<PAGE>
[photo of a three certificates and a
pocket watch]
SMITH BARNEY
GROWTH AND
1995 INCOME
ANNUAL
REPORT FUND
....................................
JANUARY 31, 1995
[LOGO] SMITH BARNEY MUTUAL FUNDS
INVESTING FOR YOUR FUTURE.
EVERY DAY.
<PAGE>
GROWTH AND INCOME FUND
DEAR SHAREHOLDER:
This past year was a difficult one for the capital markets. Stock and bond
returns for the fiscal year ended January 31, 1995 were well below their
long-term averages. Both markets reacted negatively as the Federal Reserve (the
Fed) increased short-term interest rates during the year. The Fed's actions
were motivated by their desire to slow -- though not halt -- economic activity.
In their view, the economy was growing at a pace that would have led to
accelerating inflation.
The Fed's tighter interest rate policy, and the resulting fears of slower
economic growth, prompted a subtle shift in stock market leadership towards the
end of the year. Consumer companies and other stocks considered to be
consistent growers outperformed at the expense of more cyclical issues.
However, within the bond market, prices started to improve towards year end as
bond investors also noted signs of economic slowdown.
Smith Barney Growth and Income Fund is primarily an equity fund; however, it
does own several investment grade corporate bonds. Although these bonds
were negatively affected by the Fed's tightening and the resulting increase in
interest rates described above, the Fund was able to take advantage of price
weakness and add to bond positions in the second half of the year.
Within the stock portion of its portfolio, the Fund concentrates on quality
companies with growing dividends. The Fund has a cyclical bent to its stock
holdings, with a concentration in manufacturing and industrial companies rather
than in the more stable growth sectors. This combination penalized the Fund's
relative performance in 1994, as the market favored lower-quality and
lower-yielding companies. The underweighting in the stable growth sector also
penalized relative performance towards year end. The performance pages of this
report provide total return information for the past fiscal year for each
available class of shares.
Looking forward to the next 12 months, the stock and bond markets most likely
will once again be held captive by the Federal Reserve's actions. But we
believe
that the Fed has already completed most of its rate increases. Inflation is low
and corporate earnings continue to be strong. In short, this year should be a
much more favorable environment for the capital markets.
Within the Fund, we continue to emphasize economically-sensitive stocks. It is
our belief that the longer-term outlook for industrial and manufacturing stocks
remains intact. These companies are world-class. Costs are low and product
quality is high. They are benefiting from infrastructure investments by
emerging
market countries and an overall pickup in economic activity overseas. We
believe
that manufacturing and industrial stocks will be the premier performers of the
'90s.
1
<PAGE>
We appreciate your confidence during the difficult investment environment of
the
past year, and join you in looking forward to a more benign 1995. Should you
have any questions about your investment in the Fund or how other Smith Barney
mutual funds may be useful in helping you reach your financial goals, please
speak with your Smith Barney Financial Consultant. We look forward to reporting
to you in the Fund's semi-annual report.
/s/ Heath B. McLendon /s/ R. Jay Gerken /s/ George V. Novello
Heath B. McLendon R. Jay Gerken, CFA George V. Novello
Chairman of the Board Investment Officer Investment Officer
and Investment Officer
March 14, 1995
2
<PAGE>
Smith Barney
Growth and Income Fund
---------------------------------------------------------------------------
PORTFOLIO HIGHLIGHTS (UNAUDITED) JANUARY 31, 1995
---------------------------------------------------------------------------
<TABLE>
Portfolio Breakdown
Pie chart depicting the allocation of the Smith Barney Growth and Income Fund
investment securities held at January 31, 1995 by industry breakdown. The pie
is broken in pieces representing industry breakdown in the following
percentages:
<CAPTION>
INDUSTRY BREAKDOWN PERCENTAGE
<S> <C>
Convertible Preferred Stocks 5.7%
Consumer Services 5.6%
Utilities 7.2%
Financial Services 7.4%
Process Industries 11.0%
Energy 6.7%
Other Common Stocks 15.4%
Convertible Corporate Note, Repurchase
Agreement and Net Other Assets and
Liabilities 2.5%
Electronic Technology 11.7%
Producer Manufacturing 10.5%
Consumer Non-Durables 10.3%
Corporate Bonds & Notes 6.0%
</TABLE>
<TABLE>
TOP TEN HOLDINGS
<CAPTION>
Percentage of
Company Net Assets
---------------------------------------------------------------------
<S> <C>
HEWLETT PACKARD COMPANY 3.0%
MOTOROLA, INC. 2.8
GENERAL ELECTRIC COMPANY 2.7
CSX CORPORATION 2.5
BROKEN HILL PROPRIETARY 2.5
COCA-COLA COMPANY 2.4
REUTERS HOLDINGS PLC., ADR 2.2
INTERNATIONAL FLAVORS & FRAGRANCES, INC. 2.2
LIMITED, INC., 7.800% DUE 5/15/02 2.1
AMERITECH CORPORATION 2.1
</TABLE>
3
<PAGE>
Smith Barney
Growth and Income Fund
--------------------------------------------------------------------------
HISTORICAL PERFORMANCE - CLASS A SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended Net Asset Value Capital Dividends Total
January 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
11/6/92 -
1/31/93 $ 9.50 $ 9.58 $ -- $ -- 0.84%
------------------------------------------------------------------------------
1994 9.58 10.36 -- 0.23 10.70
------------------------------------------------------------------------------
1995 10.36 9.62 0.14 0.19 (3.93)
------------------------------------------------------------------------------
Total $0.14 $0.42
------------------------------------------------------------------------------
Cumulative Total Return - (11/6/92 through 1/31/95) 7.24%
------------------------------------------------------------------------------
<FN>
* Figures assume reinvestment of all dividends and capital gains
distributions at net asset value and do not assume deduction of the
sales charge (maximum 5.00%).
THE FUND'S POLICY IS TO DISTRIBUTE DIVIDENDS QUARTERLY AND
CAPITAL GAINS, IF ANY, ANNUALLY.
</TABLE>
-------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN** - CLASS A SHARES
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge***
<S> <C> <C>
-------------------------------------------------------------------------------
Year Ended 1/31/95 (3.93)% (8.73)%
-------------------------------------------------------------------------------
Inception 11/6/92 through 1/31/95 3.18% 0.84%
-------------------------------------------------------------------------------
<FN>
** All average annual total return figures shown reflect reinvestment of
dividends and capital gains distributions at net asset value.
*** Average annual total return figures shown assume the deduction of the
maximum 5.00% sales charge.
NOTE: The Fund began offering Class A shares on November 6, 1992. Class
A shares are subject to a maximum 5.00% front-end sales charge and an
annual service fee of 0.25% of the value of the average daily net
assets attributable to that class.
</TABLE>
4
<PAGE>
GROWTH OF $10,000 INVESTED IN CLASS A SHARES
OF SMITH BARNEY GROWTH AND INCOME FUND+
--------------------------------------------------------------------------
Description of Mountain Chart in Covers (Class A)
A line graph depicting the total growth (including reinvestment of dividends
and capital gains) of a hypothetical investment of $10,000 in Smith Barney
Equity Funds - Growth and Income Fund's Class A shares on November 6, 1992
through January 31, 1995 as compared with the growth of a $10,000 investment in
the Standard & Poor's 500 Index. The plot points used to draw the line graph
were as follows:
<TABLE>
<CAPTION>
Growth of $10,000 Growth of $10,000
Invested in Class A Investment in the
Month shares of the Standard & Poor's
Ended Fund 500 Index
<S> <C> <C>
10/31/92 $10,000 $10,000
11/06/92 $ 9,500 -
11/92 $ 9,550 $10,340
12/92 $ 9,590 $10,467
3/93 $ 9,853 $10,924
6/93 $ 9,807 $10,976
9/93 $10,063 $11,259
12/93 $10,400 $11,521
3/94 $ 9,961 $11,086
6/94 $ 9,892 $11,131
9/94 $10,174 $11,674
12/94 $ 9,955 $11,672
1/95 $10,188 $11,974
<FN>
+ Illustration of $10,000 invested in Class A shares on November 6, 1992
assuming deduction of the maximum 5.00% sales charge at the time of
investment and reinvestment of dividends and capital gains distributions at
net asset value through January 31, 1995.
