<PAGE>
[Small box above fund name showing a desk
plotter with eyeglasses, a pocket watch
and certificates.]
SEMI- SMITH BARNEY SHEARSON EQUITY FUNDS
ANNUAL GROWTH AND
REPORT INCOME
FUND
..........................................
JULY 31, 1994
SMITH BARNEY
------------
<PAGE>
G DEAR SHAREHOLDER:
R
O Tumultuous best describes the markets over the last six
W months. Both stock and bond markets were roiled by
T shifting perceptions of economic and political
H conditions. The underlying economic reality was somewhat
more sedate: a steadily growing economy.
A
N A critical event for the market was the Federal Reserve Board's
D decision to raise short-term interest rates. The moves by the Fed,
begun in February, were viewed as a preemptive strike against
I inflation and inflationary expectations. The immediate market
N responses to the tightening were probably not what the Fed had in
C mind. The long-term bond market fell; then the stock market
O weakened in sympathy. Perhaps bond investors do not believe the
M Fed's actions will be successful. Or maybe the Fed's tightening has
E served to validate their own underlying inflationary concerns. In
any case, stock investors followed right along, resulting in
F volatility across most markets.
U
N In contrast, the economy has been behaving quite nicely. By any
D number of measures, whether it be Gross Domestic Product growth,
employment, or retail sales, the economy is growing at a healthy clip.
Meanwhile, inflation is well under control, with the Consumer Price Index up
only 2% to 3%. So we have the best of both worlds: good growth with low
inflation.
Why the dichotomy between markets and the underlying economy? Two explanations
come to mind. One is that markets are discounting mechanisms; at least in
theory, their price action discounts future events, not current information.
So,
if markets are to be believed, the "best of both worlds" economic environment
should prove short-lived. On the other hand, even the most rigorous academics
acknowledge that the markets are not perfect discounting mechanisms; they
frequently overreact. It is possible that the economy will continue its recent
course of moderate growth coupled with low inflation, and the current market
froth will prove to be just that.
INVESTMENT STRATEGY
The Growth and Income Fund is a stock-oriented fund. Its primary focus is
common
stocks, but the Fund also invests in preferred stocks, bonds and cash
equivalents.
Over the past six months, the asset allocation of the Fund has changed. The
Fund
now has a heavier emphasis on stocks, with a corresponding lighter
participation
in bonds. For example, on January 31, 1994, the Fund was 83% invested in
stocks,
both common and preferred; 11% in bonds and notes; and 6% in cash equivalents.
At July 31, the percentages were 95% in stocks, 3% in bonds and 2% in cash
equivalents. Thus, over the past six months, stocks have increased by 12%.
This
change has increased the growth potential of the portfolio while decreasing
the
portfolio's current yield, as stocks tend to yield less than bonds.
1
<PAGE>
Looking forward, we do not anticipate any further significant increases in
stock
holdings. Indeed, over time, we would anticipate a decrease in the percentage
of
the portfolio held in stock as the economic cycle unfolds and the pressures on
interest rates diminish.
In addition to shifts in the Fund's asset allocation, there were numerous
changes in security holdings. The most important of these were in the stock
portfolio. When choosing stocks for the portfolio, we concentrate on companies
that pay dividends. In fact, we try to identify companies that will increase
their dividends over time, a so-called "rising dividend" strategy. To find
such
companies, we examine a number of factors. In addition to analysis of a
company's financial statements and business outlook, we also look at any
patterns of past dividend payments and corporate dividend policy.
The portfolio is constructed on a stock by stock basis; nonetheless, it's
often
useful to review changes in stock holdings from an industry or sector
perspective. Viewed in this respect, the biggest increases since January 31
were
in the Electronic Technology and Consumer Durable sectors. Of decreased
importance to the portfolio were Consumer Services and Transportation stocks.
None of these weighting changes were dramatic. Generally these changes were
driven by circumstances specific to an individual stock rather than an opinion
change on an overall industry.
PERFORMANCE
Stock market returns have been negative for the six months ended July 31.
Inclusive of reinvestment of dividends, a large company stock index such as
the
S&P 500 was down 3.5%. Broad based bond indexes also suffered negative returns
for the same period.
The Growth and Income Fund total returns were slightly lower than stock
indexes
such as the S&P 500. The Fund's stock holdings tend to have higher yields than
the overall market. Such higher yielding stocks lagged most stock market
indexes
since the beginning of the year.
More specific information on the Fund's portfolio can be found in the balance
of
our report. We look forward to reporting to you again in six months and
appreciate your continued confidence in our abilities in assisting you in
meeting your financial goals.
Sincerely,
<TABLE>
<S> <C> <C>
Heath B. McLendon R. Jay Gerken, CFS George V. Novello
Chairman of the Board Investment Officer Investment Officer
and Investment Officer
August 17, 1994
</TABLE>
2
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
PORTFOLIO HIGHLIGHTS (UNAUDITED) JULY 31,
1994
- ------------------------------------------------------------------------------
- --
<TABLE>
INDUSTRY BREAKDOWN
DESCRIPTION OF PIE CHARTS IN SHAREHOLDER REPORT
Industry Breakdown
Pie chart depicting the allocation of the Equity Funds - Growth and Income
Fund's investment securities held at July 31, 1994 by industry classification.
The pie is broken in pieces representing industries in the following
percentages:
<CAPTION>
INDUSTRY PERCENTAGE
<S> <C>
Preferred Convertible Stocks 5.4%
Retail Trade 6.4%
Energy 6.5%
Electric Technology 9.3%
Convertible Corporate Note, Repurchase
Agreement and Net Other Assets and
Liabilities 2.4%
Consumer Services 6.5%
Financial Services 11.0%
Other Common Stocks 24.7%
Utilities 6.2%
Process Industries 9.8%
Producer Manufacturing 8.9%
Corporate Bonds and Notes 2.9%
</TABLE>
<TABLE>
TOP TEN HOLDINGS
<CAPTION>
Percentage of
Company Net Assets
- ----------------------------------------------------------------------
<S> <C>
KEYCORP 2.1%
COCA-COLA COMPANY 2.1
NATIONSBANK CORPORATION 2.1
NORDSTROM INC. 2.1
AMP INC. 2.0
INTERNATIONAL FLAVORS & FRAGRANCES INC. 2.0
MINNESOTA MINING & MANUFACTURING COMPANY 2.0
MOTOROLA INC. 2.0
ROYAL DUTCH PETROLEUM COMPANY 2.0
RAYTHEON COMPANY 1.9
</TABLE>
3
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- ----------
PORTFOLIO OF INVESTMENTS (UNAUDITED) JULY
31, 1994
- ------------------------------------------------------------------------------
- ----------
<CAPTION>
MARKET
VALUE
SHARES
(NOTE 1)
- ------------------------------------------------------------------------------
- ----------
<C> <S>
<C>
COMMON STOCKS - 89.3%
FINANCIAL SERVICES -- 11.0%
57,000 Firstar Corporation $
1,973,625
85,000 GP Financial Corporation
2,008,125
130,000 Keycorp
4,225,000
60,000 Meridian Bancorp Inc
1,912,500
60,000 Morgan (J.P.) & Company Inc
3,780,000
75,000 NationsBank Corporation
4,181,250
115,000 PartnerRe Holdings Ltd
2,415,000
70,000 Union Planters Corporation
1,776,250
- ------------------------------------------------------------------------------
- ----------
22,271,750
- ------------------------------------------------------------------------------
- ----------
PROCESS INDUSTRIES - 9.8%
100,000 Bemis Inc.
2,462,500
82,500 Hanna (M.A.) Company
2,186,250
65,000 Kimberly-Clark Corporation
3,688,750
110,000 Louisiana Pacific Corporation
3,547,500
45,000 Monsanto Company
3,459,375
87,500 Schulman (A.) Inc.
2,362,500
70,000 Witco Corporation
2,038,750
- ------------------------------------------------------------------------------
- ----------
19,745,625
- ------------------------------------------------------------------------------
- ----------
ELECTRIC TECHNOLOGY - 9.3%
55,000 AMP Inc.
4,111,250
45,000 Hewlett Packard Company
3,493,125
75,000 Motorola Inc.
3,975,000
60,000 Raytheon Company
3,937,500
90,000 Rockwell International Corporation
3,228,750
- ------------------------------------------------------------------------------
- ----------
18,745,625
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
4
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- -----------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) JULY
31, 1994
- ------------------------------------------------------------------------------
- -----------
<CAPTION>
MARKET
VALUE
SHARES
(NOTE 1)
- ------------------------------------------------------------------------------
- -----------
<C> <S>
<C>
COMMON STOCKS (CONTINUED)
PRODUCER MANUFACTURING - 8.9%
105,000 Belden, Inc. $
1,890,000
70,000 General Electric Company
3,526,250
30,000 Hubbell Inc., Class B
1,702,500
75,000 Johnson Controls, Inc.
3,928,125
75,000 Minnesota Mining & Manufacturing Company
3,984,375
85,000 Pitney Bowes Inc
2,996,250
- ------------------------------------------------------------------------------
- -----------
18,027,500
- ------------------------------------------------------------------------------
- -----------
ENERGY - 6.5%
160,000 Dresser Industries Inc.
3,380,000
50,000 Murphy Oil Corporation
2,225,000
110,000 Phillips Petroleum Company
3,602,500
35,000 Royal Dutch Petroleum Company
3,955,000
- ------------------------------------------------------------------------------
- -----------
13,162,500
- ------------------------------------------------------------------------------
- -----------
CONSUMER SERVICES - 6.5%
85,000 Disney (Walt) Company
3,612,500
65,000 Gannett Inc.
3,282,500
135,000 McDonald's Corporation
3,661,875
115,000 TCA Cable T.V. Inc.
2,558,750
- ------------------------------------------------------------------------------
- -----------
13,115,625
- ------------------------------------------------------------------------------
- -----------
RETAIL TRADE - 6.4%
90,000 May Department Stores Company
3,566,250
95,000 Nordstrom Inc.
4,156,250
65,000 Penny (J.C.) Inc.
3,217,500
60,000 Stanhome Inc.
1,957,500
- ------------------------------------------------------------------------------
- -----------
12,897,500
- ------------------------------------------------------------------------------
- -----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
5
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- ----------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) JULY
31, 1994
- ------------------------------------------------------------------------------
- ----------
<CAPTION>
MARKET
VALUE
SHARES
(NOTE 1)
- ------------------------------------------------------------------------------
- ----------
<C> <S>
<C>
COMMON STOCKS (CONTINUED)
UTILITIES - 6.2%
90,000 Ameritech Corporation $
3,690,000
65,000 Bell Atlantic
3,680,625
40,000 Northern States Power Company
1,710,000
110,000 Pioneer Hi Bred International
3,513,125
- ------------------------------------------------------------------------------
- ----------
12,593,750
- ------------------------------------------------------------------------------
- ----------
CONSUMER NON-DURABLES - 5.8%
95,000 Coca-Cola Company
4,215,625
95,000 International Flavors & Fragrances Inc.
3,990,000
65,000 Phillip Morris Companies Inc.
3,575,000
- ------------------------------------------------------------------------------
- ----------
11,780,625
- ------------------------------------------------------------------------------
- ----------
TECHNOLOGY SERVICES - 5.4%
65,000 American Home Products Corporation
3,729,375
70,000 Automatic Data Processing Inc.
3,605,000
55,000 Warner Lambert Company
3,575,000
- ------------------------------------------------------------------------------
- ----------
10,909,375
- ------------------------------------------------------------------------------
- ----------
CONSUMER DURABLES - 4.6%
100,000 Genuine Parts Company
3,537,500
55,000 Leggett & Platt Inc.
