SEMI-ANNUAL REPORT
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Smith Barney
Telecommunications
Income Fund
------------------------------------
June 30, 1997
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.
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Smith Barney Telecommunications Income Fund
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Dear Shareholder:
We are pleased to provide the semi-annual report for the period ended June 30,
1997, for the Smith Barney Telecommunications Income Fund ("Fund"). In this
report, we review the factors driving the Fund's performance during this period
and discuss our outlook for the Bell operating companies that currently
represent 95% 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.
Market and Performance Update
The primary objective of the Fund is to provide shareholders with current
income. The growth of capital is a secondary objective. The Fund's aggregate
total return (income plus the change in share price) was 17.80% for the first
six months of 1997, outperforming the 11.41% return generated by the specialty
funds category in the Lipper Analytical Index. (Lipper is a major fund-tracking
organization.) For the one-year period ended June 30, 1997, the Fund had an
average annual total return of 20.53%, which is in line with the Standard &
Poor's 500 Index ("S&P 500") annual total return of 20.60% for the same period.
(The S&P 500 is a capitalization-weighted measure of 500 widely held common
stocks.)
The Fund's strong performance reflects the resolution of certain key elements of
the Telecommunications Act of 1996, including proposed guidelines for
restructuring interstate access pricing and an estimate of the magnitude of
Universal Service Funding requirements, which are the costs of providing
telecommunications services to rural areas of the country. Deregulation of the
domestic telecommunications industry is likely to be far more complicated than
originally thought, which will slow the pace of competition in the local service
arena and that in turn should allow the Bell operating companies more time to
plan and execute strategic initiatives in related telecommunications businesses,
such as integrated data and voice network applications.
Outlook
We are optimistic about the outlook for the Bell operating companies and believe
that they will continue to generate stable, 5% - 7%, earnings growth and
consistent dividend growth. In our view, the Bell operating-companies growth
prospects in the years ahead should be enhanced by three key opportunities: (1)
Deregulation that will open new markets, including long-distance services, to
1
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greater competition, (2) New technologies in wireless communications and data
networking and (3) Continued investments in promising foreign telecommunications
companies.
In closing, we appreciate the opportunity to serve your investment needs and
look forward to continuing to help you achieve your financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Valerie J. Sill
Heath B. McLendon Valerie J. Sill
Chairman Investment Officer
July 24, 1997
Special Shareholder Notice
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Please note that there has been a change in the portfolio manager of
the Smith Barney Telecommunications Income Fund. Effective April
1997, Valerie J. Sill, Chartered Financial Analyst and Senior Vice
President at The Boston Company Asset Management ("The Boston
Company"), took over as the portfolio manager of the Smith Barney
Telecommunications Income Fund from Guy Scott.
Ms. Sill joined The Boston Company in 1994 and is a portfolio
manager for both balanced and value equity accounts and is a member
of the The Boston Company's Equity Policy Group. With more than
eight years investment experience, Ms. Sill was most recently The
Boston Company's Director of Research and she continues to follow
the health care and utilities industries. Ms. Sill graduated magna
cum laude from Wellesley College and holds a MBA from Harvard
Business School. She was awarded the CFA Charter in 1993.
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2
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Historical Performance
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<TABLE>
<CAPTION>
Net Asset Value
--------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital +Returns+
=====================================================================================
<S> <C> <C> <C> <C> <C> <C>
6/30/97 $104.62 $121.69 $1.42 $0.00 $0.00 17.80%++
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12/31/96 119.69 104.62 3.12 9.72 0.00 (1.45)
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12/31/95 95.62 119.69 3.58 11.50 0.00 42.93
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12/31/94 107.62 95.62 4.05 6.06 0.00 (1.83)
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12/31/93 102.67 107.62 4.42 6.87 0.00 16.00
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12/31/92 110.75 102.67 4.55 15.23 0.00 10.89
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12/31/91 129.06 110.75 6.05 14.62 1.18 3.30
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12/31/90 140.93 129.06 5.79 3.20 0.00 (1.80)
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12/31/89 99.10 140.93 5.85 2.81 0.00 52.11
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12/31/88 90.28 99.10 5.40 0.99 0.00 17.12
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12/31/87 99.20 90.28 7.20 2.92 0.00 0.91
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Total $51.43 $73.92 $1.18
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</TABLE>
It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, twice a year.