The Standard and Poor's 500 Stock Price Index ("S&P 500") is a market
capitalization
index composed of 500 widely held common stocks listed on the
New York Stock Exchange, American Stock Exchange and over-the-counter
market. It is useful in depicting the general movement of the stock market,
but because it is unmanaged the S&P 500 is not subject to the same
management and trading expenses of a mutual fund.
Index information is available at month-end only; therefore, the closest
month-end to the inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance and do not guarantee future results of Class A shares.
</TABLE>
5
<PAGE>
Smith Barney
Growth and Income Fund
---------------------------------------------------------------------------
HISTORICAL PERFORMANCE - CLASS B SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended Net Asset Value Capital Dividends Total
January 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
11/6/92 -
1/31/93 $ 9.50 $ 9.58 $ -- $ -- 0.84%
------------------------------------------------------------------------------
1994 9.58 10.38 -- 0.15 10.01
------------------------------------------------------------------------------
1995 10.38 9.65 0.14 0.14 (4.33)
------------------------------------------------------------------------------
Total $0.14 $0.29
------------------------------------------------------------------------------
Cumulative Total Return - (11/6/92 through 1/31/95) 6.14%
------------------------------------------------------------------------------
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions
at net asset value and do not assume deduction of the contingent deferred
sales charge ("CDSC").
</TABLE>
---------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN** - CLASS B SHARES
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge***
<S> <C> <C>
-------------------------------------------------------------------------------
Year Ended 1/31/95 (4.33)% (8.97)%
-------------------------------------------------------------------------------
Inception 11/6/92 through 1/31/95 2.70% 1.39%
-------------------------------------------------------------------------------
<FN>
** All average annual total return figures shown reflect reinvestment of
dividends and capital gains distributions at net asset value.
*** Average annual total return figures shown assume the deduction of the
applicable CDSC.
NOTE: The Fund began offering Class B shares on November 6, 1992. Class B
shares are subject to a maximum 5.00% CDSC, and annual service and
distribution fees of 0.25% and 0.50%, respectively, of the value of the
average daily net assets attributable to that class.
</TABLE>
6
<PAGE>
GROWTH OF $10,000 INVESTED IN CLASS B SHARES
OF SMITH BARNEY GROWTH AND INCOME FUND+
---------------------------------------------------------------------------
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS B)
A line graph depicting the total growth (including reinvestment of dividends
and capital gains) of a hypothetical investment of $10,000 in Smith Barney
Equity Funds - Growth and Income Fund's Class B shares on November 6, 1992
through January 31, 1995 as compared with the growth of a $10,000 investment in
the Standard & Poor's 500 Index. The plot points used to draw the line graph
were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000
INVESTED IN CLASS B INVESTMENT IN THE
MONTH SHARES OF THE STANDARD & POOR'S
ENDED FUND 500 INDEX
<S> <C> <C>
10/31/92 - $10,000
11/06/92 $10,000 -
11/92 $10,053 $10,340
12/92 $10,095 $10,467
3/93 $10,350 $10,924
6/93 $10,298 $10,976
9/93 $10,544 $11,259
12/93 $10,891 $11,521
3/94 $10,408 $11,086
6/94 $10,322 $11,131
9/94 $10,602 $11,674
12/94 $10,372 $11,672
1/95 $10,614 $11,974
<FN>
+ Illustration of $10,000 invested in Class B shares on November 6, 1992
assuming deduction of the applicable CDSC at the time of redemption and
reinvestment of dividends and capital gains distributions at net asset value
through January 31, 1995.
++ Value does not assume deduction of applicable CDSC.
+++ Value assumes deduction of applicable CDSC (assuming redemption on January
31, 1995).
The S&P 500 is a market capitalization index composed of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock Exchange
and over-the-counter market. It is useful in depicting the general movement
of the stock market, but because it is unmanaged the S&P 500 is not subject
to the same management and trading expenses of a mutual fund.
Index information is available at month-end only; therefore, the closest
month-end to the inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class B
shares.
</TABLE>
7
<PAGE>
Smith Barney
Growth and Income Fund
---------------------------------------------------------------------------
HISTORICAL PERFORMANCE - CLASS C SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Year Ended Net Asset Value Capital Dividends Total
January 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------
8/15/94 -
1/31/95 $9.91 $ 9.65 $0.14 $0.06 (0.58)%
------------------------------------------------------------------------------
Cumulative Total Return - (8/15/94 through 1/31/95) (0.58)%
------------------------------------------------------------------------------
<FN>
* Figures assume reinvestment of all dividends and capital gains distributions
at net asset value and do not assume deduction of the CDSC.
</TABLE>
-------------------------------------------------------------------------
CUMULATIVE TOTAL RETURN** - CLASS C SHARES
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge***
<S> <C> <C>
--------------------------------------------------------------------------------
Inception 8/15/94 through 1/31/95 (0.58)% (1.56)%
--------------------------------------------------------------------------------
<FN>
** All cumulative total return figures shown reflect reinvestment of dividends
and capital gains distributions at net asset value.
*** Average annual total return figures shown assume the deduction of the
applicable CDSC.
NOTE: The Fund began offering Class C shares (formerly Class D shares) on
January 29, 1993. These shares were first purchased by the public on August
15, 1994. Class C shares may be subject to a maximum 1.00% CDSC if redeemed
within 12 months of purchase and are subject to annual service and
distribution fees of 0.25% and 0.50%, respectively, of the value of the
average daily net assets attributable to that class.
</TABLE>
8
<PAGE>
GROWTH OF $10,000 INVESTED IN CLASS C SHARES
OF SMITH BARNEY GROWTH AND INCOME FUND+
--------------------------------------------------------------------------
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS C)
A line graph depicting the total growth (including reinvestment of dividends
and capital gains) of a hypothetical investment of $10,000 in Smith Barney
Equity Funds - Growth and Income Fund's Class C shares on August 15, 1994
through January 31, 1995 as compared with the growth of a $10,000 investment
in the Standard & Poor's 500 Index. The plot points used to draw the line
graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF $10,000 GROWTH OF $10,000
INVESTED IN CLASS C INVESTMENT IN THE
MONTH SHARES OF THE STANDARD & POOR'S
ENDED FUND 500 INDEX
<S> <C> <C>
7/31/94 - $10,000
8/15/94 $10,000 -
8/94 $10,242 $10,409
9/94 $ 9,929 $10,155
10/94 $10,051 $10,382
11/94 $ 9,636 $10,005
12/94 $ 9,715 $10,153
1/95 $ 9,942 $10,416
<FN>
+ Illustration of $10,000 invested in Class C shares on August 15, 1994
assuming deduction of the applicable CDSC at the time of redemption and
reinvestment of dividends and capital gains distributions at net asset value
through January 31, 1995.
++ Value does not assume deduction of applicable CDSC.
+++ Value assumes deduction of applicable CDSC (assuming redemption on January
31, 1995).
The S&P 500 is a market capitalization index composed of 500 widely held
common stocks listed on the New York Stock Exchange, American Stock Exchange
and over-the-counter market. It is useful in depicting the general movement
of the stock market, but because it is unmanaged the S&P 500 is not subject
to the same management and trading expenses of a mutual fund.
Index information is available at month-end only; therefore, the closest
month-end to the inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class C
shares.
