecommunications Growth Fund. In this report, we briefly
cover the Fund's performance and discuss our outlook for its current holdings. A
more detailed summary of performance and holdings can be found in the
appropriate sections that follow in the annual report.
As you know, the investment management team of Smith Barney Telecommunications
Growth Fund seeks to provide shareholders with capital growth through common
stocks and, secondarily, income. The Fund's 1995 annual total return for Class A
and Class B shares was 8.54% and 7.67%, respectively. In comparison, the
Standard & Poor's 500-Stock Price Index (the "S&P 500," a
capitalization-weighted measure of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange and over-the-counter market)
had a total return of 37.53% in 1995.
The Fund's performance in 1995 was disappointing as its stocks in our primary
area of investment lagged the performance of the U.S. market in general. We have
attempted to position the portfolio to benefit from technological change and
rapid growth that is occurring in the telecommunications industry worldwide.
Last year, foreign markets were either flat or down and the domestic market was
affected by anxiety caused by pending legislative and regulatory activity in
Washington, D.C.
The telecommunications industry is undergoing unprecedented change. Major
capital spending plans to enable telephones to provide video, the wireless
revolution and the explosive growth of the Internet are just some of the many
factors that have positively impacted the telecommunications sector. On the
other hand, fears of entry barriers coming down and the acceleration of capital
investment requirements have heightened investor concerns.
1
<PAGE>
Our long-term outlook for the telecommunications industry is positive. A global
revolution in communications is underway and technological advances are fueling
its growth. In order to capitalize on this long-term trend, the Fund intends to
target companies that are directly involved in growth areas such as software,
networking, on-line services and enhancing the power of computers.
Sincerely,
/s/ Heath B. McLendon /s/ Guy R. Scott
Heath B. McLendon Guy R. Scott
Chairman and Investment Officer
Chief Executive Officer
January 12, 1996
2
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
======================================================================================
<C> <C> <C> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
Net Asset Value
------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
==========================================================================================
<C> <C> <C> <C> <C> <C> <C>
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
- --------------------------------------------------------------------------------
<CAPTION>
Net Asset Value
------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns(1)
===========================================================================================
<C> <C> <C> <C> <C> <C> <C>
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
===========================================================================================
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
================================================================================
Year Ended 12/31/95 8.54% 7.67% 7.73%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/95 14.70 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/95 12.32 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 12/31/95 14.17 13.50 1.81
================================================================================
With Sales Charge(2)
---------------------------------------------
Class A Class B Class C
================================================================================
Year Ended 12/31/95 3.11% 2.67% 6.73%
- --------------------------------------------------------------------------------
Five Years Ended 12/31/95 13.53 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 12/31/95 11.74 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 12/31/95 13.68 13.02 1.81
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (12/31/85 through 12/31/95) 219.53%
- --------------------------------------------------------------------------------
Class B (Inception* through 12/31/95) 49.04
- --------------------------------------------------------------------------------
Class C (Inception* through 12/31/95) 2.08
================================================================================
(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 charge 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 less than
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 1, 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
- --------------------------------------------------------------------------------
December 1985 -- December 1995
[The following table was represented by a line chart in the printed material.]
Growth and Income S&P 500 Lipper Growth Lipper Science
----------------- ------- ------------- --------------
12/31/85 9498 10000 10000 10000
12/86 11287 11867 11560 10818
12/87 10889 12490 11931 11284
12/88 12815 14559 13617 12118
12/89 17666 19165 17363 15011
12/90 15287 18569 16424 14894
12/91 18489 24216 22272 21853
12/92 22078 26059 23972 25265
12/93 29865 28678 26844 31679
12/94 27961 29056 26423 36669
12/95 30350 39961 34902 50548
+ Hypothetical illustration of $10,000 invested in Class A shares on December
31, 1985, 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 December 31, 1995. 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 37 mutual
funds investing within the science and technology investment objective
category as of December 31, 1995. 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) December 31, 1995
- --------------------------------------------------------------------------------
Portfolio Breakdown
[The following table was represented by a pie chart in the printed material.]