2,028,125
135,000 Rubbermaid Inc.
3,695,625
- ------------------------------------------------------------------------------
- ----------
9,261,250
- ------------------------------------------------------------------------------
- ----------
COMMERCIAL SERVICES - 3.5%
110,000 GTE Corporation
3,492,500
85,000 Reuters Holdings Plc., ADR
3,665,625
- ------------------------------------------------------------------------------
- ----------
7,158,125
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
6
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- ----------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) JULY
31, 1994
- ------------------------------------------------------------------------------
- ----------
<CAPTION>
MARKET
VALUE
SHARES
(NOTE 1)
- ------------------------------------------------------------------------------
- ----------
<C> <S>
<C>
COMMON STOCKS (CONTINUED)
TRANSPORTATION - 3.5%
55,000 British Airways Plc., ADR $
3,540,625
60,000 Union Pacific Corporation
3,540,000
- ------------------------------------------------------------------------------
- ----------
7,080,625
- ------------------------------------------------------------------------------
- ----------
NON-ENERGY - 1.9%
275,000 Broken Hill Properties, ADR
3,866,647
- ------------------------------------------------------------------------------
- ----------
TOTAL COMMON STOCKS (Cost $174,960,832)
180,616,522
- ------------------------------------------------------------------------------
- ----------
PREFERRED CONVERTIBLE STOCKS - 5.4%
65,000 General Motors Corporation, Depository Shares representing
1/10 share Pfd. Convertible, $3.25
3,664,375
65,000 Sears Roebuck & Company, Depository Shares representing 1/4
share, Series A
3,599,375
65,000 Unocal Corporation Pfd. Convertible, 7.000%
3,566,875
- ------------------------------------------------------------------------------
- ----------
TOTAL PREFERRED CONVERTIBLE STOCKS (Cost $10,801,355)
10,830,625
- ------------------------------------------------------------------------------
- ----------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
- ------------------------------------------------------------------------------
- ----------
<C> <S>
<C>
CORPORATE BONDS AND NOTES - 2.9%
$2,000,000 Dean Witter, Discover & Company, 6.875% due 3/1/2003
1,880,000
2,000,000 General Motors Acceptance Corporation, 7.000% due 9/15/2002
1,902,500
2,000,000 Limited Inc., 7.800% due 5/15/2002
2,017,500
- ------------------------------------------------------------------------------
- ----------
TOTAL CORPORATE BONDS AND NOTES (Cost $6,179,380)
5,800,000
- ------------------------------------------------------------------------------
- ----------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
7
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- ---------
PORTFOLIO OF INVESTMENTS (UNAUDITED) (continued) JULY
31, 1994
- ------------------------------------------------------------------------------
- ---------
<CAPTION>
MARKET
PRINCIPAL
VALUE
AMOUNT
(NOTE 1)
- ------------------------------------------------------------------------------
- ---------
<C> <S>
<C>
CONVERTIBLE CORPORATE NOTE - 0.6% (Cost $1,315,686)
$ 950,000 Thermo Electron Corporation, Convertible Debenture,
4.625% due 1/8/1997
$1,246,875
- ------------------------------------------------------------------------------
- ---------
REPURCHASE AGREEMENT - 1.0% (Cost $1,962,000)
1,962,000 Agreement with Citibank N.A., dated 7/29/1994, 4.200% to be
repurchased at $1,962,687 on 8/1/1994, collateralized by
$1,962,000 U.S. Treasury Note, 8.500% due 7/15/1997
1,962,000
- ------------------------------------------------------------------------------
- ---------
TOTAL INVESTMENTS (Cost $195,219,253*) 99.2%
200,456,022
OTHER ASSETS AND LIABILITIES (NET) 0.8%
1,693,256
- ------------------------------------------------------------------------------
- ---------
NET ASSETS 100.0%
202,149,278
- ------------------------------------------------------------------------------
- ---------
<FN>
* Aggregate cost for Federal tax purposes.
Abbreviation:
ADR-American Depositary Receipts
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- ------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
JANUARY 31, 1994
- ------------------------------------------------------------------------------
- ------------
<S> <C>
<C>
ASSETS:
Investments, at value (Cost $195,219,253) (Note 1)
See accompanying schedule
$200,456,022
Receivable for investment securities sold
2,594,835
Dividends receivable
314,295
Interest receivable
165,770
Receivable for Fund shares sold
133,195
Unamortized organization costs (Note 6)
125,026
Prepaid expenses
3,500
- ------------------------------------------------------------------------------
- ------------
TOTAL ASSETS
203,792,643
- ------------------------------------------------------------------------------
- ------------
LIABILITIES:
Payable for investment securities purchased $1,242,333
Distribution fee payable (Note 3) 82,157
Investment advisory fee payable (Note 2) 76,693
Payable for Fund shares redeemed 68,387
Service fee payable (Note 3) 42,607
Administration fee payable (Note 2) 34,086
Transfer agent fees payable (Note 2) 31,300
Custodian fees payable (Note 2) 15,600
Due to custodian 477
Accrued expenses and other payables 49,725
- ------------------------------------------------------------------------------
- ------------
TOTAL LIABILITIES
1,643,365
- ------------------------------------------------------------------------------
- ------------
NET ASSETS
$202,149,278
- ------------------------------------------------------------------------------
- ------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- -------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (continued)
- ------------------------------------------------------------------------------
- -------------
<S>
<C>
NET ASSETS CONSIST OF:
Distributions in excess of net investment income earned to date $
(38,688)
Accumulated net realized gain on investments sold
6,889,113
Unrealized appreciation on investments
5,236,769
Par value
20,544
Paid-in capital in excess of par value
190,041,540
- ------------------------------------------------------------------------------
- -------------
TOTAL NET ASSETS
$202,149,278
- ------------------------------------------------------------------------------
- -------------
NET ASSET VALUE
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($7,255,635/738,751 shares of beneficial interest outstanding)
$ 9.82
- ------------------------------------------------------------------------------
- -------------
Maximum offering price per share ($9.82/0.95) (based on
sales charge of 5% of the offering price on July 31, 1994)
$10.34
- ------------------------------------------------------------------------------
- -------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($194,893,623/19,805,621 shares of beneficial interest outstanding)
$ 9.84
- ------------------------------------------------------------------------------
- -------------
CLASS D SHARES:
NET ASSET VALUE, offering and redemption price per share
($19.68/2 shares of beneficial interest outstanding)
$ 9.84
- ------------------------------------------------------------------------------
- -------------
<FN>
+ Redemption price per share is equal to Net Asset Value less any applicable
contingent
deferred sales charge.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- ------------
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JULY 31, 1994
- ------------------------------------------------------------------------------
- ------------
<S> <C>
<C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $21,505)
$2,509,683
Interest
406,727
- ------------------------------------------------------------------------------
- ------------
TOTAL INVESTMENT INCOME
2,916,410
- ------------------------------------------------------------------------------
- ------------
EXPENSES:
Distribution fee (Note 3) $435,464
Investment advisory fee (Note 2) 407,252
Service fee (Note 3) 226,218
Transfer agent fees (Notes 2 and 4) 217,175
Administration fee (Note 2) 181,001
Legal and audit fees 73,880
Custodian fees (Note 2) 29,550
Amortization of organization costs (Note 6) 19,235
Trustees' fees and expenses (Note 2) 13,739
Other 128,563
- ------------------------------------------------------------------------------
- ------------
TOTAL EXPENSES
1,732,077
- ------------------------------------------------------------------------------
- ------------
NET INVESTMENT INCOME
1,184,333
==============================================================================
============
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND 5):
Net realized gain on investments during the period
7,621,192
Net unrealized depreciation of investments during the period
(486,754)
- ------------------------------------------------------------------------------
- ------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS
7,134,438
==============================================================================
============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
$8,318,771
==============================================================================
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- ------------
STATEMENT OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------
- ------------
<CAPTION>
SIX MONTHS
ENDED
YEAR
7/31/94
ENDED
(UNAUDITED)
1/31/94
- ------------------------------------------------------------------------------
- ------------
<S> <C>
<C>
Net investment income $ 1,184,333 $
929,148
Net realized gain/(loss) on investments sold during the
period 7,621,192
(732,079)
Net unrealized appreciation/(depreciation) of investments
during the period (486,754)
5,583,952
- ------------------------------------------------------------------------------
- ------------
Net increase in net assets resulting from operations 8,318,771
5,781,021
Distributions to shareholders from net investment income:
Class A (66,912)
(93,564)
Class B (1,165,617)
(826,076)
Net increase in net assets from Fund share transactions
(Note 7):
Class A 2,536,620
634,760
Class B 119,914,115
28,422,915
Class D 9
- --
- ------------------------------------------------------------------------------
- ------------
Net increase in net assets 129,536,986
33,919,056
NET ASSETS:
Beginning of period 72,612,292
38,693,236
- ------------------------------------------------------------------------------
- ------------
End of period (including distributions in excess of net
investment income earned to date and undistributed net
investment income of $38,688 and $9,508, respectively) $202,149,278
$72,612,292
==============================================================================
============
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- -------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
- -------------
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
SIX MONTHS
ENDED YEAR
PERIOD
7/31/94** ENDED
ENDED
(UNAUDITED) 1/31/94**
1/31/93*
<S> <C> <C>
<C>
Net Asset Value, beginning of period $ 10.36 $ 9.58
$ 9.50
- ------------------------------------------------------------------------------
- -------------
Income from investment operations:
Net investment income 0.09 0.20
0.01
Net realized and unrealized gain/(loss) on
investments (0.52)# 0.81
0.07
- ------------------------------------------------------------------------------
- -------------
Total from investment operations (0.43) 1.01
0.08
- ------------------------------------------------------------------------------
- -------------
Less distributions:
Dividends from net investment income (0.11) (0.23)
- --
- ------------------------------------------------------------------------------
- -------------
Total distributions (0.11) (0.23)
- --
- ------------------------------------------------------------------------------
- -------------
Net Asset Value, end of period $ 9.82 $ 10.36
$ 9.58
- ------------------------------------------------------------------------------
- -------------
Total return+ (4.19)% 10.70%
0.84%
==============================================================================
=============
Ratios to average net assets/Supplemental Data:
Net assets, end of period (in 000's) $ 7,256 $ 4,468
$ 3,520
Ratio of operating expenses to average net assets 1.49%++ 1.54%
1.41%++
Ratio of net investment income to average net assets 1.73%++ 2.00%
0.28%++
Portfolio turnover rate 88% 79%
1%
==============================================================================
=============
<FN>
* The Fund commenced selling Class A shares on November 6, 1992.
** The per share amounts have been calculated using the monthly average
shares
method, which more appropriately presents per share data for this year,
since
use of the undistributed method did not accord with results of
operations.
+ Total return represents aggregate total return for the periods indicated
and
does not reflect any applicable sales charge.
++ Annualized.
# The amount shown may not accord with the change in aggregate gains and
losses of portfolio securities due to the timing of sales and redemptions
of
Fund shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- -------------
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------
- -------------
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<CAPTION>
SIX MONTHS
ENDED YEAR
PERIOD
7/31/94** ENDED
ENDED
(UNAUDITED) 1/31/94**
1/31/93*
<S> <C> <C>
<C>
Net Asset Value, beginning of period $10.38 $ 9.58
$9.50
- ------------------------------------------------------------------------------
- -------------
Income from investment operations:
Net investment income 0.07 0.15
(0.01)
Net realized and unrealized gain/(loss) on investments (0.53)# 0.80
0.09
- ------------------------------------------------------------------------------
- -------------
Total from investment operations (0.46) 0.95
0.08
- ------------------------------------------------------------------------------
- -------------
Less distributions:
Dividends from net investment income (0.08) (0.15)
- --
- ------------------------------------------------------------------------------
- -------------
Total distributions (0.08) (0.15)
- --
- ------------------------------------------------------------------------------
- -------------
Net Asset Value, end of period $ 9.84 $10.38
$9.58
- ------------------------------------------------------------------------------
- -------------
Total return+ (4.43)% 10.01%
0.84%
- ------------------------------------------------------------------------------
- -------------
Ratios to average net assets/Supplemental Data:
Net assets, end of period (in 000's) $ 194,894 $68,144
$35,173
Ratio of operating expenses to average net assets 1.93%++ 1.99%
1.91%++
Ratio of net investment income to average net assets 1.29%++ 1.55%
(0.22)%++
Portfolio turnover rate 88% 79%
1%
- ------------------------------------------------------------------------------
- -------------
<FN>
* The Fund commenced selling Class B shares on November 6, 1992.