</TABLE>
9
< Page>
Smith Barney
GROWTH AND INCOME FUND
-------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS JANUARY 31, 1995
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
--------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS - 85.8%
ELECTRONIC TECHNOLOGY - 11.7%
55,000 AMP, Inc. $ 3,905,000
65,000 Automatic Data Processing, Inc. 3,851,250
55,000 Hewlett Packard Company 5,527,500
90,000 Motorola, Inc. 5,321,250
50,000 Raytheon Company 3,337,500
-------------------------------------------------------------------------------------
21,942,500
-------------------------------------------------------------------------------------
PROCESS INDUSTRIES - 11.0%
100,000 Bemis, Inc. 2,512,500
36,000 Fuller (H.B.) Company 1,143,000
80,000 Hanna (M.A.) Company 1,930,000
65,000 Kimberly-Clark Corporation 3,128,125
45,000 Monsanto Company 3,307,500
80,000 Schulman (A.), Inc. 2,260,000
70,000 Temple-Inland, Inc. 3,185,000
40,000 Valspar Corporation 1,345,000
70,000 Witco Corporation 1,837,500
-------------------------------------------------------------------------------------
20,648,625
-------------------------------------------------------------------------------------
PRODUCER MANUFACTURING - 10.5%
100,000 Belden, Inc. 2,200,000
70,000 Fluor Corporation 3,237,500
100,000 General Electric Company 5,150,000
31,500 Hubbell Inc., Class B 1,590,750
75,000 Minnesota Mining & Manufacturing Company 3,928,125
75,000 Parker-Hannifin Corporation 3,534,375
-------------------------------------------------------------------------------------
19,640,750
-------------------------------------------------------------------------------------
CONSUMER NON-DURABLES - 10.3%
85,000 Coca-Cola Company 4,462,500
85,000 International Flavors & Fragrances, Inc. 4,186,250
65,000 Johnson & Johnson 3,778,125
45,000 Pfizer, Inc. 3,678,750
50,000 Procter & Gamble Company 3,262,500
-------------------------------------------------------------------------------------
19,368,125
-------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
10
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
----------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1995
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
-------------------------------------------------------------------------------------
<C> <S> <C>
COMMON STOCKS (CONTINUED)
FINANCIAL SERVICES - 7.4%
57,000 Firstar Corporation $ 1,567,500
85,000 GP Financial Corporation 1,832,812
130,000 KeyCorp 3,607,500
50,000 Morgan (J.P.) & Company, Inc. 3,150,000
80,000 NationsBank Corporation 3,720,000
-------------------------------------------------------------------------------------
13,877,812
-------------------------------------------------------------------------------------
UTILITIES - 7.2%
90,000 Ameritech Corporation 3,948,750
65,000 BellSouth Corporation 3,851,250
110,000 GTE Corporation 3,726,250
40,000 Northern States Power Company 1,850,000
-------------------------------------------------------------------------------------
13,376,250
-------------------------------------------------------------------------------------
ENERGY - 6.7%
40,000 Mobil Corporation 3,455,000
50,000 Murphy Oil Corporation 2,175,000
110,000 Phillips Petroleum Company 3,506,250
30,000 Royal Dutch Petroleum Company 3,356,250
-------------------------------------------------------------------------------------
12,492,500
-------------------------------------------------------------------------------------
CONSUMER SERVICES - 5.6%
45,000 Gannett, Inc. 2,289,375
79,000 McDonald's Corporation 2,577,375
95,000 TCA Cable T.V., Inc. 2,125,625
65,000 Tribune Company 3,404,375
-------------------------------------------------------------------------------------
10,396,750
-------------------------------------------------------------------------------------
CONSUMER DURABLES - 4.7%
95,000 Genuine Parts Company 3,479,375
55,000 Leggett & Platt, Inc. 1,980,000
65,000 Whirlpool Corporation 3,241,875
-------------------------------------------------------------------------------------
8,701,250
-------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11
<PAGE>
Smith Barney
Growth and Income Fund
---------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1995
<TABLE>
<CAPTION>
MARKET
VALUE
SHARES (NOTE 1)
<S> <C>
---------------------------------------------------------------------------------------
COMMON STOCKS (CONTINUED)
TRANSPORTATION - 4.0%
65,000 CSX Corporation $ 4,655,625
150,000 Southwest Airlines Company 2,906,250
---------------------------------------------------------------------------------------
7,561,875
---------------------------------------------------------------------------------------
MINERALS - 2.5%
329,225 Broken Hill Proprietary 4,596,589
---------------------------------------------------------------------------------------
COMMERCIAL SERVICES - 2.2%
100,000 Reuters Holdings Plc., ADR 4,187,500
---------------------------------------------------------------------------------------
RETAIL TRADE - 2.0%
55,000 May Department Stores Company 1,931,875
45,000 Penney (J.C.), Inc. 1,867,500
---------------------------------------------------------------------------------------
3,799,375
---------------------------------------------------------------------------------------
TOTAL COMMON STOCKS (Cost $152,404,883) 160,589,901
---------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS - 5.7%
65,000 General Motors Corporation, Depository Shares representing
1/10 share, Convertible Preferred, $3.25 3,729,375
65,000 Sears Roebuck & Company, Depository Shares representing 1/4
share, Series A 3,640,000
65,000 Unocal Corporation, Convertible Preferred, 7.000% 3,185,000
---------------------------------------------------------------------------------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $10,801,355)
10,554,375
---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FACE
VALUE
<C> <S> <C>
---------------------------------------------------------------------------------------
CORPORATE BONDS AND NOTES - 6.0%
$4,000,000 Dean Witter, Discover & Company, 6.875% due 3/1/03 3,670,000
4,000,000 General Motors Acceptance Corporation, 7.000% due 9/15/02
3,675,000
4,000,000 Limited, Inc., 7.800% due 5/15/02 3,950,000
---------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (Cost $11,858,940)
11,295,000
---------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12
<PAGE>
Smith Barney
Growth and Income Fund
---------------------------------------------------------------------------
PORTFOLIO OF INVESTMENTS (continued) JANUARY 31, 1995
<TABLE>
<CAPTION>
MARKET
FACE VALUE
VALUE (NOTE 1)
<C> <S> <C>
-----------------------------------------------------------------------------------------
CONVERTIBLE CORPORATE NOTE - 0.7%(Cost $1,315,686)
$ 950,000 Thermo Electron Corporation, Convertible Debenture, 4.625%
due 8/1/97 $ 1,366,812
-----------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 0.5%(Cost $991,000)
991,000 Agreement with Citibank N.A., 5.800% dated 1/31/95 to be
repurchased at $991,160 on 2/1/95, collateralized by
$1,010,000 U.S. Treasury Note 7.750% due 1/31/00 991,000
-----------------------------------------------------------------------------------------
TOTAL INVESTMENTS (Cost $177,371,864*) 98.7%
184,797,088
-----------------------------------------------------------------------------------------
OTHER ASSETS AND LIABILITIES (NET) 1.3% 2,495,125
-----------------------------------------------------------------------------------------
NET ASSETS 100.0% $187,292,213
-----------------------------------------------------------------------------------------
<FN>
* Aggregate cost for Federal tax purposes.