Capital Goods 5.1
Communications 28.2
Consumer Services 13.5
Energy 7.6
Technology 16.4
Telecommunications 26.9
Repurchase Agreement 2.3
Top Ten Common Stock Holdings
Percentage of
Total Investments
================================================================================
Ericsson LM Telephone Co., Class B Shares, ADR 4.1%
MFS Communications Corp. 4.0
MCI Communications Corp. 3.5
General Instruments Corp. 3.0
Motorola Inc. 2.9
Sprint Corp. 2.8
Cellular Communications Inc., Class A Shares 2.6
Tele Communications Inc., Class A Shares 2.5
Tellabs Inc. 2.5
Vodafone Group PLC ADR 2.4
================================================================================
6
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 96.4%
Capital Goods -- 5.1%
285,000 General Instruments Corp.* $ 6,661,875
328,000 Scientific-Atlanta, Inc. 4,920,000
- --------------------------------------------------------------------------------
11,581,875
- --------------------------------------------------------------------------------
Communications -- 28.2%
184,000 AirTouch Communications Inc.* 5,198,000
101,333 Cellular Communications of Puerto Rico, Inc.* 2,811,992
117,500 Cellular Communications Inc., Class A Shares* 5,845,625
130,000 DSC Communications Corp.* 4,793,750
470,000 Ericsson LM Telephone Co., Class B Shares, ADR 9,165,000
92,000 Grupo Televisa, SA ADR 2,070,000
171,200 MFS Communications Co., Inc.* 9,116,400
114,000 Motorola Inc. 6,498,000
206,000 NEXTEL Communications Inc., Class A Shares* 3,038,500
107,000 Nokia Corp. ADR 4,159,625
81,500 Rogers Cantel Mobile Communications, Inc.,
Class B Shares* 2,159,750
150,000 Tellabs Inc.* 5,550,000
163,500 Vanguard Cellular Systems Inc., Class A Shares* 3,310,875
- --------------------------------------------------------------------------------
63,717,517
- --------------------------------------------------------------------------------
Consumer Services -- 13.5%
200,000 Bell Cablemedia PLC, ADR* 3,200,000
45,000 CMG Information Services Inc.* 4,179,375
218,700 Comcast Corp., Class A Shares 3,854,587
109,350 Comcast Corp., Class A Shares Special 1,988,803
100,000 Comcast UK Cable Partners Ltd.* 1,250,000
16,800 Grupo Iusacell, SA ADR, Series D* 134,400
134,200 Grupo Iusacell, SA ADR, Series L* 1,358,775
50,000 NYNEX Cable Communications Group A* 868,750
28,000 Peoples Choice TV Corp.* 532,000
83,350 Tele-Communications Liberty-Media, Class A Shares* 2,240,031
283,400 Tele-Communications Inc., Class A Shares* 5,632,575
134,500 Time Warner, Inc. 5,094,187
- --------------------------------------------------------------------------------
30,333,483
- --------------------------------------------------------------------------------
Energy -- 7.6%
530,000 Global Marine Inc.* 4,637,500
337,000 Rowan Companies, Inc.* 3,327,875
64,200 Schlumberger, Ltd. 4,445,850
142,000 Varco International, Inc.* 1,704,000
105,000 Weatherford International, Inc.* 3,031,875
- --------------------------------------------------------------------------------
17,147,100
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
7
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Technology -- 16.4%
130,000 Alpha Industries Inc.* $ 1,836,250
128,000 Anadigics, Inc.* 2,720,000
100,000 Analog Devices Inc.* 3,537,500
67,000 FTP Software Inc.* 1,943,000
53,000 Hewlett-Packard Co. 4,438,750
67,000 Inso Corp.* 2,847,500
60,000 McAfee Asssociates Inc.* 2,632,500
65,000 Newbridge Networks Corp.* 2,689,375
185,000 Softkey International Inc.* 4,278,125
135,000 Symantec Corp.* 3,138,750
111,300 3Com Corp.* 5,189,363
120,000 Triquint Semiconductors Inc.* 1,620,000
- --------------------------------------------------------------------------------
36,871,113
- --------------------------------------------------------------------------------
Telecommunications -- 25.6%
114,000 C-TEC Corp., Class B Shares 3,477,000
302,700 MCI Communications Corp. 7,908,038
100,000 Nera AS ADR* 3,250,000
100,000 Panamsat Corp.* 2,206,250
70,000 Perusahaan Perseroan Indonesian Satellite ADR 2,555,000
158,550 Sprint Corp. 6,322,181
100,000 Tele Danmark A/S, Class B Shares ADR 2,762,500
41,500 Telecom Corporation Argentina Stet-France ADR 1,976,438
52,900 Telecom Corporation New Zealand Ltd. ADR 3,669,937
40,000 TelecomAsia Corporation Pub. Ltd.*+ 1,205,000
81,000 Telecommunication Brasileiras ADR* 3,837,375
73,000 Telefonica de Argentina, SA ADR, Class B Shares 1,989,250
62,000 Telefonica de Espana, SA ADR 2,596,250
110,200 Telefonos de Mexico, SA ADR 3,512,625
476,000 Telekom Malaysia 3,712,012
270,000 Thai Telephone & Communication Public Co. Ltd.* 1,468,440
152,000 Vodafone Group PLC ADR 5,358,000
- --------------------------------------------------------------------------------
57,806,296
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $203,132,859) 217,457,384
================================================================================
See Notes to Financial Statements.