** The per share amounts have been calculated using the monthly average
shares
method, which more appropriately presents per share data for this year,
since
use of the undistributed method did not accord with results of operations.
+ Total return represents aggregate total return for the periods indicated
and
does not reflect any applicable sales charge.
++ Annualized
# The amount shown may not accord with the change in aggregate gains and
losses of portfolio securities due to the timing of sales and redemptions
of
Fund shares.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------------
- --
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Equity Funds (the "Trust") was organized under the laws
of
the Commonwealth of Massachusetts on January 8, 1986 and is an entity commonly
known as a "Massachusetts business trust." The Trust is registered with the
Securities and Exchange Commission under the Investment Company Act of 1940,
as
amended (the "1940 Act"), as a diversified, open-end management investment
company. As of July 31, 1994, the Trust offered two managed investment
portfolios: Smith Barney Shearson Growth and Income Fund (the "Fund") and
Smith
Barney Shearson Strategic Investors Fund. The Fund commenced operations on
November 6, 1992. The Fund offers two classes of shares to the general public:
Class A shares and Class B shares. Class A shares are sold with a front-end
sales charge. Class B shares may be subject to a contingent deferred sales
charge ("CDSC"). Class B shares will automatically convert to Class A shares
eight years after the original purchase date. On January 29, 1993, the Fund
offered Class D shares to investors that are eligible to participate in the
Smith Barney 401(k) Program. Class D shares are offered without a front-end
sales charge or a CDSC. Each class of shares has identical rights and
privileges
except with respect to the effect of the respective sales charges, the
distribution and/or service fees borne by each class, expenses allocable
exclusively to each class, voting rights on matters affecting a single class,
the exchange privilege of each class and the conversion feature of Class B
shares. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
Portfolio valuation: The Fund's investments are valued at market value or in
the
absence of a market value with respect to any portfolio securities, at fair
value as determined by or under the direction of the Fund's Board of Trustees.
A
security which is traded primarily on a domestic exchange is valued at the
last
sale price on that exchange or, if there were no sales during the day, at the
current quoted bid price. Short-term investments that mature in 60 days or
less
are valued at amortized cost.
Repurchase agreements: The Fund engages in repurchase agreement transactions.
Under the terms of a typical repurchase agreement, the Fund takes possession
of
an underlying debt obligation subject to an obligation of the seller to
repurchase, and the Fund to resell, the obligation at an agreed-upon price and
time, thereby determining the yield during the Fund's holding period. This
arrangement results in a fixed rate of return that is not subject to market
fluctuations during the Fund's holding period. The value of the collateral is
at
least equal at all times to the total
15
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- ------------------------------------------------------------------------------
- --
amount of the repurchase obligations, including interest. In the event of
counterparty default, the Fund has the right to use the collateral to offset
losses incurred. There is potential loss to the Fund in the event the Fund is
delayed or prevented from exercising its rights to dispose of the collateral
securities, including the risk of a possible decline in the value of the
underlying securities during the period while the Fund seeks to assert its
rights. The Fund's investment adviser or administrator, acting under the
supervision of the Board of Trustees, reviews the value of the collateral and
the creditworthiness of those banks and dealers with which the Fund enters
into
repurchase agreements to evaluate potential risks.
Securities transactions and investment income: Securities transactions are
recorded as of the trade date. Realized gains and losses from securities sold
are recorded on the identified cost basis. Dividend income and distributions
to
shareholders are recorded on the ex-dividend date. Interest income is recorded
on the accrual basis. Investment income and realized and unrealized gains and
losses are allocated based upon relative net assets of each class.
Dividends and distributions to shareholders: Dividends from net investment
income determined on a class level, if any, of the Fund are paid quarterly.
Distributions, if any, of any net short-and long-term capital gains earned by
the Fund will be made annually after the close of the fiscal year in which
they
are earned. Additional distributions of net investment income and capital
gains
for the Fund may be made at the discretion of the Board of Trustees in order
to
avoid the application of a 4% nondeductible excise tax on certain
undistributed
amounts of net investment income and capital gains. Income distributions and
capital gain distributions on a Fund level are determined in accordance with
income tax regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments of
income and gains on various investment securities held by the Fund, timing
differences and differing characterization of distributions made by the Fund
as
a whole.
Federal income taxes: The Trust intends that the Fund qualify as a regulated
investment company if such qualification is in the best interest of its
shareholders, by complying with the requirements of the Internal Revenue Code
of
1986, as amended, applicable to regulated investment companies and by
distributing substantially all of its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
16
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- ------------------------------------------------------------------------------
- --
2. INVESTMENT ADVISORY FEE, ADMINISTRATION FEE
AND OTHER TRANSACTIONS
The Fund has entered into an investment advisory agreement (the "Advisory
Agreement") with Greenwich Street Advisors, a division of Mutual Management
Corp., which is controlled by Smith Barney Holdings Inc. ("Holdings").
Holdings
is a wholly owned subsidiary of The Travelers Inc. Under the Advisory
Agreement,
the Fund pays a monthly fee at the annual rate of 0.45% of the value of its
average daily net assets.
Prior to May 20, 1994, the Fund was party to an administration agreement with
The Boston Company Advisors, Inc. ("Boston Advisors"), an indirect wholly
owned
subsidiary of Mellon Bank Corporation ("Mellon"). Under the administration
agreement, the Fund paid a monthly fee at the annual rate of 0.20% of the
value
of its average daily net assets.
As of the close of business on May 20, 1994, Smith, Barney Advisers, Inc.
("SBA"), which is controlled by Holdings, succeeded Boston Advisors as the
Fund's administrator. The new administration agreement contains substantially
the same terms and conditions, including the level of fees, as the predecessor
agreement.
As of the close of business on May 20, 1994, the Fund and SBA also entered
into
a sub-administration agreement (the "Sub-Administration Agreement") with
Boston
Advisors. Under the Sub-Administration Agreement, SBA pays Boston Advisors a
portion of its fee at a rate agreed upon from time to time between SBA and
Boston Advisors.
For the six months ended July 31, 1994, the Fund incurred total brokerage
commissions of $402,418, of which $45,570 was paid to Smith Barney Inc.
("Smith
Barney").
For the same period, Smith Barney received from investors $133,003,
representing
commissions (sales charges) on sales of the Class A shares.
A CDSC is generally payable by a shareholder in connection with the redemption
of Class B shares within five years (eight years in the case of purchases by
certain 401(k) plans) after the date of purchase. In circumstances in which
the
CDSC is imposed, the amount ranges between 5% and 1% of net asset value
depending on the number of years since the date of purchase (except in the
case
of purchases by certain 401(k) plans in which case a 3% CDSC is imposed for
the
eight year period
17
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- ------------------------------------------------------------------------------
- --
after the date of purchase). For the six months ended July 31, 1994, Smith
Barney received from shareholders $147,802 in CDSCs on the redemption of Class
B
shares.
No officer, director or employee of Smith Barney or any of its affiliates
receives any compensation from the Trust for serving as a Trustee or officer
of
the Trust. The Fund pays each Trustee who is not an officer, director or
employee of Smith Barney or any of its affiliates $6,000 per annum plus $1,500
per meeting attended and reimburses each such Trustee for travel and
out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary of
Mellon, serves as the Trust's custodian. The Shareholder Services Group, Inc.,
a
subsidiary of First Data Corporation serves as the Trust's transfer agent.
3. DISTRIBUTION PLAN
Smith Barney acts as distributor of the Fund's shares pursuant to a
distribution
agreement with the Fund, and sells shares of the Fund through Smith Barney or
its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a services and
distribution plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney for servicing shareholder accounts for Class A, Class B and Class D
shareholders and covers expenses incurred in distributing Class B and Class D
shares. Smith Barney is paid an annual service fee with respect to Class A,
Class B and Class D shares of the Fund at the rate of .25% of the value of the
average daily net assets of each respective class of shares. Smith Barney is
also paid an annual distribution fee with respect to Class B and Class D
shares
at the rate of .50% of the value of the average daily net assets attributable
to
those shares. For the six months ended July 31, 1994, the Fund incurred $8,486
and $217,732 in service fees for Class A and Class B shares, respectively. For
the six months ended July 31, 1994, the Fund incurred $435,464 in distribution
fees for Class B shares.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any class
of
shares are prorated among the classes based upon the relative net assets of
each
class. Operating expenses directly attributable to a class of shares are
charged
to that class' operations. In addition to the above servicing and distribution
fees, class specific operating expenses include transfer agent fees of $10,068
and $207,107 for Class A and Class B, respectively.
18
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- ------------------------------------------------------------------------------
- --
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, aggregated $175,011,711 and $141,235,935, respectively, during
the
six months ended July 31, 1994.
At July 31, 1994, aggregate gross unrealized appreciation for all securities
in
which there was an excess of value of over tax cost was $10,042,749, and
aggregate gross unrealized depreciation for all securities in which there was
an
excess of tax cost over value was $4,805,980.
6. ORGANIZATION COSTS
The Fund bears all costs in connection with its organization including the
fees
and expenses of registering and qualifying its shares for distribution under
Federal and state securities regulations. All such costs are being amortized
on
the straight-line method over a period of five years from November 6, 1992,
the
date that the Fund commenced operations. In the event that any of the initial
shares of the Fund are redeemed during such amortization period, the Fund will
be reimbursed for any unamortized costs in the same proportion as the number
of
shares redeemed bears to the number of initial shares outstanding at the time
of
the redemption.
7. SHARES OF BENEFICIAL INTEREST
<TABLE>
The Trust may issue an unlimited number of shares of beneficial interest of
separate series with a $.001 par value. Changes in shares of beneficial
interest
for the Fund which are divided into three classes (Class A, Class B and Class
D)
were as follows:
<CAPTION>
SIX MONTHS ENDED YEAR
ENDED
7/31/94
1/31/94
CLASS A SHARES: SHARES AMOUNT SHARES
AMOUNT
- ------------------------------------------------------------------------------
- -----------
<S> <C> <C> <C>
<C>
Sold 128,266 $1,000,139 223,591
$2,197,905
Issued in exchange for shares of
Smith Barney Shearson Directions
Value Fund (Note 10) 284,460 2,890,114 --
- --
Issued as reinvestment of dividends 6,034 58,917 8,272
81,673
Redeemed (111,306) (1,412,550) (168,193)
(1,644,818)
- ------------------------------------------------------------------------------
- -----------
Net increase 307,454 $2,536,620 63,670
$ 634,760
==============================================================================
===========
</TABLE>
19
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
<TABLE>
- ------------------------------------------------------------------------------
- -------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- ------------------------------------------------------------------------------
- -------------
<CAPTION>
SIX MONTHS ENDED YEAR
ENDED
7/31/94
1/31/94
CLASS B SHARES: SHARES AMOUNT SHARES
AMOUNT
- ------------------------------------------------------------------------------
- -------------
<S> <C> <C> <C>
<C>
Sold 1,079,364 $ 11,010,301 3,667,485
$36,109,573
Issued in exchange for shares of
Smith Barney Shearson Directions
Value Fund (Note 10) 14,209,924 144,657,023 --
- --
Issued as reinvestment of
dividends 109,405 1,064,014 71,664
704,138
Redeemed (2,157,339) (36,817,223) (847,507)
(8,390,796)
- ------------------------------------------------------------------------------
- -------------
Net increase 13,241,354 $119,914,115 2,891,642
$28,422,915
==============================================================================
=============
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
7/31/94*
CLASS D SHARES: SHARES AMOUNT
- ------------------------------------------------------------
<S> <C> <C>
Sold -- --
Issued in exchange for shares of
Smith Barney Shearson Directions Value
Fund (Note 10) 1 $9
- ------------------------------------------------------------
Net increase 1 $9
============================================================
<FN>
* As of January 31, 1994, the Fund had issued one Class D share in the amount
of
$10.38. As of January 31, 1994, there was no income or expenses allocated to
this one Class D share.