Abbreviation:
ADR-American Depositary Receipts
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
13
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
---------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $177,371,864) (Note 1)
See accompanying schedule $184,797,088
Receivable for investment securities sold 2,204,701
Interest receivable 308,357
Dividends receivable 298,283
Unamortized organization costs (Note 7) 105,791
Receivable for Fund shares sold 60,635
------------------------------------------------------------------------------------------
TOTAL ASSETS 187,774,855
------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares redeemed $147,005
Investment advisory fee payable (Note 2) 71,265
Accrued legal and audit fees 45,036
Service fee payable (Note 3) 39,593
Distribution fee payable (Note 3) 38,979
Accrued registration and filing fees 37,211
Administration fee payable (Note 2) 31,673
Transfer agent fees payable (Note 2) 29,715
Accrued shareholder reports expense 25,000
Custodian fees payable (Note 2) 7,800
Due to custodian 3,890
Accrued expenses and other payables 5,475
------------------------------------------------------------------------------------------
TOTAL LIABILITIES 482,642
------------------------------------------------------------------------------------------
NET ASSETS $187,292,213
------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
14
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
--------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (continued)
<TABLE>
<S> <C>
NET ASSETS CONSIST OF:
Undistributed net investment income $ 169,142
Accumulated net realized gain on securities 494,119
Unrealized appreciation of investments 7,425,224
Par value 19,440
Paid-in capital in excess of par value 179,184,288
------------------------------------------------------------------------------------------
TOTAL NET ASSETS $187,292,213
------------------------------------------------------------------------------------------
NET ASSET VALUE
CLASS A SHARES:
NET ASSET VALUE and redemption price per share
($95,054,086 / 9,877,686 shares of beneficial interest
outstanding) $ 9.62
------------------------------------------------------------------------------------------
Maximum offering price per share ($9.62/0.95) (based on
sales charge of 5.00% of the offering price on January 31, 1995
$10.13
------------------------------------------------------------------------------------------
CLASS B SHARES:
NET ASSET VALUE and offering price per share+
($92,152,688 / 9,553,177 shares of beneficial interest outstanding)
$ 9.65
------------------------------------------------------------------------------------------
CLASS C SHARES:
NET ASSET VALUE and offering price per share+
($85,439 / 8,857 shares of beneficial interest outstanding) $ 9.65
------------------------------------------------------------------------------------------
<FN>
+ Redemption price per share is equal to net asset value less any applicable CDSC.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
15
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
---------------------------------------------------------------------------
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY
31, 1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Dividends (net of foreign withholding taxes of $50,303) $ 5,281,294
Interest 876,097
-----------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 6,157,391
-----------------------------------------------------------------------------------------
EXPENSES:
Investment advisory fee (Note 2) $847,149
Distribution fee (Note 3) 745,832
Service fee (Note 3) 470,605
Transfer agent fees (Notes 2 and 4) 413,321
Administration fee (Note 2) 376,511
Legal and audit fees 196,032
Custodian fees (Note 2) 50,038
Amortization of organization costs (Note 7) 38,470
Trustees' fees and expenses (Note 2) 32,668
Other 209,003
-----------------------------------------------------------------------------------------
TOTAL EXPENSES 3,379,629
-----------------------------------------------------------------------------------------
NET INVESTMENT INCOME 2,777,762
-----------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS (NOTES 1 AND
5):
Net realized gain on investments during the year 3,961,502
Net unrealized depreciation of investments during the year (14,098,390)
------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(10,136,888)
------------------------------------------------------------------------------------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$ (7,359,126)
------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
16
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
--------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
1/31/95 1/31/94
<S> <C> <C>
Net investment income $ 2,777,762 $ 929,148
Net realized gain/(loss) on investments during the year 3,961,502 (732,079)
Net unrealized appreciation/(depreciation) of investments
during the year (14,098,390) 5,583,952
------------------------------------------------------------------------------------------
Net increase/(decrease) in net assets resulting from
operations (7,359,126) 5,781,021
Distributions to shareholders from net investment income:
Class A (887,487) (93,564)
Class B (1,723,518) (826,076)
Class C (formerly Class D) (140) --
Distributions to shareholders from net realized gain on
investments:
Class A (1,393,249) --
Class B (1,348,003) --
Class C (formerly Class D) (1,035) --
Net increase in net assets from Fund share transactions
(Note 6):
Class A 92,745,010 634,760
Class B 34,562,643 28,422,915
Class C (formerly Class D) 84,826 --
------------------------------------------------------------------------------------------
Net increase in net assets 114,679,921 33,919,056
NET ASSETS:
Beginning of year 72,612,292 38,693,236
------------------------------------------------------------------------------------------
End of year (including undistributed net investment
income of $169,142 and $9,508, respectively) $187,292,213 $72,612,292
------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
17
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
<TABLE>
---------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
1/31/95 1/31/94** 1/31/93*
<S> <C> <C> <C>
Net asset value, beginning of year $ 10.36 $ 9.58 $9.50
Income from investment operations:
---------------------------------------------------------------------------------------
Net investment income 0.20 0.20 0.01
Net realized and unrealized gain/(loss) on
investments (0.61) 0.81 0.07
---------------------------------------------------------------------------------------
Total from investment operations (0.41) 1.01 0.08
---------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.19) (0.23) --
Distributions from net realized gains (0.14) -- --
---------------------------------------------------------------------------------------
Total distributions (0.33) (0.23) --
---------------------------------------------------------------------------------------
Net asset value, end of year $ 9.62 $ 10.36 $9.58
---------------------------------------------------------------------------------------
Total return+ (3.93)% 10.70% 0.84%
---------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental data:
Net assets, end of year (in 000's) $95,054 $4,468 $3,520
Ratio of operating expenses to average net assets 1.41% 1.54% 1.41%++
Ratio of net investment income to average net assets 1.86% 2.00% 0.28%++
Portfolio turnover rate 127% 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 net investment income 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.
SEE NOTES TO FINANCIAL STATEMENTS.
18
<PAGE>
</TABLE>
<TABLE>
Smith Barney
GROWTH AND INCOME FUND
---------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
---------------------------------------------------------------------------------------
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
1/31/95 1/31/94** 1/31/93*
<S> <C> <C> <C>
Net asset value, beginning of year $ 10.38 $ 9.58 $9.50
----------------------------------------------------------------------------------------
Income from investment operations
Net investment income 0.17 0.15 (0.01)
Net realized and unrealized gain/(loss) on investments (0.62) 0.80 0.09
----------------------------------------------------------------------------------------
Total from investment operations (0.45) 0.95 0.08
----------------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.14) (0.15) --
Distributions from net realized gains (0.14) -- --
----------------------------------------------------------------------------------------
Total distributions (0.28) (0.15) --
----------------------------------------------------------------------------------------
Net asset value, end of year $ 9.65 $10.38 $9.58
----------------------------------------------------------------------------------------
Total return+ (4.33)% 10.01% 0.84%
----------------------------------------------------------------------------------------
Ratios to average net assets/Supplemental data:
Net assets, end of year (in 000's) $92,153 $68,144 $35,173
Ratio of operating expenses to average net assets 1.90% 1.99% 1.91%++
Ratio of net investment income to average net assets 1.38% 1.55% (0.22) ++
Portfolio turnover rate 127% 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 net investment income 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.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
19
<PAGE>
<TABLE>
Smith Barney
GROWTH AND INCOME FUND
-----------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------------
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<CAPTION>
PERIOD
ENDED
1/31/95*
<S> <C>
Net asset value, beginning of period $9.91
-----------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.07
Net realized and unrealized loss on investments (0.13)
-----------------------------------------------------------------------------------
Total from investment operations (0.06)
-----------------------------------------------------------------------------------
Less distributions:
Distributions from net investment income (0.06)
Distributions from net realized gains (0.14)
-----------------------------------------------------------------------------------
Total distributions (0.20)
-----------------------------------------------------------------------------------
Net asset value, end of period $9.65
-----------------------------------------------------------------------------------
Total return+ (0.58)%
-----------------------------------------------------------------------------------
Ratios to average net assets/Supplemental data:
Net assets, end of period (in 000's) $ 85
Ratio of operating expenses to average net assets 1.83%++
Ratio of net investment income to average net assets 1.44%++
Portfolio turnover rate 127%
-----------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class C shares (formerly Class D shares) on
January 29, 1993. These shares commenced operations on August 15, 1994.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charge.
++ Annualized.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
20
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
-------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith
Barney Equity Funds (the "Trust") (formerly known as Smith Barney Shearson
Equity Funds) 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. The Trust offers two
managed investment portfolios: Smith Barney Growth and Income Fund (the "Fund")
and Smith Barney Strategic Investors Fund. Effective November 7, 1994, the Fund
began offering Class Y shares and continued to offer Class A, Class B and Class
C shares (Class C shares were previously designated "Class D" shares). As of
January
31, 1995, no Class Y shares have been sold. Class A shares are sold with
a front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge ("CDSC") upon redemption. Class B shares will
convert automatically to Class A shares eight years after the original purchase
date. Class Y shares are available to investors making an initial investment of
at least $5 million and are not subject to any sales charges, distribution or
service fees. All classes of shares have identical rights and privileges except
with respect to the effect of the respective sales charges to each class, 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
21
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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, administrator or sub-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 determined on a Fund level 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. Permanent differences incurred during the Fund's
fiscal year resulting from different book and tax accounting for certain debt
securities have been reclassified from income to capital gains.