8
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Schedule of Investments (continued) December 31, 1995
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
PREFERRED STOCK -- 1.3%
Telecommunications -- 1.3%
57,000 Philippine Long Distance Telephone Co.
Series III $3.50 (Cost -- $2,850,000) $ 2,964,000
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 2.3%
$5,231,000 Chemical Securities Inc., 5.80% due 1/2/96
Proceeds at maturity -- $5,234,370;
(Fully collateralized
by U.S. Treasury Notes, 6.125% due 5/31/97;
Market value -- $5,335,758) (Cost -- $5,231,000) 5,231,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $211,213,859)++ $225,652,384
================================================================================
* Non-income producing security.
+ Security exempt from registration under Rule 144A of Securities Act of
1933. These securities may be resold in transactions exempt from
registration, generally to qualified institutional buyers.
++ 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 December 31, 1995
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $211,213,859) $225,652,384
Receivable for securities sold 6,486,528
Receivable for Fund shares sold 180,055
Dividend and interest receivable 281,533
- --------------------------------------------------------------------------------
Total Assets 232,600,500
================================================================================
LIABILITIES:
Payable for securities purchased 4,510,777
Payable for Fund shares purchased 315,622
Distribution fees payable 149,504
Payable to bank 146,970
Investment advisory fees payable 107,406
Administration fees payable 39,057
Accrued expenses and other liabilities 95,645
- --------------------------------------------------------------------------------
Total Liabilities 5,364,981
================================================================================
Total Net Assets $227,235,519
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 18,074
Capital paid in excess of par value 204,184,916
Accumulated net realized gain from security transactions 8,594,004
Net unrealized appreciation of investments 14,438,525
- --------------------------------------------------------------------------------
Total Net Assets $227,235,519
================================================================================
Shares Outstanding:
Class A 5,590,074
- --------------------------------------------------------------------------------
Class B 12,409,796
- --------------------------------------------------------------------------------
Class C 75,121
- --------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $12.71
- --------------------------------------------------------------------------------
Class B* $12.51
- --------------------------------------------------------------------------------
Class C** $12.71
- --------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net aset value per share) $13.38
================================================================================
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed less than 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 For the Year Ended December 31, 1995
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 2,280,672
Interest 551,582
Less:Foreign withholding tax (190,719)
- --------------------------------------------------------------------------------
Total Investment Income 2,641,535
================================================================================
EXPENSES:
Investment advisory fees (Note 2) 1,393,007
Distribution fees (Note 2) 1,941,865
Administration fees (Note 2) 506,548
Shareholder and system servicing fees 431,493
Registration fees 90,000
Shareholder communications 50,000
Custody 41,096
Audit and legal 39,100
Trustees' fees 18,000
Other 23,915
- --------------------------------------------------------------------------------
Total Expenses 4,535,024
- --------------------------------------------------------------------------------
Net Investment Loss (1,893,489)
================================================================================
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCIES (NOTE3):
Realized Gain From:
Security transactions (excluding short-term securities) 21,752,822
Foreign currency transactions 633
- --------------------------------------------------------------------------------
Net Realized Gain 21,753,455
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 15,076,522
End of year 14,438,525
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (637,997)
- --------------------------------------------------------------------------------
Net Gain on Investments and Foreign Currencies 21,115,458
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $19,221,969
================================================================================
See Notes to Financial Statements.
11
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended December 31,
- --------------------------------------------------------------------------------
1995 1994
================================================================================
OPERATIONS:
Net investment loss $ (1,893,489) $ (2,329,471)
Net realized gain (loss) 21,753,455 (5,848,735)
Decrease in net unrealized appreciation (637,997) (10,566,252)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations 19,221,969 (18,744,458)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (1,451,297)
Net realized gains (3,980,765) --
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (3,980,765) (1,451,297)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 24,781,672 112,458,875
Net asset value of shares issued for reinvestment
of dividends 3,764,024 1,345,277
Cost of shares reacquired (86,600,793) (57,903,959)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Fund Share Transactions (58,055,097) 55,900,193
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (42,813,893) 35,704,438
NET ASSETS:
Beginning of year 270,049,412 234,344,974
- --------------------------------------------------------------------------------
End of year $227,235,519 $270,049,412
================================================================================
See Notes to Financial Statements.