</TABLE>
8. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Continental Bank N.A. under an Amended and Restated Line of
Credit Agreement (the "Agreement") dated April 30, 1992 and renewed effective
May 31, 1994, primarily for temporary or emergency purposes, including the
meeting of redemption requests that otherwise might require the untimely
disposition of securities. Under this Agreement, the Fund may generally borrow
up to the lesser of $25 million or 10% of its net assets. Interest is payable
either at the bank's Money Market Rate or the London Interbank Offered Rate
(LIBOR) plus .375% on an annualized basis. Under the terms of the Agreements,
as
amended, the Fund and the other affiliated entities are charged an aggregate
commitment fee of $100,000, which is allocated equally among each of the
participants. The Agreement requires, among
20
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (continued)
- ------------------------------------------------------------------------------
- --
other provisions, each participating Fund to maintain a ratio of net assets
(not
including funds borrowed pursuant to the Agreement) to aggregate amounts of
indebtedness pursuant to the Agreement of no less than 5 to 1. For the six
months ended July 31, 1994, the Fund did not borrow under the Agreement.
9. CAPITAL LOSS CARRYFORWARD
At January 31, 1994, the Fund had available for Federal income tax purposes
unused capital loss carryforwards of $617,425 expiring in the year 2000.
Under current tax law, capital losses realized after October 31st may be
deferred and treated as occurring on the first day of the following fiscal
year.
For the year ended January 31, 1994, the Fund has elected to defer $114,654 of
losses occurring between November 1, 1993 and January 31, 1994. Such losses
will
be treated as arising on the first day of the fiscal year ended January 31,
1995.
10. REORGANIZATION
<TABLE>
On March 4, 1994, the Fund (Acquiring Fund) acquired the assets and certain
liabilities of Smith Barney Shearson Directions Value Fund (Acquired Fund), in
exchange for shares of the Acquiring Fund, pursuant to a plan of
reorganization
approved by the Acquired Fund's shareholders on November 3, 1993. Total shares
issued by the Acquiring Fund, the value of the shares issued by the Acquiring
Fund, the total net assets of the Acquired Fund and the Acquiring Fund and any
unrealized appreciation included in the Acquired Fund's total net assets are
as
follows:
<CAPTION>
SHARES TOTAL NET
TOTAL NET
ISSUED BY ASSETS OF
ASSETS OF
ACQUIRING ACQUIRING ACQUIRED
ACQUIRING
FUND ACQUIRED FUND FUND FUND
FUND
- ------------------------------------------------------------------------------
- ----------------
<S> <C> <C> <C>
<C>
the Fund Smith Barney Shearson 14,494,385 $147,547,146
$72,917,644
Directions Value Fund
==============================================================================
================
</TABLE>
The total net assets of the Acquired Fund before acquisition included
unrealized
appreciation of $15,800,091. The total net assets of the Acquiring Fund
immediately after the acquisition were $220,464,790.
21
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
PARTICIPANTS
- ------------------------------------------------------------------------------
- --
DISTRIBUTOR AUDITORS AND COUNSEL
Smith Barney Inc. Coopers & Lybrand
388 Greenwich Street One Post Office Square
New York, New York 10013 Boston, Massachusetts 02109
INVESTMENT ADVISER Willkie Farr & Gallagher
153 East 53rd Street
Greenwich Street Advisors New York, New York 10022
Two World Trade Center
New York, New York 10048 TRANSFER AGENT
ADMINISTRATOR The Shareholder Services Group, Inc.
Exchange Place
Smith, Barney Advisers, Inc. Boston, Massachusetts 02109
1345 Avenue of the Americas
New York, New York 10105 CUSTODIAN
SUB-ADMINISTRATOR Boston Safe Deposit
and Trust Company
The Boston Company Advisors, Inc. One Boston Place
One Boston Place Boston, Massachusetts 02108
Boston, Massachusetts 02108
22
<PAGE>
Smith Barney Shearson
GROWTH AND INCOME FUND
- ------------------------------------------------------------------------------
- --
GLOSSARY OF COMMONLY USED MUTUAL FUND TERMS
- ------------------------------------------------------------------------------
- --
CAPITAL GAIN (OR LOSS) This is the increase (or decrease) in the market value
(price) of a security in your portfolio. If a stock or bond appreciates in
price, there is a capital gain; if it depreciates there is a capital loss. A
capital gain or loss is "realized" upon the sale of a security; if net capital
gains exceed net capital losses, there may be a capital gain distribution to
shareholders.
CONTINGENT DEFERRED SALES CHARGE (CDSC) One kind of back-end load, a CDSC may
be imposed if shares are redeemed during the first few years of ownership. The
CDSC may be expressed as a percentage of either the original purchase price or
the redemption proceeds. Most CDSCs decline over time, and some will not be
charged if shares are redeemed after a certain period of time.
DIVIDEND This is income generated by securities in a portfolio and
distributed
after expenses to shareholders
FRONT-END SALES CHARGE This is the sales charge applied to an investment at
the
time of initial purchase.
NET ASSET VALUE (NAV) Net asset value is the total market of all securities
held by a fund, minus any liabilities, divided by the number of shares
outstanding. It is the value of a single share of a mutual fund on a given
day.
The total value of your investment would be the NAV multiplied by the number
of
shares you own.
TOTAL RETURN Total return measures a fund's performance, taking into account
the combination of dividends paid and the gain or loss in the value of the
securities held in the portfolio. It may be expressed on an average annual
basis
or cumulative basis (total change over a given period). In addition, total
return may be expressed with or without the effects of sales charges or the
reinvestment of dividends and capital gains.
Whenever a fund reports any type of performance, it must also report the
average
annual total return according to the standardized calculation developed by the
SEC. The SEC average annual total return calculation includes the effects of
all
fees and sales charges and assumes the reinvestment of all dividends and
capital
gains.
23
<PAGE>
Smith Barney Shearson
GROWTH & INCOME FUND
- ------------------------------------------------------------------------------
- --
INVESTOR BENEFITS
- ------------------------------------------------------------------------------
- --
MONTHLY DISTRIBUTIONS
It's your fund's policy to distribute dividend income monthly.
AUTOMATIC REINVESTMENT
You may reinvest your dividends and/or capital gains automatically in
additional
shares of your fund at the current net asset value.
UNLIMITED EXCHANGES
If your investment goals change, you may exchange into another Smith Barney
Shearson mutual fund with the same sales charge structure without incurring a
sales charge.*
SYSTEMATIC
INVESTMENT PLAN
This program allows you to invest equal dollar amounts automatically on a
regular basis, monthly or quarterly.
AUTOMATIC CASH
WITHDRAWAL PLAN
With this plan, you may withdraw money on a regular basis while maintaining
your
investment.
MUTUAL FUND
EVALUATION SERVICE
Through your Financial Consultant, you may obtain a free personalized analysis
of how your fund has performed for you, taking into account the effect of
every
transaction. The analysis is based upon month-end data from CDA Investment
Technologies, Inc., a widely recognized mutual fund information service. An
evaluation also gives you other important facts and figures about your
investment.
For more information about these benefits, or if you have any other questions,
please call your Smith Barney Financial Consultant or write:
MUTUAL FUND POLICY GROUP
SMITH BARNEY
388 GREENWICH STREET, 37TH FLOOR
NEW YORK, NY 10013
* After written notification,
exchange privilege may be
modified or terminated at any time.
24
<PAGE>
GROWTH AND
INCOME FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs This report is submitted for the
Executive Vice President general information of the
shareholders of Smith Barney
R. Jay Gerken Shearson Growth and Income
Investment Officer Fund. It is not authorized for
distribution to prospective
George V. Novello investors unless accompanied
Investment Officer or preceded by an effective
Prospectus for the Fund, which
Lewis E. Daidone contains information concerning
Treasurer the Fund's investment policies,
fees and expenses as well as
Christina T. Sydor other pertinent information.
Secretary
SMITH BARNEY
------------
SMITH BARNEY SHEARSON
MUTUAL FUNDS
Two World Trade Center
New York, New York 10048
[Recycle RECYCLED Fund 228,229,230
Logo] RECYCLABLE FD0425 I4
SEMI-
ANNUAL
REPORT
DESCRIPTION OF ART WORK ON REPORT COVER
Small box above fund name showing a personal computer with pie charts of
stocks/bonds/cash. Also shown are a few booklets containing financial
statements pertaining to the charts.
Smith Barney Shearson
STRATEGIC
INVESTORS
FUND
JULY 31, 1994
SMITH BARNEY
STRATEGIC INVESTORS FUND
DEAR SHAREHOLDER:
First, let me express a warm welcome to investors who have joined us from
the Smith Barney Shearson Sector Analysis Fund. This fund merged with
Smith Barney Shearson Strategic Investors Fund on July 15, 1994.
The Fund is an asset allocation fund. Its investment objective is to de-
liver a total return, combining capital appreciation, with dividend and
interest income, which over time exceeds the return of bonds, but with
less volatility than a portfolio consisting solely of common stocks. The
Fund's asset mix is determined by Smith Barney's asset allocation model,
which during the period under review called for 50 percent equities, 25
percent bonds and 25 percent cash. These proportions reflect the attrac-
tive valuation of stocks relative to bonds, and the desire to have an
overall defensive posture with respect to the capital markets.
During the first six months of the fiscal year, the Fund recorded total
returns for Class A, Class B, and Class D shares of (4.15)%, (4.48)%, and
(4.48)%, respectively. The equity portion of the Fund had a total return
of (3.65)%, in line with the S&P 500 return of (3.44)%. During the same
six month period, the bond portion returned (6.45)%, compared to its two
benchmarks, Lehman's Government/Corporate Index, which was (3.86)%, and
Lehman's Long-Term Government/Corporate Index, which was (7.40)%. Since
its inception in 1987, the Fund has earned a compound annual rate of re-
turn of 9.61%. During the same period, the S&P 500 provided a total return
of 10.57%, and the Lehman Government/Corporate Index provided a total re-
turn of 8.29%.
Our investment style emphasizes the search for companies with sound funda-
mental business operations whose stocks exhibit good value characteristics
and whose earnings momentum is positive. For several quarters this disci-
pline has resulted in the portfolio having a significant portion of its
assets invested in Financial Services stocks including banks, diversified
insurance companies, real estate investment trusts, and brokerage firms.
During the first half of 1994, dollar denominated stocks of foreign compa-
nies were among the strongest in the portfolio. Philips Electronics regis-
tered a 23 percent increase, owing to a continuing recovery in consumer
electronics sales and ongoing cost control and debt reduction. Similarly,
Volkswagen (up 25 percent in the period) and Volvo (up 12 percent) are
reaping the rewards of multi-year cost control efforts and a turnaround in
demand for autos, especially in Europe.