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.
22
<PAGE>
Smith Barney
Growth and Income Fund
---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 has been transferred effective November 7, 1994 to Smith Barney
Mutual Funds Management Inc. ("SBMFM"). Mutual Management Corp. and SBMFM
are
both wholly owned subsidiaries of Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of 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 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 20, 1994, SBMFM (formerly known as "Smith
Barney Advisers, Inc.") 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 SBMFM entered into a
sub-administration agreement (the "Sub-Administration Agreement") with Boston
Advisors. Under the Sub-Administration Agreement, SBMFM pays Boston Advisors a
portion of its administration fee at a rate agreed upon from time to time
between SBMFM and Boston Advisors.
For the year ended January 31, 1995, the Fund incurred total brokerage
commissions of $567,988, of which $53,370 was paid to Smith Barney Inc. ("Smith
Barney").
For the same period, Smith Barney received from investors $39,518 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 certain Class A, Class B and Class C shares. In circumstances in which the
CDSC is imposed, the amount of the charge will vary depending on the number of
years since the date of purchase. For the year ended January 31, 1995, Smith
Barney
received from shareholders $271,979 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
23
<PAGE>
Smith Barney
Growth and Income Fund
---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
-------------------------------------------------------------------------------
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 Trust, and sells shares of the Fund through Smith Barney or
its affiliates.
Pursuant to Rule 12b-1 under the 1940 Act, the Fund has adopted a services and
distribution plan (the "Plan"). Under this Plan, the Fund compensates Smith
Barney for servicing shareholder accounts for Class A, Class B and Class C
shareholders, and covers expenses incurred in distributing Class B and Class C
shares. Smith Barney is paid an annual service fee with respect to Class A,
Class B and Class C shares of the Fund at the rate of 0.25% of the value of the
average daily net assets of each respective class of shares. Smith Barney is
also paid an annual distribution fee with respect to Class B and Class C shares
at the rate of 0.50% of the value of the average daily net assets attributable
to those shares. For the year ended January 31, 1995, the Fund paid service
fees
of $97,689, $372,877 and $39 for Class A, Class B and Class C shares,
respectively. For the year ended January 31, 1995, the Fund paid distribution
fees of $745,754 and $78 for Class B and Class C shares, respectively.
Under its terms, the Plan shall remain in effect from year to year, provided
that such continuance is approved annually by vote of the Fund's Trustees,
including a majority of those Trustees who are not "interested persons" of the
Fund and who have no direct or indirect financial interest in the operation of
the Plan.
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 $90,973,
$321,029 and $1,319 for Class A, Class B, and Class C shares, respectively.
24
<PAGE>
Smith Barney
Growth and Income Fund
---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
---------------------------------------------------------------------------
5. SECURITY TRANSACTIONS
Cost of purchases and proceeds from sales of securities, excluding short-term
investments, aggregated $239,589,186 and $219,028,692, respectively, during the
year ended January 31, 1995.
At January 31, 1995, aggregate gross unrealized appreciation for all securities
in which there was an excess of value over tax cost was $12,722,714, and
aggregate
gross unrealized depreciation for all securities in which there was an
excess of tax cost over value was $5,297,490.
6. SHARES OF BENEFICIAL INTEREST
The
Trustees have authority to issue an unlimited number of shares of beneficial
interest of separate series with a par value of $0.001 per share. The shares of
beneficial interest for the Fund are divided into four classes, Class A, Class
B, Class C and Class Y. Changes in shares of beneficial interest in the Fund
were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/95 1/31/95
Class A shares: Shares Amount Shares Amount
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 9,788,268 $95,614,375 223,591 $2,197,905
Issued in exchange for shares of
Smith Barney Shearson Directions
Value Fund (Note 9) 284,460 2,890,114 -- --
Issued as reinvestment of dividends 230,496 2,188,948 8,272 81,673
Redeemed (856,835) (7,948,427) (168,193) (1,644,818)
------------------------------------------------------------------------------------------
Net increase 9,446,389 $92,745,010 63,670 $ 634,760
------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
Smith Barney
GROWTH AND INCOME FUND
------------------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/95 1/31/94
Class B shares: Shares Amount Shares Amount
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sold 1,646,391 $ 16,627,414 3,667,485 $36,109,573
Issued in exchange for shares of
Smith Barney Shearson
Directions Value Fund (Note 9) 14,209,924 144,657,023 -- --
Issued as reinvestment of
dividends 290,715 2,787,008 71,664 704,138
Redeemed (13,158,120) (129,508,802) (847,507) (8,390,796)
------------------------------------------------------------------------------------------
Net increase 2,988,910 $ 34,562,643 2,891,642 $28,422,915
------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PERIOD ENDED
1/31/95*
Class C shares: Shares Amount
-------------------------------------------------------------
<S> <C> <C>
Sold 8,730 $ 83,641
Issued in exchange for shares of
Smith Barney Shearson
Directions Value Fund (Note 9) 1 9
Issued as reinvestment of
dividends 125 1,176
-------------------------------------------------------------
Net increase 8,856 $ 84,826
-------------------------------------------------------------
<FN>
* Class C shares (formerly Class D shares) commenced operations on August 15,
1994. As of January 31, 1994, the Fund had one Class C share outstanding in
the amount of $10.38.
</TABLE>
As of January 31, 1995, no Class Y shares had been sold.
7. 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.
26
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
---------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (continued)
---------------------------------------------------------------------------
8. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line of
credit provided by Bank of America (formerly known as Continental Bank N.A.)
under an Amended and Restated Line of Credit Agreement (the "Agreement") dated
April 30, 1992, and renewed effective May 31, 1994, primarily for temporary or
emergency purposes, including the meeting of redemption requests that otherwise
might require the untimely disposition of securities. The Fund may borrow up to
the lesser of $25 million or 25% of its net assets. However, pursuant to the
Fund's prospectus, the Fund may only borrow up to 10% of its net assets.
Interest is payable either at the bank's Money Market Rate or the London
Interbank Offered Rate (LIBOR) plus 0.375% on an annualized basis. Under the
terms of the Agreement, as amended, the Fund and the other affiliated entities
are charged an aggregate commitment fee of $100,000, which is allocated equally
among each of the participants. The Agreement requires, among other provisions,
each participating fund to maintain a ratio of net assets (not including funds
borrowed pursuant to the Agreement) to aggregate amounts of indebtedness
pursuant to the Agreement of no less than 5 to 1. During the year ended January
31, 1995, the Fund did not borrow under the Agreement.
9. REORGANIZATION
On March 4, 1994, the Fund acquired the assets and certain liabilities of Smith
Barney Shearson Directions Value Fund (the "Acquired Fund"), in a tax-free
exchange for shares of the Fund, pursuant to a plan of reorganization approved
by the Acquired Fund's shareholders on November 3, 1993. Total shares issued by
the Fund, and the total net assets of the Acquired Fund and the Fund are as
follows:
<TABLE>
<CAPTION>
TOTAL NET
SHARES ASSETS OF TOTAL NET
ACQUIRING ISSUED BY ACQUIRED ASSETS OF
FUND ACQUIRED FUND FUND FUND FUND
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Smith Barney Shearson
The Fund Directions Value Fund 14,494,385 $147,547,146 $72,917,644
----------------------------------------------------------------------------------
</TABLE>
The
total net assets of the Acquired Fund before acquisition included unrealized
appreciation of $15,800,091. The total net assets of the Fund immediately after
the acquisition were $220,464,790.
27
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
----------------------------------------------------------------------------
REPORT OF INDEPENDENT ACCOUNTANTS
----------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
SMITH BARNEY GROWTH AND INCOME FUND OF
SMITH BARNEY EQUITY FUNDS:
We have audited the accompanying statement of assets and liabilities of the
Smith
Barney Growth and Income Fund of Smith Barney Equity Funds (formerly Smith
Barney Shearson Growth and Income Fund of Smith Barney Shearson Equity Funds),
including the schedule of portfolio investments, as of January 31, 1995, the
related statement of operations for the year then ended, the statement of
changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the two years in the period then ended and
for
the period from November 6, 1992 (commencement of operations) to January 31,
1993.