12
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 annual report.
The significant accounting policies consistently followed by the Fund are:
(a) securities 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) short-term 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) short-term investments and 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) 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; (h) 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; (i) 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; (j) the character of
income and gains to be distributed are determined in accordance with income tax
regulations which may differ from generally accepted accounting principles. At
December 31, 1995, reclassifications are made to the Fund's capital accounts to
reflect premanent 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 reclassified to
paid-in capital. Net investment income, net realized gains
13
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
and net assets were not affected by this change; and (k) estimates and
assumptions are required to be made regarding assets, liabilities and changes in
net assets resulting from operations when financial statements are prepared.
Changes in the economic environment, financial markets and any other parameters
used in determining these estimates could cause actual results to differ from
these amounts.
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 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.
The Trust and SBMFM had entered into a sub-administration agreement with
Boston Advisors. Under this agreement, SBMFM paid Boston Advisors a portion of
its administration fee at a rate agreed upon from time to time between SBMFM and
Boston Advisors. As of July 31, 1995, this relationship was terminated.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Trust shares and primary broker for its portfolio agency transactions. For the
year ended December 31, 1995, SB received brokerage commissions of $61,755 and
sales charges of approximately $72,000 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 year ended December 31, 1995, CDSCs paid to SB
for Class B shares were approximately $785,000.
14
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Notes to Financial Statements (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 year ended
December 31, 1995, total Distribution Plan fees incurred were:
Class A Class B Class C
================================================================================
Distribution Plan Fees $197,018 $1,737,952 $6,895
================================================================================
All officers and one Trustee of the Trust are employees of SB.
3. INVESTMENTS
During the year ended December 31, 1995, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ 65,391,206
- --------------------------------------------------------------------------------
Sales 120,833,305
================================================================================
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
================================================================================
Gross unrealized appreciation $32,022,221
Gross unrealized depreciation (17,583,696)
- --------------------------------------------------------------------------------
Net unrealized appreciation $14,438,525
================================================================================
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 (continued)
- --------------------------------------------------------------------------------
5. SHARES OF BENEFICIAL INTEREST
At December 31, 1995, 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 December 31, 1995, total paid-in capital amounted to the following for
each class:
Class A Class B Class C
================================================================================
Total Paid-in Capital $49,762,914 $153,494,921 $945,155
================================================================================
Transactions in shares of each class were as follows:
</TABLE>
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1995 December 31, 1994
--------------------- ----------------------
Shares Amount Shares Amount
==============================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 439,191 $5,782,257 2,118,919 $26,465,297
Shares issued on reinvestment 89,091 1,112,742 69,569 828,566
Shares redeemed (1,986,028) (24,990,603) (1,170,354) (14,398,989)
- ----------------------------------------------------------------------------------------------
Net Increase (Decrease) (1,457,746) $(18,095,604) 1,018,134 $12,894,874
==============================================================================================
Class B
Shares sold 1,428,073 $18,024,709 6,989,940 $85,839,378
Shares issued on reinvestment 214,141 2,633,929 43,682 516,322
Shares redeemed (4,973,188) (61,409,297) (3,572,347) (43,504,970)
- ----------------------------------------------------------------------------------------------
Net Increase (Decrease) (3,330,974) $(40,750,659) 3,461,275 $42,850,730
==============================================================================================
Class C
Shares sold 76,994 $974,706 12,569 $154,200
Shares issued on reinvestment 1,389 17,353 32 389
Shares redeemed (15,863) (200,893) -- --
- ----------------------------------------------------------------------------------------------
Net Increase 62,520 $791,166 12,601 $154,589
==============================================================================================
</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 dividends paid 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
year:
<TABLE>
<CAPTION>
Class A Shares 1995 1994(1) 1993(1) 1992 1991
======================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $11.91 $12.86 $9.63 $8.68 $7.36
- ----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.03) (0.04) (0.04) 0.05 0.06
Net realized and unrealized gain (loss) 1.04 (0.78) 3.44 1.63 1.47
- ----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 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 Year $12.71 $11.91 $12.86 $9.63 $8.68
- ----------------------------------------------------------------------------------------------------------------------
Total Return 8.54% (6.37) 35.27% 19.41% 20.94%
- ----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $71,059 $83,918 $77,564 $36,947 $34,643
- ----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.27% 1.24% 1.34% 1.31% 1.19%
Net investment income (loss) (0.23) (0.29) (0.32) 0.55 0.67
- ----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 27% 19% 25% 64% 111%
======================================================================================================================
Average commissions paid on
equity security transactions(2) $0.05 -- -- -- --
======================================================================================================================
</TABLE>
(1) 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.