Several Financial Services stocks, which had been stellar performers in
previous quarters, were laggards in 1994's first half. Student Loan Mar-
keting Association, Aetna Life and Casualty, and J.P. Morgan & Co. were
among the Fund's underperformers. These stocks all sell at low multiples
of earnings and book value and have sound business strategies that we be-
lieve will reward shareholders as time goes by.
The equity portion of the portfolio's return was enhanced during the pe-
riod by the continued underweighting in Health Care and Public Utility
stocks. In general, both of these industry groups are experiencing nega-
tive business fundamentals -- Heath Care because of the changes inherent
in reforms coming from Washington and Utilities because of increasing com-
petition from independent power producers. We have no plans to increase
holdings in these areas in the immediate future.
In the fixed income portion of the portfolio, the duration was reduced to
4.9 years from 7.5 years. This was accomplished by selling long-term
Treasury bonds and long-term corporate issues. Two noteworthy purchases
were made during the second quarter. The first was the Grand Metropolitan
Investment Corporation zero coupon note with a yield of 8.13 percent and
Hydro-Quebec 30 year bond, putable in 2006 for a yield of 8.05 percent. We
remain somewhat cautious and will be focusing on purchasing short-term
corporate issues.
Going forward, we anticipate the U.S. economy will slow somewhat through
the end of 1994, as the Federal Reserve Board reacts to rising commodity
prices by raising short-term interest rates. The stock and bond markets
will likely adjust downward temporarily, but should recover if the evi-
dence suggests that inflation is being controlled and the economic expan-
sion will be longer-lived as a result.
Sincerely,
Heath B. McLendon William W. Carter
Heath B. McLendon William W. Carter
Chairman of the Board Investment Administrator
and Investment Officer
September 19, 1994
PORTFOLIO HIGHLIGHTS (UNAUDITED) JULY 31, 1994
PORTFOLIO BREAKDOWN
DESCRIPTION OF PIE CHARTS IN SHAREHOLDER REPORT
Pie chart depicting the allocation of the Equity Funds - Strategic Inves-
tors Fund's investment securities held at July 31, 1994 by industry clas-
sification. The pie is broken in pieces representing industries in the
following percentages:
<TABLE>
<CAPTION>
INDUSTRY
PERCENTAGE
<S> <C>
EQUITIES 49.3%
COMMERCIAL PAPER, REPURCHASE AGREEMENTS AND NET OTHER ASSETS AND
LIABILITIES 25.1%
BONDS 25.6%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage
of
Company Net Assets
<S> <C>
Common Stocks
GENERAL MOTOR CORPORATION 1.6%
PHILIP MORRIS COMPANIES, INC. 1.4
PHILIPS NV 1.4
MORGAN (J.P.) & COMPANY, INC. 1.1
AMERICAN INTERNATIONAL GROUP, INC. 1.0
Corporate Bonds & Notes
GENERAL MOTOR ACCEPTANCE CORPORATION 2.7
POTOMAC CAPITAL INVESTMENT CORPORATION 1.2
CITICORP 1.2
GENERAL ELECTRIC CAPITAL CORPORATION 1.0
UNITED TELECOMMUNICATIONS INC. 0.7
</TABLE>
PORTFOLIO OF INVESTMENTS (UNAUDITED) JULY 31, 1994
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<S> <C> <C>
COMMON STOCKS -- 48.5%
FINANCIAL SERVICES -- 11.3%
38,400 ACE Ltd. $
897,600
57,100 Aetna Life & Casualty Company
2,940,650
28,800 Ahmanson (H. F.) & Company
572,400
152,300 American Express Company
4,035,950
45,000 American International Group Inc.
4,241,250
16,000 BankAmerica Corporation
772,000
76,100 Chase Manhattan Corporation
2,806,188
14,900 Chemical Banking Corporation
571,788
97,600 Continental Bank Corporation
3,684,400
47,100 Federal National Mortgage Association
4,085,925
45,000 First Chicago Corporation
2,261,250
57,400 Fleet Financial Group Inc.
2,073,575
57,700 Lincoln National Corporation
2,170,962
36,300 Mid Ocean Ltd.+
934,725
71,700 Morgan (J.P.) & Company, Inc.
4,517,100
13,700 Morgan Stanley Group, Inc.
830,562
54,300 Republic Bank of New York Corporation
2,497,800
48,100 St. Paul Companies Inc.
2,056,275
1,500 Security-Connecticut Corporation
32,813
15,100 Signet Banking Corporation
609,662
15,490 Standard Federal Bank
398,867
91,300 Student Loan Marketing Association
3,184,087
25,700 TIG Holdings Inc.
488,300
8,200 Transatlantic Holdings Inc.
458,175
47,122,304
CONSUMER SERVICES -- 7.0%
91,300 American Stores Company
2,362,388
98,000 Broadway Stores Inc.
980,000
8,000 Caldor Corporation+
233,000
50,600 Circuit City Stores Inc.
1,106,875
60,100 Dillard Department Stores Inc., Class
A
2,013,350
51,300 Federated Department Stores+
1,045,238
37,100 King World Productions Inc.+
1,409,800
80,700 Kroger Company
2,027,588
33,300 Levitz Furniture Inc.+
216,450
63,400 May Department Stores Company
2,512,225
23,200 Meyer (Fred) Inc.+
890,300
8,200 Mitel Corporation+
28,700
17,600 National Service Industries Inc.
481,800
6,600 Price/Costco Inc. $
99,000
68,800 Rite Aid Corporation
1,393,200
59,000 Rogers Cantel Mobile Communication Inc.+
1,526,625
14,100 Scripps (E.W.) Company, Class A
407,137
81,600 Sears Roebuck & Company
3,855,600
16,300 Smith's Food & Drug Centers Inc., Class
B
346,375
62,900 Tandy Corporation
2,350,887
76,100 Times Mirror Company, Series A
2,273,487
46,100 United States Shoe Corporation
887,425
14,700 Value City Department Stores+
200,287
28,647,737
CONSUMER NON-DURABLES -- 6.2%
49,000 American Greetings Corporation
1,433,250
60,800 Chiquita Brands International Inc.
752,400
73,200 Eastman Kodak Company
3,541,050
25,900 Jones Apparel Group Inc.
611,888
21,300 Libbey Inc.
356,775
26,000 Liz Claiborne
552,500
34,300 Loews Corporation
3,026,975
8,100 Nike Inc., Class B
498,150
96,600 Owens-Illinois Inc.+
1,026,375
106,900 Philip Morris Companies Inc.
5,879,500
12,700 Polaroid Corporation
438,150
54,600 Premark International Inc.
2,286,375
1 Ralcorp Holdings Inc.
16
309,600 RJR Nabisco Holdings Corporation+
1,896,300
106,400 Sara Lee Corporation
2,194,500
16,700 Sherwin Williams Company
544,837
13,100 V. F. Corporation
671,375
25,710,416
CAPITAL GOODS -- 5.1%
45,000 General Electric Company
2,266,875
40,200 Honeywell Inc.
1,266,300
48,800 ITT Corporation
4,184,600
9,500 Litton Industries Inc.+
352,687
50,900 Martin Marietta Corporation
2,309,587
185,600 Philips N V+
5,730,400
22,400 Raytheon Company
1,470,000
43,000 Rockwell International Corporation
1,542,625
19,400 Tenneco Inc. $
931,200
39,500 Thiokol Corporation
1,017,125
21,071,399
ENERGY -- 4.1%
38,600 Amerada Hess Corporation
2,007,200
34,500 Chevron Corporation
1,530,938
30,600 Elf Aquitaine, ADR
1,170,450
24,000 Exxon Corporation
1,428,000
21,000 Kerr McGee Corporation
1,055,250
20,300 MACPO INC.
1,230,687
21,800 Mitchell Energy & Development
Corporation, Class B
403,300
28,000 Mobil Corporation
2,348,500
40,100 Repsol S A, ADR
1,273,175
25,000 Royal Dutch Petroleum Company, New York
2,825,000
27,100 Tosco Corporation
829,938
46,700 USX-Marathon Group
811,412
16,913,850
CONSUMER DURABLES -- 3.8%
13,700 Black & Decker Corporation
282,563
7,100 Fleetwood Enterprises Inc.
165,963
86,000 Ford Motor Company
2,730,500
130,500 General Motors Corporation
6,704,438
29,900 Genuine Parts Company
1,057,713
55,800 Volkswagen ADR
3,515,400
13,300 Volvo AB ADR
1,308,387
15,764,964
BASIC INDUSTRIES -- 3.6%
79,600 Abitibi Price Inc.
995,000
63,400 Bethlehem Steel Corporation
1,410,650
1,100 Boise Cascade Corporation
27,500
35,200 Bowater Inc.
946,000
47,600 British Steel ADR
1,148,350
64,200 Burlington Industries Inc.
954,975
28,100 Federal Paper Board Inc.
702,500
55,400 Grace (W. R.) & Company
2,299,100
3,700 International Paper Company
269,638
2,400 James River Corporation
46,200
31,900 Louisiana Pacific Corporation
1,028,775
50,700 LTV Corporation+ $
950,625
12,175 Rayonier Inc.
375,903
136,900 Repap Enterprises Inc.+
496,262
38,300 Riverwood International Corporation
665,462
32,100 Stone Container Corporation
529,650
39,400 Temple Inland Inc.
2,014,325
27,600 Timberwest Ltd.+#
256,349
15,117,264
HEALTH CARE -- 2.2%
14,300 Beckman Instruments Inc.
368,225
72,000 Healthtrust Inc. -- The Hospital
Company+
2,007,000
57,800 Johnson & Johnson
2,716,600
41,400 Schering Plough Corporation
2,654,775
48,900 SmithKline Beecham PLC, ADR
1,381,425
9,128,025
TECHNOLOGY -- 1.7%
17,500 Intel Corporation
1,036,875
32,500 International Business Machines
Corporation
2,006,875
25,000 Minnesota Mining & Manufacturing
Company
1,328,125
65,000 Sun Microsystems+
1,446,250
16,100 Xerox Corporation
1,646,225
7,464,350
UTILITIES -- 1.7%
84,000 CMS Energy Corporation
1,900,500
39,958 Entergy Corporation
1,018,929
31,600 Illinova Corporation
659,650
81,800 Pacific Enterprises
1,676,900
55,100 Pinnacle West Capital Corporation
971,137
11,600 Public Service Company of New Mexico
140,650
72,700 TransCanada Pipeline Ltd.
899,663
7,267,429
TRANSPORTATION -- 1.4%
34,000 AMR Corporation+
1,946,500
10,000 Burlington Northern Inc.
520,000
45,500 Consolidated Rail Corporation
2,445,625
30,600 Ryder Systems Inc.
799,425
5,711,550
OTHER -- 0.4%
9,600 Bay Apartment Communities Inc. $
196,800
43,900 Crown American Realty
625,575
11,200 Liberty Property Trust
219,800
7,900 Smith (Charles E.) Residential Realty
Inc.
198,487
24,000 Summit Properties Inc.