These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January
31, 1995 by correspondence with the custodian and brokers. An audit also
includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Smith Barney Growth and Income Fund of the Smith Barney Equity Funds as of
January 31, 1995, the results of its operations for the year then ended, the
changes
in its net assets for each of the two years in the period then ended and
the financial highlights for each of the two years in the period then ended and
for
the period from November 6, 1992 (commencement of operations) to January 31,
1993, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 22, 1995
28
<PAGE>
Smith Barney
GROWTH AND INCOME FUND
----------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FISCAL YEAR ENDED JANUARY
31, 1995
-----------------------------------------------------------------------------
The following tax information represents fiscal year end disclosures of various
tax benefits passed through to shareholders at calendar year end.
Of the dividends paid by the Fund from net investment income for the year ended
January 31, 1995, 89.55% qualify for the dividends-received deduction available
to corporate shareholders.
The above figures may differ from those cited elsewhere in this report due to
differences in the calculations of income and capital gains for Securities and
Exchange
Commission (book) purposes and Internal Revenue Service (tax) purposes.
The Fund paid $2,742,287 of long term capital gain dividends during the current
fiscal year.
29
<PAGE>
GROWTH AND SMITH BARNEY
INCOME ------------
FUND A Member of Travelers Group [LOGO]
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
Jessica M. Bibliowicz
President
R. Jay Gerken This report is submitted for the
Investment Officer general information of the
shareholders of Smith Barney
George V. Novello Growth and Income Fund. It is not
Investment Officer authorized for distribution to
prospective investors unless
Lewis E. Daidone accompanied by an effective
Senior Vice President Prospectus for the Fund, which
and Treasurer contains information concerning
the Fund's investment policies,
Christina T. Sydor fees and expenses as well as other
Secretary pertinent information.
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
[LOGO] Recycled
Recyclable Fund 228, 229, 230, 449
FD2168 C5
1995
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
STRATEGIC
INVESTORS
FUND
JANUARY 31, 1995
Smith Barney Mutual Funds
INVESTING FOR YOUR FUTURE.
EVERY DAY.
STRATEGIC INVESTORS FUND
DEAR SHAREHOLDER:
Smith Barney Strategic Investors Fund is a "balanced" fund using a
combination of stocks, bonds, and cash instruments. Its investment objec-
tive is to deliver a total return consisting of capital appreciation and
income from dividends and interest.
For information on your Fund's performance, please refer to pages 4-7 in
the Annual Report that follows this letter.
At fiscal year-end, Smith Barney's asset allocation model called for 50%
equities, 35% bonds and 15% cash reserves. This mix of assets reflects a
rather neutral stance on both the stock and bond markets. Equities in gen-
eral are reasonably priced in comparison to corporate earnings and book
values. The bond market offers a current yield in the 7.00% to 8.00%
range, which is attractive from a long-term perspective. However, both
stocks and bonds are susceptible to further interest rate increases by the
Federal Reserve Board (the "Fed"). While the Fed has raised interest rates
six times during the last 12 months, it is possible that they will indeed
make further moves over the course of 1995. Therefore, the Fund's defen-
sive cash position is relatively high at 15.00%.
STOCK MARKET COMMENTARY
The year 1994 was one of the more difficult years for investors in recent
memory. For the full year, the S&P 500 declined by 1.50%. However, owing
to a dividend yield of approximately 2.80%, the S&P 500 managed to post a
positive total return of 1.30%, its weakest annual showing since the 3.10%
decline in 1990. The primary reason for the difficult market environment
was the overt action by the Fed to control inflation.
The effect was to significantly raise interest rates and to create con-
cerns about the pace of economic growth. The S&P 500's total return of
1.3% doesn't fully reflect the weakness of the broader equity market in
1994. Broader indices such as the Wilshire 5000, the Value Line, the NYSE
Composite and the NASDAQ Composite all posted negative returns for the
year as did most equity mutual funds.
The technology and health care sectors were far and away the best perform-
ing groups for the full year, reflecting the better performance of the
growth style versus the value style used in the management of the Fund's
equities. In both sectors, returns were enhanced by strong performance by
a number of large capitalization "growth" stocks which typically sell at
premium price-to-earnings and price-to-book ratios reflecting perceived
superior growth prospects. The S&P BARRA Growth Index (based on the per-
formance of S&P 500 growth companies) posted a 3.10% annual gain while the
S&P BARRA Value Index (based on the performance of S&P 500 value compa-
nies) declined 0.70%.
Price declines in the financial services sector had a negative effect on
the Fund's return in 1994. This sector was overweighted throughout the
year, consistent with our philosophy of owning stocks of fundamentally
sound companies whose shares we believe are underpriced in the market.
Through our disciplined fundamental research, we have identified an abun-
dance of such companies in the financial sector.
J.P. Morgan represents a good example of a high quality company in the fi-
nancial sector that we believe is significantly undervalued. J.P. Morgan
has one of the most enviable track records of any financial institution in
the world. Over the last five years, the company has seen its book value
grow at a compound annual rate of 12.00%. Despite these positives, its
stock price has declined largely due to J.P. Morgan's presence in the de-
rivatives business. We believe that J.P. Morgan's basic business franchise
is still exceptionally strong, and the shares represent compelling value
at a price equal to 8 times estimated 1995 earnings and 1.2 times book
value. The shares also offer a 4.80% dividend yield.
As we move into 1995, we are confronted with many of the same issues that
provided a negative backdrop for equity investors in 1994: the prospect of
further tightening of monetary policy by the Federal Reserve; bond yields
that offer difficult competition for stocks; a general disinterest in U.S.
equities on the part of foreign investors; and a market that looks some-
what expensive by historical valuation standards based on dividend yield,
price-to-book and price-to-earnings ratios.
Despite these potential negatives, we are confident that the Fund's
equities are well positioned for the year ahead. We will continue to im-
plement our disciplined value style, focusing on buying companies whose
valuations are attractive relative to their fundamental business pros-
pects. Over the last 12 months, higher quality stocks like those held in
our portfolios have generally lagged the performance of lower quality is-
sues. We are taking advantage of this opportunity to buy more higher qual-
ity issues like Toys R Us and Dillard Department Stores as their prices
decline. We believe they offer an attractive risk/reward relationship as
we enter 1995. We are confident that the adjustments made to upgrade the
overall quality of our portfolios will enhance returns.
BOND MARKET COMMENTARY
As stated above, interest rates rose sharply during 1994 as the Federal
Reserve acted on six separate occasions in an attempt to slow the rate of
economic expansion. While the Fed controlled the level of short-term
rates, the increase in longer-term rates resulted from the bond market's
fear that inflation would likely worsen in an environment of robust eco-
nomic activity. Contributing to this rising interest rate environment were
higher rates in other major industrial countries, a relatively weak U.S.
dollar and diminished foreign capital flows into U.S. markets.
This spike in interest rates resulted in sharp declines in bond prices
during 1994. Overall bond returns were the poorest in more than 20 years
with longer-term issues providing the worst performance. In general, long-
term government debt issues returned negative 7-8% for the year while in-
termediate issues returned negative 3-4%.
While the past year was quite difficult for bond investors, current char-
acteristics of the bond market suggest that 1995 could be significantly
better. Bond yields are approximately 2.00% higher than a year ago, pro-
viding investors with higher coupon yields. In addition, investors are
currently able to earn historically high rates of return net of inflation.
With bond yields near 8.00% and inflation currently at approximately
3.00%, bond investors are achieving "real" rates of return at an attrac-
tive level of 5.00%. Finally, the Federal Reserve has demonstrated its
commitment to keeping inflation in check, providing a more secure future
environment for bondholders.