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Average Annual Total Return+
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Six Months Ended 6/30/97++ 17.80%
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Year Ended 6/30/97 20.53
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Five Years Ended 6/30/97 16.63
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Ten Years Ended 6/30/97 13.88
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1/1/84* through 6/30/97 16.37
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Cumulative Total Return+
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6/30/87 through 6/30/97 266.95%
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+ Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
* Commencement of operations.
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Historical Performance (unaudited)
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Growth of $10,000 Invested in
the Smith Barney Telecommunications Income Fund vs.
Standard & Poor's 500 Index and Lipper Equity Income Fund Index+
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June 1987 -- June 1997
[The following table was represented as a line graph in the printed material.]
Smith Barney
Telecommunications Lipper Equity
Income Fund S&P 500 Index Income Index
----------- ------------- ------------
6/87 10,000 10,000 10,160
12/87 9,681 8,259 11,382
12/88 11,349 9,627 13,357
12/89 17,264 12,672 14,306
12/90 16,953 12,279 15,280
12/91 17,512 16,012 19,490
12/92 19,419 17,232 21,389
12/93 22,527 18,964 24,562
12/94 22,115 19,213 24,336
12/95 31,609 26,424 31,597
12/96 31,151 32,488 37,350
6/97 36,695 39,187 42,859
+ Hypothetical illustration of $10,000 invested in the Smith Barney
Telecommunications Income Fund on June 30, 1987, assuming reinvestment of
dividends and capital gains, if any, at net asset value through June 30,
1997. 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
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Schedule of Investments (unaudited) June 30, 1997
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SHARES SECURITY VALUE
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COMMON STOCKS -- 100.0%
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Telecommunications -- 100.0%
164,436 AirTouch Communications, Inc.+ $ 4,501,435
153,942 Ameritech Corp. 10,458,435
152,542 Bell Atlantic Corp. 11,574,124
284,644 Bellsouth Corp. 13,200,365
45,896 NYNEX Corp. 2,644,757
328,747 SBC Communications, Inc. 20,341,221
146,858 U.S. West Communications, Inc. 5,534,711
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TOTAL INVESTMENTS -- 100%
(Cost -- $12,897,684*) $68,255,048
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+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is $9,367,339.
See Notes to Financial Statements.
5
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Statement of Assets and Liabilities (unaudited) June 30, 1997
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ASSETS:
Investments, at value (Cost -- $12,897,684) $ 68,255,048
Receivable for securities sold 283,791
Dividends receivable 88,107
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Total Assets 68,626,946
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LIABILITIES:
Payable to bank 127,173
Investment advisory fees payable 30,095
Administration fees payable 10,943
Accrued expenses 33,454
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Total Liabilities 201,665
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Total Net Assets $ 68,425,281
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NET ASSETS:
Par value of shares of beneficial interest $ 562
Capital paid in excess of par value 8,834,100
Overdistributed net investment income (9,891)
Accumulated net realized gain on security transactions 4,243,146
Net unrealized appreciation of investments 55,357,364
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Total Net Assets $ 68,425,281
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Shares Outstanding 562,299
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Net Asset Value, Per Share (and redemption price) $ 121.69
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See Notes to Financial Statements.
6
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Statement of Operations (unaudited)
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For the Six Months Ended June 30, 1997
INVESTMENT INCOME:
Dividends $ 1,088,125
Interest 11,773
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Total Investment Income 1,099,898
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EXPENSES:
Investment advisory fees (Note 2) 175,498
Administration fees (Note 2) 63,818
Audit and legal 19,836
Trustees' fees 14,670
Shareholder and system servicing fees 12,104
Shareholder communications 7,935
Custody 1,240
Other 2,094
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Total Expenses 297,195
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Net Investment Income 802,703
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REALIZED AND UNREALIZED GAIN ON
INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 4,298,802
Cost of securities sold 929,492
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Net Realized Gain 3,369,310
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Change in Net Unrealized Appreciation of Investments:
Beginning of period 48,937,535
End of period 55,357,364
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Increase in Net Unrealized Appreciation 6,419,829
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Net Gain on Investments 9,789,139
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Increase in Net Assets From Operations $10,591,842
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See Notes to Financial Statements.