468,000
1,708,662
TOTAL COMMON STOCKS (Cost $190,893,829)
201,627,950
FACE VALUE
CORPORATE BONDS AND NOTES -- 18.4%
FINANCIAL SERVICES -- 11.6%
$ 750,000 Bankamerica Corporation, Sub. Note,
6.850% due 3/1/03
705,000
500,000 Bell Atlantic Financial, Medium Term
Note,
5.700% due 8/15/99
474,375
1,000,000 Centel Capital Corporation, Note,
9.000% due 10/15/19
1,072,500
2,400,000 Chemical Banking Corporation, Medium
Term Note,
3.721% due 8/19/96
2,397,600
875,000 China International Trust, Debenture,
6.875% due 8/1/03
783,125
5,000,000 Citicorp, Subordinated Notes,
4.825% due 11/26/97
4,887,500
2,000,000 Deere (John) Capital Corporation,
5.415% due 4/15/98
1,897,500
1,372,537 EQCC Home Equity, Asset Backed Note,
5.150% due 9/15/08
1,299,244
1,550,000 Ford Motor Credit Corporation, Note,
5.625% due 3/3/97
1,509,312
4,000,000 General Electric Capital Corporation,
Note,
5.625% due 1/15/95
4,000,000
General Motors Acceptance Corporation,
Notes:
5,000,000 5.350% due 2/27/95
5,000,000
2,000,000 7.250% due 5/5/99
2,000,000
2,000,000 7.375% due 5/26/99
1,995,000
635,000 9.625% due 12/15/01
697,706
1,500,000 5.500% due 10/15/02
1,531,875
2,750,000 Goldman Sachs Group, Note,
6.375% due 6/15/00#
2,560,938
$3,000,000 Grand Metropolitan Investment Corpo-
ration, Note,
Zero Coupon due 1/6/04 $
1,462,500
325,000 Guandong International Trust &
Investment, Corporate Bond, 6.750% due
11/15/03#
286,813
1,000,000 International Business Machines Credit
Corporation, Notes,
4.550% due 12/28/96
975,000
2,185,000 MBNA Master Credit Card Trust, Series
1994-1,
4.713% due 3/15/01
2,173,720
1,450,000 Multi-National Development Bank,
Debenture,
8.875% due 6/1/09
1,640,313
5,000,000 Potomac Capital Investment Corpora-
tion, Medium Term Note,
5.650% due 6/21/95
5,000,000
1,852,660 Railcar Trust, Note,
7.750% due 6/1/04
1,886,193
2,530,000 Sears Overseas Finance NV, Euro Notes,
Zero coupon due 7/12/98
1,906,355
48,142,569
TELEPHONE COMMUNICATIONS -- 2.0%
2,000,000 AT & T Corporation, Note,
7.500% due 6/1/06
1,985,000
2,000,000 GTE Southwest Corporation, Debenture,
5.820% due 12/1/99
1,872,500
1,000,000 MCI Communications Corporation, Note,
6.250% due 3/23/99
966,250
105,000 Pacific Telephone & Telegraph Company,
Debenture,
7.250% due 2/1/08
100,931
540,000 Southern Bell Telephone & Telegraph,
Debenture,
6.100% due 10/1/04
505,575
2,800,000 United Telecommunications Inc., Note,
9.750% due 4/1/00
3,073,000
8,503,256
CONSUMER NON-DURABLES -- 1.3%
1,000,000 Eastman Kodak Company, Note,
9.750% due 10/1/04
1,141,250
2,000,000 Penske Truck Leasing Company, Sr. Note,
7.750% due 5/15/99
1,995,000
Sears Roebuck & Company, Medium Term
Notes:
1,000,000 8.000% due 1/16/02
1,020,000
$1,000,000 8.620% due 4/2/02 $
1,050,000
5,206,250
OIL -- 1.2%
2,900,000 Occidental Petroleum Corporation,
Debenture,
8.750% due 1/15/23
2,914,500
1,300,000 Petroliam Nasional Berhad, Note,
6.875% due 7/1/03#
1,196,923
1,000,000 Western Atlas Inc., Note,
7.875% due 6/15/04
986,250
5,097,673
INSURANCE -- 0.7%
1,225,000 Kemper Corporation, Note,
6.875% due 9/15/03#
1,140,781
2,220,000 Metropolitan Life Insurance Company,
Surplus Note,
6.300% due 11/1/03#
1,986,900
3,127,681
ENTERTAINMENT -- 0.5%
1,770,000 Time Warner Entertainment Company, Sr.
Notes,
9.625% due 5/1/02
1,889,475
TECHNOLOGY -- 0.2%
1,000,000 Telecommunications Inc., Medium Term
Notes,
6.430% due 3/9/98
981,250
OTHER -- 0.9%
2,000,000 Hydro-Quebec, Debenture,
8.050% due 7/7/24
2,027,500
2,000,000 Newfoundland, Province of Canada,
Debenture,
7.320% due 10/13/23
1,717,500
3,745,000
TOTAL CORPORATE BONDS AND NOTES
(Cost $79,025,481)
76,693,154
U.S. TREASURY OBLIGATIONS -- 5.2%
U.S TREASURY BONDS:
2,750,000 ZERO COUPON DUE 2/15/01
1,712,095
1,000,000 7.250% due 5/15/16
976,340
$2,000,000 7.500% due 11/15/16 $
2,003,960
4,692,395
U.S. TREASURY NOTES:
2,550,000 3.875% due 3/31/95
2,530,773
4,000,000 6.375% due 3/31/97
4,044,440
500,000 7.500% due 5/15/02
515,640
180,000 6.375% due 8/15/02
173,057
2,750,000 6.250% due 2/15/03
2,605,460
2,120,000 5.875% due 2/15/04
1,940,775
11,810,145
OTHER TREASURY OBLIGATIONS:
3,000,000 Synthetic -- Off The Run -- Treasury
Receipt,
6.000% due 8/15/09+++
2,546,250
1,500,000 Treasury Synthetic -- Linked Coupon
Securities,
6.000% due 8/15/09+++
1,284,375
3,000,000 U.S. Treasury Strips,
Zero Coupon due 11/15/04
1,428,930
5,259,555
TOTAL U.S. TREASURY OBLIGATIONS (Cost
$21,157,146)
21,762,095
MORTGAGE-BACKED SECURITIES -- 2.0%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 1.0%
461,211 FNMA,
5.500% due 3/1/99
412,784
2,120,000 FNMA REMIC Pass Through Certificate,
5.200% due 12/25/16
1,933,927
1,500,000 FNMA REMIC Pass Through Certificate,
6.500% due 6/25/19
1,375,710
520,817 FNMA REMIC Pass Through Certificate,
PO, due 1/25/22
434,882
4,157,303
FEDERAL HOME LOAN MORTGAGE COMPANY
(FHLMC) CERTIFICATES -- 1.0%
104,018 FHLMC,
6.250% due 7/1/02
100,498
243,722 FHLMC,
8.500% due 12/1/02
247,338
$ 4,000,000 FHLMC Multiclass Mortgage,
6.400% due 1/15/19 $
3,745,000
4,092,836
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $8,638,887)
8,250,139
SHARES
PREFERRED CONVERTIBLE STOCKS -- 0.8%
31,700 Ford Motor Company, Depositary Shares
Representing 1/1000 Pfd. Series A,
$4.20
3,296,800
15,300 RJR Nabisco Holdings Corporation,
Depositary Shares Representing 1/10
Pfd. Series C, 9.250%
103,275
TOTAL PREFERRED CONVERTIBLE STOCKS
(Cost $2,245,715)
3,400,075
FACE VALUE
COMMERCIAL PAPER -- 10.7%
$20,712,000 Ford Motor Credit Company,
4.200% due 8/1/94
20,712,000
20,712,000 General Electric Capital Corporation,
4.200% due 8/1/94
20,712,000
3,196,000 Prudential Funding Corporation,
4.200% due 8/1/94
3,196,000
TOTAL COMMERCIAL PAPER (Cost
$44,620,000)
44,620,000
REPURCHASE AGREEMENTS -- 14.9%
20,712,000 Agreement with Morgan Stanley & Company,
4.100% dated 7/29/94 to be repurchased
at $20,719,077 on 8/1/94, collater-
alized by $20,712,000 U.S. Treasury
Notes, 6.375% due 8/15/2002
20,712,000
20,712,000 Agreement with Union Bank of Switzerland
Securities Inc., 4.100% dated 7/29/94
to be repurchased at $20,719,077 on
8/1/94, collateralized by $20,712,000
U.S. Treasury Bills, 3.836% due
9/15/1994
20,712,000
$20,712,000 Agreement with Salomon Brothers Inc,
4.100% dated 7/29/94 to be repurchased
at $20,719,077 on 8/1/94, collater-
alized by $20,712,000 U.S. Treasury
Bonds, 8.750% due 8/15/2020 $
20,712,000
TOTAL REPURCHASE AGREEMENTS (Cost
$62,136,000)
62,136,000
TOTAL INVESTMENTS (Cost $408,717,058*) 100.5%
418,489,413
OTHER ASSETS AND LIABILITIES (NET) (0.5)
(2,247,489)
NET ASSETS 100.0%
$416,241,924
<FN>
* Aggregate cost for Federal tax purposes.
+ Non-income producing security.
# Security exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt
from registration, normally to qualified institutional buyers.
+++ These instruments represent ownership interest in a series of U.S.
Treasury Bond STRIPS. STRIPS are zero coupon securities issued by the
U.S. Treasury as component parts of Treasury Bonds that represent
scheduled interest and principal payment on the bonds. The market
value of these holdings will fluctuate with the value of the underly-
ing STRIPS.