(2) New SEC disclosure guidelines require that average commissions per share be
calculated and presented for the current year only.
17
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year:
<TABLE>
<CAPTION>
Class B Shares Class C Shares
-------------------------------------------- -----------------------
1995 1994(1) 1993(1) 1992(2) 1995 1994(1)(3)
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $11.82 $12.77 $9.63 $9.33 $12.00 $12.70
- --------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.12) (0.14) (0.14) (0.00)* (0.13) (0.01)
Net realized and unrealized gain (loss) 1.02 (0.78) 3.45 1.02 1.05 (0.66)
- --------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.90 (0.92) 3.31 1.02 0.92 (0.67)
- --------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.03) -- (0.01) -- (0.03)
Net realized gains (0.21) -- (0.17) (0.71) (0.21) --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.21) (0.03) (0.17) (0.72) (0.21) (0.03)
- --------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.51 $11.82 $12.77 $9.63 $12.71 $12.00
- --------------------------------------------------------------------------------------------------------------------------
Total Return 7.67% (7.17)% 34.34% 10.98%++ 7.73% (5.24)%++
- --------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $155,222 $185,980 $156,781 $586 $955 $151
- --------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.02% 2.07% 2.18% 2.21%+ 2.02% 2.08%+
Net investment loss (0.98) (1.11) (1.16) (0.38)+ (0.98) (1.13)+
- --------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate .27% .19% .25% .64% .27% .19%
==========================================================================================================================
Average commissions paid on
equity security transactions(4) $0.05 -- -- -- $0.05 --
==========================================================================================================================
</TABLE>
(1) 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.
(2) For the period from November 6, 1992 (inception date) to December 31, 1992.
(3) For the period from November 7, 1994 (inception date) to December 31, 1994.
(4) New SEC disclosure guidelines require that average commissions per share be
calculated and presented for the current year only.
* Amount represents less than $0.01 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
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees of
Smith Barney Telecommunications Trust:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the Smith Barney Telecommunications
Growth Fund of Smith Barney Telecommunications Trust as of December 31, 1995,
and the related statements of operations, changes in net assets, and financial
highlights for the year then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year ended
December 31, 1994 and the financial highlights for each of the years in the
four-year period then ended were audited by other auditors whose report thereon,
dated February 3, 1995, expressed an unqualified opinion on that statement of
changes in net assets and those financial highlights.
We conducted our audit 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, 1995, by correspondence with the custodian. As to securities
purchased and sold but not received or delivered, we performed other appropriate
auditing procedures. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Smith Barney
Telecommunications Growth Fund of Smith Barney Telecommunications Trust as of
December 31, 1995, and the results of its operations, changes in its net assets
and its financial highlights for the year then ended, in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
New York, New York
February 22, 1996
19
<PAGE>
Smith Barney Telecommunications Growth Fund
- --------------------------------------------------------------------------------
Additional Information
- --------------------------------------------------------------------------------
Change in Independent Auditor: On October 20, 1994, based upon the
recommendation of the Audit Committee of the Fund, the Board of Trustees
determined not to retain Coopers & Lybrand L.L.P. ("Coopers & Lybrand") as the
Fund's independent auditor and voted to appoint KPMG Peat Marwick LLP. During
the Fund's two most recent fiscal years, Coopers & Lybrand's audit reports
contained no adverse opinion or disclaimer of opinion; nor were the reports
qualified or modified as to uncertainty, audit scope, or accounting principles.
Further, during this same period there were no disagreements with Coopers &
Lybrand on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Coopers & Lybrand, would have caused it to make reference
to the subject matter of such disagreements in connection with its audit
reports. The Fund has requested Coopers & Lybrand to provide a letter to the
Securities and Exchange Commission stating whether Coopers & Lybrand agrees with
the foregoing statements, and to provide the Fund with a copy of such letter. A
copy of this letter is available upon request by calling the Fund at (212)
723-9218.
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
The amount of long-term capital gains paid by the Fund to its shareholders
for the fiscal year ended December 31, 1995, was $3,980,765.
20
<PAGE>
Smith Barney SMITH BARNEY
Telecommunications ------------
Growth Fund A Member of Travelers Group [LOGO]
Trustees
Paul R. Ades
Herbert Barg
Alger B. Chapman
Dwight B. Crane
Frank G. Hubbard
Allan R. Johnson
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
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
FD0320 2/96