The Fund will continue to focus on high quality corporate and mortgage
debt securities. The outlook for corporate securities is positive due to
declining new issuance and a continuing improvement in the credit strength
of many corporations. Current mortgage yields provide investors with ap-
proximately 1.00% more return than comparable Treasury issues while en-
tailing very little credit risk. In general, the Fund will continue to
search for opportunities within these sectors while maintaining an appro-
priate level of overall portfolio risk.
We will continue to make every effort to provide you with a high level of
professional management and investment performance and thank you for your
continued support.
Sincerely,
Heath B. McLendon William W. Carter
Heath B. McLendon William W. Carter
Chairman of the Board Investment Administrator
and Investment Officer
March 20, 1995
HISTORICAL PERFORMANCE -- CLASS A SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Dividends Total
January 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
11/6/92-1/31/93 $16.80 $16.85 $0.85 $0.11 6.12%
1994 16.85 17.72 1.46 0.56 17.80
1995 17.72 15.91 0.66 0.47 (3.82)
Total $2.97 $1.14
Cumulative Total Return -- (11/6/92 through 1/31/95) 20.23%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the sales
charge (maximum 5.00%).
IT IS THE FUND'S POLICY TO DISTRIBUTE DIVIDENDS QUARTERLY
AND CAPITAL GAINS, IF ANY, ANNUALLY.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS A SHARES
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge***
<S> <C> <C>
Year Ended 1/31/95 (3.82)% (8.62)%
Inception 11/6/92 through 1/31/95 8.60% 6.13%
<FN>
** All average annual total return figures reflect the reinvestment of
dividends and capital gains distributions at net asset value.
*** Average annual total return figures assume the deduction of the maxi-
mum 5.00% sales charge.
NOTE: The Fund began offering Class A shares on November 6, 1992 sub-
ject to a maximum 5.00% sales charge and an annual service fee of
0.25% of the value of the average daily net assets attributable to
that class.
</TABLE>
GROWTH OF $10,000 INVESTED IN CLASS A SHARES
OF SMITH BARNEY STRATEGIC INVESTORS FUND+
November 6, 1992 -- January 31, 1995
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS A)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Smith
Barney Equity Funds -- Strategic Investors Fund's Class A shares on Novem-
ber 6, 1992 through January 31, 1995 as compared with the growth of a
$10,000 investment in Lehman Government/Corporate Long-Term Bond Index,
Lehman Government/Corporate Bond Index and Standard & Poor's 500 Index.
The plot points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF GROWTH OF GROWTH OF
$10,000 $10,000 $10,000
GROWTH OF INVESTMENT IN INVESTMENT IN
INVESTMENT
$10,000 THE LEHMAN THE LEHMAN IN THE
INVESTED IN GOVERNMENT/ GOVERNMENT/ STANDARD
&
MONTH CLASS A SHARES CORPORATE LONG- CORPORATE
POOR'S
ENDED OF THE FUND TERM BOND INDEX BOND INDEX 500
INDEX
<S> <C> <C> <C> <C>
10/31/92 -- $10,000 $10,000 $10,000
11/06/92 $ 9,500 -- -- --
11/92 9,692 10,053 9,992 10,340
12/92 9,866 10,315 10,163 10,467
03/93 10,513 10,952 10,636 10,924
06/93 10,701 11,488 10,956 10,976
09/93 11,342 12,135 11,319 11,259
12/93 11,399 11,983 11,287 11,521
3/94 11,169 11,306 10,932 11,086
6/94 11,136 10,988 10,797 11,131
9/94 11,361 10,949 10,851 11,674
12/94 11,286 11,133 10,891 11,672
1/95 11,442 11,417 11,100 11,974
<FN>
+ Illustration of $10,000 invested in Class A shares on November 6, 1992,
assuming deduction of the maximum 5.0% sales charge and reinvestment of
dividends and capital gains distributions at net asset value through
January 31, 1995.
The S&P 500 is a market capitalization index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American
Stock Exchange and over-the-counter market. It is useful in depicting
the general movement of the stock market, but because it is unmanaged
the S&P 500 is not subject to the same management and trading expenses
of a mutual fund.
The Lehman Government/Corporate Bond Index is a combination of the Gov-
ernment and Corporate Bond indices, including U.S. Treasury and Agency
securities and Yankee Bonds.
The Lehman Government/Corporate Long-Term Bond Index is a combination
of Government and Corporate bonds with maturities of 10 years or more.
Index information is available at month-end only; therefore, the clos-
est month-end to the inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class A
shares.
</TABLE>
HISTORICAL PERFORMANCE -- CLASS B SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Dividends Total
January 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
2/2/87-1/31/88 $14.00 $13.62 $0.07 $0.23 (0.57)%
1989 13.62 15.03 0.11 0.48 15.10
1990 15.03 15.57 0.38 0.71 10.76
1991 15.57 15.61 0.46 0.51 6.80
1992 15.61 17.26 0.88 0.55 19.96
1993 17.26 16.84 1.49 0.50 9.68
1994 16.84 17.79 1.46 0.34 16.88
1995 17.79 15.97 0.66 0.35 (4.54)
Total $5.51 $3.67
Cumulative Total Return -- (2/2/87 through 1/31/95) 98.72%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the contin-
gent deferred sales charge ("CDSC").
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS B SHARES
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge***
<S> <C> <C>
Year Ended 1/31/95 (4.54)% (9.03)%
Five Years Ended 1/31/95 9.41% 9.27%
Inception 2/2/87 through 1/31/95+ 8.97% 8.97%
<FN>
** All average annual total return figures reflect the reinvestment of
dividends and capital gains distributions at net asset value.
*** Average annual total return figures assume the deduction of the max-
imum applicable CDSC.
+ Class B shares automatically convert to Class A shares eight years
after the date of original purchase. Thus, a shareholder's actual
return from inception, 2/2/87 through 1/31/95 would be different
than that reflected above.
NOTE: As of November 6, 1992, outstanding shares of the Fund were
designated as Class B shares. Class B shares are subject to a maxi-
mum 5.00% CDSC and annual service and distribution fees of 0.25% and
0.75%, respectively, of the value of the average daily net assets
attributable to that class.
</TABLE>
GROWTH OF $10,000 INVESTED IN CLASS B SHARES
OF SMITH BARNEY STRATEGIC INVESTORS FUND+
February 2, 1987 -- January 31, 1995
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS B)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Smith
Barney Equity Funds -- Strategic Investors Fund's Class B shares on Febru-
ary 2, 1987 through January 31, 1995 as compared with the growth of a
$10,000 investment in the Standard & Poor's 500 Index, Lehman Government/
Corporate Long-Term Bond Index and Lehman Government/Corporate Bond Index.
The plot points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF
$10,000 GROWTH OF
GROWTH OF INVESTMENT IN $10,000
GROWTH OF $10,000 THE LEHMAN INVESTMENT IN
$10,000 INVESTMENT IN GOVERNMENT/ THE LEHMAN
INVESTED IN THE STANDARD CORPORATE
GOVERNMENT/
MONTH CLASS B SHARES & POOR'S LONG-TERM
CORPORATE
ENDED OF THE FUND 500 INDEX BOND INDEX BOND INDEX
<S> <C> <C> <C> <C>
10/31/87 -- $10,000 $10,099 $10,000
02/02/87 $10,000 -- -- --
03/87 10,307 10,695 9,968 10,012
06/87 10,372 11,231 9,547 9,822
09/87 10,564 11,973 8,904 9,536
12/87 9,338 9,277 9,704 10,092
03/88 10,118 9,804 10,125 10,454
06/88 10,528 10,456 10,224 10,557
09/88 10,762 10,491 10,457 10,754
12/88 10,920 10,814 10,650 10,858
03/89 11,615 11,580 10,775 10,978
06/89 12,353 12,601 11,979 11,861
09/89 13,088 13,948 12,020 11,972
12/89 13,230 14,235 12,517 12,404
03/90 12,902 13,807 12,108 12,262
06/90 13,371 14,674 12,650 12,703
09/90 11,808 12,660 12,414 12,779
12/90 12,940 13,793 13,322 13,430
03/91 14,571 15,792 13,736 13,792
06/91 14,471 15,755 13,860 13,999
09/91 15,534 16,596 14,955 14,803
12/91 16,363 17,986 15,924 15,592
03/92 16,391 17,532 15,480 15,358
06/92 16,664 17,864 16,140 15,980
09/92 17,072 18,429 17,101 16,761
12/92 17,442 19,355 17,282 16,774
03/93 18,546 20,201 18,348 17,555
06/93 18,859 20,297 19,248 18,083
09/93 19,950 20,820 20,331 18,683
12/93 19,999 21,304 20,076 18,629
03/94 19,569 20,499 18,942 18,043
06/94 19,466 20,583 18,409 17,820
09/94 19,825 21,588 18,344 17,909
12/94 19,648 21,582 18,652 17,975
01/95 19,872 22,141 19,128 18,320
<FN>
+ Illustration of $10,000 invested in Class B shares on February 2, 1987
assuming deduction of the maximum applicable CDSC at the time of re-
demption and reinvestment of dividends and capital gains distributions
at net asset value through January 31, 1995.