7
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Statements of Changes in Net Assets
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For the Six Months Ended June 30, 1997 (unaudited) and the Year Ended December
31, 1996
1997 1996
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OPERATIONS:
Net investment income $ 802,703 $ 1,880,422
Net realized gain+ 3,369,310 5,532,858
Increase (decrease) in net unrealized
appreciation 6,419,829 (8,916,590)
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Increase (Decrease) in Net Assets From
Operations 10,591,842 (1,503,310)
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DISTRIBUTION TO SHAREHOLDERS FROM:
Net investment income (812,594) (1,880,422)
Net realized gains -- (5,827,066)
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Decrease in Net Assets From
Distributions to Shareholders (812,594) (7,707,488)
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FUND SHARE TRANSACTIONS (NOTE 5):
Net asset value of shares issued for
reinvestment of dividends 295,885 2,932,221
Cost of shares reacquired (4,631,422) (5,580,641)
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Decrease in Net Assets From
Fund Share Transactions (4,335,537) (2,648,420)
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Increase (Decrease) in Net Assets 5,443,711 (11,859,218)
NET ASSETS:
Beginning of period 62,981,570 74,840,788
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End of period* $68,425,281 $ 62,981,570
================================================================================
* Includes overdistributed net investment
income of: $ (9,891) --
================================================================================
+ Net realized gains for Federal income tax purposes is $3,480,056 and
$5,865,009, for the six months ended June 30, 1997 and the year ended
December 31, 1996, respectively.
See Notes to Financial Statements.
8
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Notes to Financial Statements (unaudited)
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1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Telecommunications Income Fund ("Fund"), an 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 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, which approximates value; (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 average-cost 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 differ from generally
accepted accounting principles. These differences are primarily due to differing
accounting method adopted for income tax purposes, and various timing
differences; 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
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Notes to Financial Statements (unaudited) (continued)
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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 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.
All officers and one Trustee of the Trust are employees of SB.
3. INVESTMENTS
During the six months ended June 30, 1997, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases --
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Sales $4,298,802
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At June 30, 1997, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
================================================================================
Gross unrealized appreciation $58,887,709
Gross unrealized depreciation --
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Net unrealized appreciation $58,887,709
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10
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Notes to Financial Statements (unaudited) (continued)
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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, 1997, 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, 1997 December 31, 1996
================================================================================
Shares issued on reinvestment 2,663 27,670
Shares redeemed (42,381) (50,952)
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Net Decrease (39,718) (23,282)
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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
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Financial Highlights
- --------------------------------------------------------------------------------
For a share of beneficial interest outstanding throughout each period:
<TABLE>
<CAPTION>
1997(1) 1996 1995 1994 1993 1992
============================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $104.62 $119.69 $ 95.62 $107.62 $102.67 $110.75
- --------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 1.40 3.12 3.58 4.02 3.94 4.91
Net realized and
unrealized gain (loss) 17.09 (5.35) 35.57 (5.91) 12.30 6.79
- --------------------------------------------------------------------------------------------
Total Income (Loss)
From Operations 18.49 (2.23) 39.15 (1.89) 16.24 11.70
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Less Distributions From:
Net investment income (1.42) (3.12) (3.58) (4.05) (4.42) (4.55)
Net realized gains -- (9.72) (11.50) (6.06) (6.87) (15.23)
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Total Distributions (1.42) (12.84) (15.08) (10.11) (11.29) (19.78)
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Net Asset Value,
End of Period $121.69 $104.62 $119.69 $ 95.62 $107.62 $102.67
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Total Return 17.80%++ (1.45)% 42.93% (1.83)% 16.00% 10.89%
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Net Assets,
End of Period (000s) $68,425 $62,982 $74,841 $61,256 $71,570 $70,637
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Ratios to Average
Net Assets:
Expenses 0.93%+ 0.90% 0.95% 0.95% 0.93% 0.92%
Net investment income 2.51+ 2.80 3.23 3.80 3.47 4.41
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Portfolio Turnover Rate 0% 0% 0% 0% 0% 2%
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Average commissions
per share paid on
equity transactions(2) $ 0.05 $ 0.05 $ 0.06 -- -- --
============================================================================================
</TABLE>
(1) For the six months ended June 30, 1997 (unaudited).
(2) As of September 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 TravelersGroup[LOGO]
Trustees
Paul R. Ades
Herbert Barg
Dwight B. Crane
Frank G. Hubbard
Heath B. McLendon, Chairman
Ken Miller
John F. White
Allan R. Johnson, Emeritus
Officers
Heath B. McLendon
Chief Executive Officer
Lewis E. Daidone
Senior Vice President
and Treasurer
Valerie J. Sill
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, 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 8/97