Abbreviations:
ADR -- American Depositary Receipts
PO -- Principal Only
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JULY 31, 1994
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $408,717,058) (Note 1)
See accompanying schedule:
Securities $356,353,413
Repurchase agreements 62,136,000
Total investments
$418,489,413
Cash
10,741
Receivable for investment securities sold
6,655,285
Interest receivable
1,680,208
Dividends receivable
422,308
Receivable for Fund shares sold
375,852
TOTAL ASSETS
427,633,807
LIABILITIES:
Payable for investment securities purchased $10,228,602
Payable for Fund shares redeemed 274,861
Distribution fee payable (Note 3) 262,780
Investment advisory fee payable (Note 2) 188,356
Service fee payable (Note 3) 89,415
Transfer agent fees payable (Note 2) 61,059
Administration fee payable (Note 2) 59,947
Custodian fees payable (Note 2) 49,347
Dividends payable 3,073
Accrued expenses and other payables 174,443
TOTAL LIABILITIES
11,391,883
NET ASSETS
$416,241,924
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) (continued)
JULY 31, 1994
<TABLE>
<S>
<C>
NET ASSETS CONSIST OF:
Undistributed net investment income
$679,112
Accumulated net realized gain on investments sold
495,978
Unrealized appreciation of investments
9,772,355
Par value
25,495
Paid-in capital in excess of par value
405,268,984
TOTAL NET ASSETS
$416,241,924
NET ASSETS:
CLASS A SHARES:
Net Asset Value and redemption price per share ($8,548,249 /
526,131 shares of beneficial interest outstanding)
$16.25
Maximum offering price per share ($16.25 / 0.95) (based on sales
charge of 5% of the offering price on July 31, 1994)
$17.11
CLASS B SHARES:
Net Asset Value and offering price per share+ ($406,577,986 /
24,900,171 shares of beneficial interest outstanding)
$16.33
CLASS D SHARES:
Net Asset Value, offering and redemption price per share
($1,115,689 / 68,323 shares of beneficial interest outstanding)
$16.33
<FN>
+ Redemption price per share is equal to Net Asset Value less any applica-
ble contingent deferred sales charge.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED JULY 31, 1994
<TABLE>
<CAPTION>
<S> <C> <C>
INVESTMENT INCOME:
Interest
$4,598,184
Dividends (net of foreign withholding taxes of
$27,758)
1,975,152
TOTAL INVESTMENT INCOME
6,573,336
EXPENSES:
Distribution fee (Note 3) $1,223,515
Investment advisory fee (Note 2) 915,219
Service fees (Note 3) 416,009
Administration fee (Note 2) 332,807
Transfer agent fees (Notes 2 and 4) 223,276
Custodian fees (Note 2) 46,778
Trustees' fees and expenses (Note 2) 12,478
Other 161,210
TOTAL EXPENSES
3,331,292
NET INVESTMENT INCOME
3,242,044
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 1 AND 5):
Net realized gain on investments during the period
5,972,366
Net unrealized depreciation of investments during
the period
(24,379,668)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(18,407,302)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(15,165,258)
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
SIX MONTHS YEAR
ENDED
ENDED
7/31/94
1/31/94
(UNAUDITED)
<S> <C> <C>
Net investment income $ 3,242,044 $
6,599,779
Net realized gain on investments sold during the
period 5,972,366
27,571,787
Net unrealized appreciation/(depreciation) on in-
vestments during
the period (24,379,668)
14,596,793
Net increase/(decrease) in net assets resulting
from operations (15,165,258)
48,768,359
Distributions to shareholders from net investment
income:
Class A (100,336)
(141,463)
Class B (3,587,496)
(5,841,811)
Class D (8,671)
(4,926)
Distributions to shareholders from net realized
gain on investments:
Class A (187,213)
(443,959)
Class B (8,885,295)
(25,063,436)
Class D (27,216)
(29,445)
Net increase in net assets from Fund share trans-
actions (Note 6):
Class A 2,870,380
5,470,486
Class B 99,537,316
29,240,621
Class D 765,817
399,877
Net increase in net assets 75,212,028
52,354,303
NET ASSETS:
Beginning of period 341,029,896
288,675,593
End of period (including undistributed net invest-
ment income of $679,112 and $1,133,571, respec-
tively) $416,241,924
$341,029,896
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS YEAR
PERIOD
ENDED ENDED ENDED
7/31/94# 1/31/94+
1/31/93*
(UNAUDITED)
<S> <C> <C> <C>
Net Asset Value, beginning of period $17.72 $16.85
$16.80
Income from investment operations:
Net investment income 0.25 0.52
0.13
Net realized and unrealized gain/(loss) on
investments (0.99) 2.37
0.88
Total from investment operations (0.74) 2.89
1.01
Less distributions:
Distributions from net investment income (0.26) (0.56)
(0.11)
Distributions from net realized capital
gains (0.47) (1.46)
(0.85)
Total distributions (0.73) (2.02)
(0.96)
Net Asset Value, end of period $16.25 $17.72
$16.85
Total return++ (4.15)% 17.80%
6.12%
Ratios to average net assets/Supplemental
Data:
Net assets, end of period (in 000's) $8,548 $6,216 $
693
Ratio of expenses to average net assets 1.32%** 1.25%
1.25%**
Ratio of net investment income to average
net assets 2.63%** 2.85%
3.61%**
Portfolio turnover rate 49% 131%
93%
<FN>
* The Fund commenced selling Class A shares on November 6, 1992.
** Annualized.
+ The per share amounts have been calculated using the monthly average
shares method, which more appropriately presents per share data for
this year since use of the undistributed net investment income method
does not accord with results of operations.
++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
# As of July 15, 1994, the Fund changed its investment adviser from The
Boston Company Advisors, Inc. to its current investment adviser, Smith
Barney Strategy Advisers, Inc. The Boston Company Advisors, Inc. is
currently the sub-investment adviser to the Fund.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS YEAR YEAR
YEAR
ENDED ENDED ENDED
ENDED
7/31/94# 1/31/94+ 1/31/93
1/31/92
(UNAUDITED)
<S> <C> <C> <C>
<C>
Net Asset Value, beginning of period $ 17.79 $ 16.84 $ 17.26
$ 15.61
Income from investment operations:
Net investment income 0.16 0.38 0.51
0.52
Net realized and unrealized gain/(loss)
on investments (0.96) 2.37 1.06
2.56
Total from investment operations (0.80) 2.75 1.57
3.08
Less distributions:
Distributions from net investment in-
come (0.19) (0.34) (0.50)
(0.55)
Distributions from net realized capital
gains (0.47) (1.46) (1.49)
(0.88)
Distributions from capital -- -- --
- --
Total distributions (0.66) (1.80) (1.99)
(1.43)
Net Asset Value, end of period $ 16.33 $ 17.79 $ 16.84
$ 17.26
Total return++ (4.48)% 16.88% 9.68%
19.96%
Ratios to average net assets/Supplemen-
tal Data:
Net assets, end of period (in 000's) $406,578 $334,408 $287,983
$234,321
Ratio of expenses to average net assets 2.02%+++ 1.98% 2.02%
2.06%
Ratio of net investment income to aver-
age net assets 1.93%+++ 2.11% 2.84%
3.02%
Portfolio turnover rate 49% 131% 93%
76%
<FN>
+ The per share amounts have been calculated using the monthly average
shares method, which more appropriately presents per share data for
this year since use of the undistributed net investment income method
does not accord with results of operations.
++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
+++ Annualized.
# As of July 15, 1994, the Fund changed its investment adviser from The
Boston Company Advisors, Inc. to its current investment adviser, Smith
Barney Strategy Advisers, Inc. The Boston Company Advisors, Inc. is
currently the sub-investment adviser to the Fund.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS (continued)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR YEAR YEAR
PERIOD
ENDED ENDED ENDED
ENDED
1/31/91 1/31/90 1/31/89
1/31/88*
<S> <C> <C> <C>
<C>
Net Asset Value, beginning of period $ 15.57 $ 15.03 $ 13.62
$ 14.00
Income from investment operations:
Net investment income 0.54 0.53 0.52
0.36 ***
Net realized and unrealized gain/(loss)
on investments 0.47 1.10 1.48
(0.44)
Total from investment operations 1.01 1.63 2.00
(0.08)
Less distributions:
Distributions from net investment income (0.51) (0.69) (0.48)
(0.23)
Distributions from net realized capital
gains (0.46) (0.38) (0.11)
(0.07)
Distributions from capital -- (0.02) --
- --
Total distributions (0.97) (1.09) (0.59)
(0.30)
Net Asset Value, end of period $ 15.61 $ 15.57 $ 15.03
$ 13.62
Total return++ 6.80% 10.76% 15.10%
(0.57)%
Ratios to average net assets/Supplemental
Data:
Net assets, end of period (in 000's) $197,170 $206,385 $146,987
$151,223
Ratio of expenses to average net assets 2.09% 2.24% 2.29%
2.14%**+++
Ratio of net investment income to average
net assets 3.43% 3.46% 3.59%
2.83%+++
Portfolio turnover rate 56% 61% 42%
56%
<FN>
* The Fund commenced operations on February 2, 1987. On November 6,
1992, the Fund commenced selling Class A shares. On January 29, 1993,
the Fund commenced selling Class D shares. Any shares outstanding
prior to November 6, 1992 were designated as Class B shares.
** Annualized expense ratio before waiver by investment adviser for the
period ended January 31, 1988 was 2.18%.
*** Net investment income before waiver by investment adviser for the pe-
riod ended January 31, 1988 was $0.37.
++ Total return represents aggregate total return for the periods indi-
cated and does not reflect any applicable sales charges.
+++ Annualized.
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
SIX MONTHS
PERIOD
ENDED ENDED
7/31/94#
1/31/94*+
(UNAUDITED)
<S> <C> <C>
Net Asset Value, beginning of period $17.79
$17.54
Income from investment operations:
Net investment income 0.17
0.32
Net realized and unrealized gain/(loss) on in-
vestments (0.97)
1.67
Total from investment operations (0.80)
1.99
Less distributions:
Distributions from net investment income (0.19)
(0.28)
Distributions from net realized capital gains (0.47)
(1.46)
Total distributions (0.66)
(1.74)
Net Asset Value, end of period $16.33
$17.79
Total return++ (4.48)%
11.83%
Ratios to average net assets/Supplemental Data:
Net assets, end of period (in 000's) $1,116 $
399
Ratio of expenses to average net assets 2.09%**
1.93%**
Ratio of net investment income to average net
assets 1.86%**
2.16%**
Portfolio turnover rate 49%
131%
<FN>
* The Fund commenced selling Class D shares on January 29, 1993. These
shares commenced operations on May 5, 1993.
** Annualized.
+ The per share amounts have been calculated using the monthly average
shares method, which more appropriately presents per share data for
this year since use of the undistributed net investment income method
does not accord with results of operations.
++ Total return represents aggregate total return for the periods indi-
cated.
# As of July 15, 1994, the Fund changed its investment adviser from The
Boston Company Advisors, Inc. to its current investment adviser, Smith
Barney Strategy Advisers, Inc. The Boston Company Advisors, Inc. is
currently the sub-investment adviser to the Fund.
</TABLE>
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Shearson Equity Funds (the "Trust") was organized under the
laws of the Commonwealth of Massachusetts on January 8, 1986 and is an en-
tity commonly known as a "Massachusetts business trust." The Trust is reg-
istered with the Securities and Exchange Commission under the Investment
Company Act of 1940, as amended (the "1940 Act"), as a diversified, open-
end management investment company. As of July 31, 1994, the Trust offered
two managed investment portfolios: Smith Barney Shearson Growth and Income
Fund and Smith Barney Shearson Strategic Investors Fund (the "Fund"). As
of November 6, 1992, the Fund offered two classes of shares to the general
public: Class A shares and Class B shares. Class A shares are sold with a
front-end sales charge. Class B may be subject to a contingent deferred
sales charge ("CDSC"). Class B shares will automatically convert to Class
A shares eight years after the original purchase date. On January 29, 1993
the Fund offered Class D shares to investors that are eligible to partici-
pate in the Smith Barney 401(k) Program. Class D shares are offered with-
out a front-end sales charge or a CDSC. Each class of shares has indenti-
cal rights and privileges except with respect to the effect of the respec-
tive sales charges, the distribution and/or service fees borne by each
class, expenses allocable exclusively to each class, voting rights on mat-
ters affecting a single class, the exchange privilege of each class and
the conversion feature of Class B shares. The following is a summary of
significant accounting policies consistently followed by the Fund in the
preparation of its financial statements.
Portfolio valuation: The Fund's investments are valued at market value
or, in the absence of a market value with respect to any portfolio securi-
ties, at fair value as determined by or under the direction of the Trust's
Board of Trustees. A security which is traded primarily on a domestic or
foreign exchange is valued at the last sale price on that exchange or, if
there were no sales during the day, at the current quoted bid price. Over-
the-counter securities are valued on the basis of the bid price at the
close of business on each day. Investments in U.S. government securities
(other than short-term securities) are valued at the average of the quoted
bid and asked prices in the over-the-counter market. Short-term invest-
ments that mature in 60 days or less are valued at amortized cost.
Securities transactions and investment income: Securities transactions
are recorded as of the trade date. Securities purchased or sold on a when-
issued or delayed-delivery basis may be settled a month or more after
trade date. Realized gains and losses from securities sold are recorded on
the identified cost basis. Dividend income and distributions to sharehold-
ers are recorded on the ex-dividend date. Interest income is recorded on
the accrual basis. Investment income and realized and unrealized gains and
losses are allocated based upon relative net assets of each class.
Repurchase agreements: The Fund may engage in repurchase agreement trans-
actions. Under the terms of a typical repurchase agreement, the Fund takes
possession of an underlying debt obligation subject to an obligation of
the seller to repurchase, and the Fund to resell, the obligation at an
agreed- upon price and time, thereby determining the yield during the
Fund's holding period. This arrangement results in a fixed rate of return
that is not subject to market fluctuations during the Fund's holding pe-
riod. The value of the collateral is at least equal at all times to the
total amount of the repurchase obligations, including interest. In the
event of counterparty default, the Fund has the right to use the collat-
eral to offset losses incurred. There is potential loss to the Fund in the
event the Fund is delayed or prevented from exercising its rights to dis-
pose of the collateral securities, including the risk of a possible de-
cline in the value of the underlying securities during the period while
the Fund seeks to assert its rights. The Fund's investment adviser, admin-
istrator and/or sub-administrator, acting under the supervision of the
Board of Trustees, reviews on an ongoing basis the value of the collateral
and the creditworthiness of those banks and dealers with which the Fund
enters into repurchase agreements to evaluate potential risks.
Dividends and distributions to shareholders: Dividends from net invest-
ment income determined on a class level, if any, generally will be made
quarterly. Distribution of any net realized capital gain determined on a
Fund level, generally will be made annually after the close of the fiscal
year in which they are earned. Distributions of the Fund's net investment
income and capital gains may be made more frequently at the discretion of
the Board of Trustees. Additional distributions of net investment income
and capital gains for each Fund may be made at the discretion of the Board
of Trustees in order to avoid the application of a 4% nondeductible excise
tax on certain undistributed amounts of net investment income and capital
gains. Income distributions and capital gain distributions on a Fund level
are determined in accordance with income tax regulations which may differ
from generally accepted accounting principles. These differences are pri-
marily due to differing treatments of income and gains on various invest-
ment securities held by the Fund, timing differences and differing charac-
terization of distributions made by the Fund as a whole.
Federal income taxes: The Trust intends that the Fund qualify as a regu-
lated investment company if such qualification is in the best interest of
its shareholders, by complying with the requirements of the Internal Reve-
nue Code of 1986, as amended, applicable to regulated investment companies
and by distributing substantially all of its taxable income to its share-
holders. Therefore, no Federal income tax provision is required.
2. INVESTMENT ADVISORY FEE, ADMINISTRATION
FEE AND OTHER TRANSACTIONS
Prior to the close of business on July 15, 1994, the Fund had entered into
an investment advisory agreement with The Boston Company Advisors, Inc.
("Boston Advisors"), an indirect wholly owned subsidiary of Mellon Bank
Corporation ("Mellon"). Under this agreement, the Fund paid a monthly fee
at the annual rate of 0.55% of the value of its average daily net assets.
As of the close of business on July 15, 1994, Smith Barney Strategy
Advisers, Inc. ("SBSA"), an affiliate of Smith Barney Inc. ("Smith
Barney"), succeeded Boston Advisors as the Fund's investment adviser. The
new investment advisory agreement contains substantially the same terms
and conditions, including the level of fees, as the predecessor agreement.
As of the close of business on July 15, 1994, Boston Advisors was ap-
pointed as the Fund's sub-investment adviser pursuant to a written agree-
ment (the "Sub-Advisory Agreement"). Under the terms of the Sub- Advisory
Agreement, SBSA pays Boston Advisors a monthly fee at an annual rate of
0.275% of the value of the Fund's average daily net assets.
Prior to May 4, 1994, the Fund was a party to an administration agreement
with Boston Advisors. Under this agreement, the Fund paid a monthly fee at
the annual rate of 0.20% of the value of its average daily net assets.
As of the close of business on May 4, 1994, Smith, Barney Advisers, Inc.
("SBA"), an affiliate of Smith Barney, succeeded Boston Advisors as the
Fund's administrator. The new administration agreement contains substan-
tially the same terms and conditions, including the level of fees, as the
predecessor agreement.
As of the close of business on May 4, 1994, the Fund and SBA entered into
a sub-administration agreement (the "Sub-Administration Agreement") with
Boston Advisors. Under the Sub-Administration Agreement, SBA pays Boston
Advisors a portion of its fee at a rate agreed upon from time to time
between SBA and Boston Advisors.
For the six months ended July 31, 1994, the Fund incurred total brokerage
commissions of $241,002, of which $60,953 was paid to Smith Barney.
For the same period, Smith Barney received $17,703 from investors repre-
senting commissions (sales charges) on sales of Class A shares.
A CDSC is generally payable by the shareholder in connection with the re-
demption of Class B shares within five years (eight years in the case of
purchases by certain 401(k) plans) after the date of purchase. In circum-
stances in which the CDSC is imposed, the amount ranges between 5% and 1%
of net asset value depending on the number of years since the date of pur-
chase (except in the case of purchases by certain 401(k) plans in which
case a 3% CDSC is imposed for the eight year period after the date of pur-
chase). For the six months ended July 31, 1994, Smith Barney received from
shareholders $167,284 in CDSC on the redemption of Class B shares.
No officer, director or employee of Smith Barney or any of their affili-
ates receives any compensation from the Trust for serving as Trustee or
officer of the Trust. The Trust pays each Trustee who is not an officer,
director or employee of Smith Barney or any of their affiliates $6,000 per
annum plus $1,500 per meeting attended and reimburses each such Trustee
for travel and out-of-pocket expenses.
Boston Safe Deposit and Trust Company, an indirect wholly owned subsidiary
of Mellon, serves as the Trust's custodian. The Shareholder Services
Group, Inc., a subsidiary of First Data Corporation, serves as the Trust's
transfer agent.
3. DISTRIBUTION PLAN
Smith Barney acts as distributor of the Trust's shares pursuant to a dis-
tribution agreement with the Trust, and sells shares of the Fund through
Smith Barney or its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Trust has adopted a ser-
vices and distribution plan (the "Plan"). Under this Plan, the Trust com-
pensates Smith Barney for servicing shareholder accounts for Class A,
Class B and Class D shareholders, and covers expenses incurred in distrib-
uting Class B and Class D shares. Smith Barney is paid an annual service
fee with respect to Class A, Class B and Class D shares of the Fund at the
rate of .25% of the value of the average daily net assets of each respec-
tive class of shares. Smith Barney is also paid an annual distribution fee
with respect to Class B and Class D shares at the rate of .75% of the
value of the average daily net assets attributable to those shares. For
the six months ended July 31, 1994, the Fund incurred $8,170, $406,996 and
$843 in service fees for Class A, Class B and Class D shares, respec-
tively. For the six months ended July 31, 1994, the Fund incurred
$1,220,988 and $2,527 in distribution fees for Class B and Class D shares.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any
class of shares are prorated among the classes based upon the relative net
assets of each class. Operating expenses directly attributable to a class
of shares are charged to that class' operations. In addition to the above
servicing and distribution fees, class specific operating expenses include
transfer agent fees of $6,230, $216,354 and $692 for Class A, Class B, and
Class D shares, respectively.
5. SECURITIES TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding U.S.
Government and short-term investments, aggregated $158,402,710 and
$132,916,727, respectively, during the six months ended July 31, 1994.
Proceeds from sales of long-term U.S. Government securities, excluding all
short-term investments, aggregated $530,138 for the six months ended July
31, 1994. There were no purchases of long-term U.S. Government securities.
At July 31, 1994, aggregate gross unrealized appreciation for all securi-
ties in which there was an excess of value of over tax cost was
$18,988,250 and aggregate gross unrealized depreciation for all securities
in which there was an excess of tax cost over value was $9,215,895.
6. SHARES OF BENEFICIAL INTEREST
The Trust may issue an unlimited number of shares of beneficial interest
with a $.001 par value. Changes in shares of beneficial interest for the
Fund which are divided into three classes (Class A, Class B and Class D)
were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
7/31/94 1/31/94
CLASS A SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 77,823 $1,313,284 308,990 $
5,480,439
Issued in exchange for
shares of Sector Analysis
Fund (Note 8) 122,866 1,989,195 -- --
Issued as reinvestment of
dividends 16,906 275,742 33,250
568,728
Redeemed (42,360) (707,841) (32,479)
(578,681)
Net increase 175,235 $2,870,380 309,761
$5,470,486
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR
ENDED
7/31/94 1/31/94
CLASS B SHARES: Shares Amount Shares
Amount
<S> <C> <C> <C> <C>
Sold 1,634,717 $27,811,761 2,934,899
$52,511,316
Issued in exchange for
shares of Sector Analysis
Fund (Note 8) 5,621,206 91,457,025 --
- --
Issued as reinvestment of
dividends 716,521 11,724,438 1,680,078
28,838,201
Redeemed (1,867,169) (31,455,908) (2,920,527)
(52,108,896)
Net increase 6,105,275 $ 99,537,316 1,694,450
$29,240,621
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
7/31/94 1/31/94
CLASS D SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 45,054 $752,590 22,137 $
396,964
Issued in exchange for
shares of Sector Analysis
Fund (Note 8) 1 14 -- --
Issued as reinvestment of
dividends 2,198 35,887 2,006
34,371
Redeemed (1,354) (22,674) (1,720)
(31,458)
Net increase 45,899 $ 765,817 22,423 $
399,877
</TABLE>
7. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Continental Bank N.A. under an Amended and Restated
Line of Credit Agreement (the "Agreement") dated April 30, 1992 and re-
newed effective May 31, 1994, primarily for temporary or emergency pur-
poses, including the meeting of redemption requests that otherwise might
require the untimely disposition of securities. Under the Agreement, the
Fund may borrow up to the lesser of $25 million or 10% of its net assets.
Interest is payable either at the bank's Money Market Rate or the London
Interbank Offered Rate (LIBOR) plus .375% on an annualized basis. Under
the terms of the Agreement, as amended, the Fund and the other affiliated
entities are charged an aggregate commitment fee of $100,000, which is al-
located equally among each of the participants. The Agreement requires,
among other provisions, each participating fund to maintain a ratio of net
assets (not including funds borrowed pursuant to the Agreement) to aggre-
gate amount of indebtedness pursuant to the Agreement of no less than 5 to
1. During the six months ended July 31, 1994, the Fund did not borrow
under the Agreement.
8. REORGANIZATION
On July 18, 1994, the Fund (Acquiring Fund) acquired the assets and cer-
tain liabilities of Smith Barney Shearson Sector Analysis Fund (Acquired
Fund), in exchange for shares of the Acquiring Fund, pursuant to a plan of
reorganization approved by the Acquired Fund's shareholders on July 5,
1994. Total shares issued by the Acquiring Fund, the value of the shares
issued by the Acquiring Fund, the total net assets of the Acquired Fund
and the Acquiring Fund are as follows:
<TABLE>
<CAPTION>
SHARES TOTAL
NET TOTAL NET
ISSUED BY ASSETS
OF ASSETS OF
ACQUIRING ACQUIRED ACQUIRING
ACQUIRED ACQUIRING
FUND FUND FUND FUND
FUND
<S> <C> <C> <C>
<C>
The Fund Smith Barney Shearson Sector Analysis Fund 5,744,073
$93,446,234 $323,993,326
</TABLE>
The total net assets of the Acquired Fund before acquisition included un-
realized depreciation of $48,360. The total net assets of the Acquiring
Fund immediately after the acquisition were $417,439,560.
STRATEGIC
INVESTORS
FUND
TRUSTEES
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon
Madelon DeVoe Talley
OFFICERS
Heath B. McLendon
Chairman of the Board
and Investment Officer
Stephen J. Treadway
President
Richard P. Roelofs
Executive Vice President
William W. Carter
Investment Administrator
Stephen Thalasinos
Vice President and
Investment Officer
Lewis E. Daidone
Treasurer
Christina T. Sydor
Secretary
Recycled
Recyclable
This report is submitted for the general information of the shareholders
of Smith Barney Shearson Strategic Investors Fund. It is not authorized
for distribution to prospective investors unless accompanied or preceded
by an effective Prospectus for the Fund, which contains information con-
cerning the Fund's investment policies, fees and expenses as well as other
pertinent information.
SMITH BARNEY
SMITH BARNEY SHEARSON
MUTUAL FUNDS
Two World Trade Center
New York, New York 10048
Fund 38, 233, 246
FD0423 I4