The S&P 500 is a market capitalization index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American
Stock Exchange and over-the-counter market. It is useful in depicting
the general movement of the stock market, but because it is unmanaged
the S&P 500 is not subject to the same management and trading expenses
of a mutual fund.
The Lehman Government/Corporate Bond Index is a combination of the Gov-
ernment and Corporate Bond indices, including U.S. Treasury and Agency
securities and Yankee Bonds.
The Lehman Government/Corporate Long-Term Bond Index is a combination
of Government and Corporate bonds with maturities of 10 years or more.
Index information is available at month-end only; therefore, the clos-
est month-end to the inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class B
shares.
</TABLE>
HISTORICAL PERFORMANCE -- CLASS C SHARES (UNAUDITED)
<TABLE>
<CAPTION>
Net Asset Value
Year Ended Capital Dividends Total
January 31 Beginning Ending Gains Paid Paid Return*
<S> <C> <C> <C> <C> <C>
5/5/93-1/31/94 $17.54 $17.79 $1.46 $0.28 11.83%
1995 17.79 15.97 0.66 0.35 (4.54)
Total $2.12 $0.63
Cumulative Total Return -- (5/5/93 through 1/31/95) 6.75%
<FN>
* Figures assume reinvestment of all dividends and capital gains distri-
butions at net asset value and do not assume deduction of the CDSC.
</TABLE>
AVERAGE ANNUAL TOTAL RETURN** -- CLASS C SHARES
<TABLE>
<CAPTION>
Without Sales Charge With Sales Charge***
<S> <C> <C>
Year Ended 1/31/95 (4.54)% (5.44)%
Inception 5/5/93 through 1/31/95 3.83% 3.83%
<FN>
** All average annual total return figures shown reflect the reinvest-
ment of dividends and capital gains distributions at net asset
value.
*** Average annual total return figures assume deduction of the maximum
applicable CDSC.
NOTE: The Fund began offering Class C shares (formerly Class D
shares) on January 29, 1993 for purchase by participants in the
Smith Barney 401(k) program. These shares were first publicly
purchased on May 5, 1993. Class C shares may be subject to a 1.00%
CDSC if redeemed within 12 months of purchase and are subject to an-
nual service and distribution fees of 0.25% and 0.75%, respectively,
of the value of the average daily net assets attributable to that
class.
</TABLE>
GROWTH OF $10,000 INVESTED IN CLASS C SHARES
OF SMITH BARNEY STRATEGIC INVESTORS FUND+
May 5, 1993 -- January 31, 1995
DESCRIPTION OF MOUNTAIN CHART IN COVERS (CLASS C)
A line graph depicting the total growth (including reinvestment of divi-
dends and capital gains) of a hypothetical investment of $10,000 in Smith
Barney Equity Funds -- Strategic Investors Fund's Class C shares on May 5,
1993 through January 31, 1995 as compared with the growth of a $10,000 in-
vestment in the Lehman Government/Corporate Long-Term Bond Index, Lehman
Government/Corporate Bond Index and Standard & Poor's 500 Index. The plot
points used to draw the line graph were as follows:
<TABLE>
<CAPTION>
GROWTH OF GROWTH OF GROWTH OF
$10,000 $10,000 $10,000
GROWTH OF INVESTMENT IN INVESTMENT IN
INVESTMENT
$10,000 THE LEHMAN THE LEHMAN IN THE
INVESTED IN GOVERNMENT/ GOVERNMENT/ STANDARD
&
MONTH CLASS C SHARES CORPORATE LONG- CORPORATE
POOR'S
ENDED OF THE FUND TERM BOND INDEX BOND INDEX 500
INDEX
<S> <C> <C> <C> <C>
4/30/93 -- $10,000 $10,000 $10,000
5/05/93 $10,000 -- -- --
5/93 10,006 10,033 9,995 10,267
6/93 10,128 10,418 10,222 10,297
9/93 10,714 11,005 10,561 10,562
12/93 10,743 10,867 10,530 10,808
3/94 10,512 10,253 10,199 10,399
6/94 10,457 9,964 10,073 10,442
9/94 10,650 9,929 10,123 10,952
12/94 10,555 10,096 10,161 10,949
1/95 10,675 10,353 10,356 11,233
<FN>
+ Illustration of $10,000 invested in Class C shares on May 5, 1993 as-
suming reinvestment of dividends and capital gains distributions at net
asset value through January 31, 1995.
The S&P 500 is a market capitalization index composed of 500 widely
held common stocks listed on the New York Stock Exchange, American
Stock Exchange and over-the-counter market. It is useful in depicting
the general movement of the stock market, but because it is unmanaged
the S&P 500 is not subject to the same management and trading expenses
of a mutual fund.
The Lehman Government/Corporate Bond Index is a combination of the Gov-
ernment and Corporate Bond indices, including U.S. Treasury and Agency
securities and Yankee Bonds.
The Lehman Government/Corporate Long-Term Bond Index is a combination
of Government and Corporate bonds with maturities of 10 years or more.
Index information is available at month-end only; therefore, the clos-
est month-end to the inception date of the Fund has been used.
NOTE: All figures cited here and on the other pages represent past
performance of the Fund and do not guarantee future results of Class C
shares.
</TABLE>
PORTFOLIO HIGHLIGHTS JANUARY 31, 1995
PORTFOLIO BREAKDOWN
DESCRIPTION OF PIE CHART IN SHAREHOLDER REPORT
Pie chart depicting the allocation of the Smith Barney Strategic Investors
Fund investment securities held at January 31, 1995 by industry breakdown.
The pie is broken in pieces representing industries in the following
percentages:
<TABLE>
<CAPTION>
INDUSTRY BREAKDOWN PERCENTAGE
<S> <C>
TECHNOLOGY -- EQUITIES 3.4%
UTILITIES -- EQUITIES 3.4%
ENERGY -- EQUITIES 4.8%
CAPITAL GOODS -- EQUITIES 5.9%
CONSUMER NONDURABLES -- EQUITIES 6.2%
CONSUMER SERVICE -- EQUITIES 7.2%
FINANCIAL SERVICES -- EQUITIES 10.2%
COMMERCIAL PAPER, REPURCHASE AGREEMENTS AND
NET OTHER ASSETS AND LIABILITIES 12.8%
U.S. TREASURY OBLIGATIONS 7.7%
MORTGAGE BACKED SECURITIES 10.5%
OTHER -- BONDS 7.5%
FINANCIAL SERVICES -- BONDS 9.8%
OTHER EQUITIES 10.6%
</TABLE>
TOP TEN HOLDINGS
<TABLE>
<CAPTION>
Percentage of
Company Net Assets
<S> <C>
Common Stocks
PHILIP MORRIS COMPANIES INC. 1.4%
LOEWS CORPORATION 1.3
AMERICAN EXPRESS COMPANY 1.1
ITT CORPORATION 1.0
PHILIPS ELECTRONICS, N.V. 1.0
Corporate Bonds & Notes
GENERAL MOTORS ACCEPTANCE CORPORATION 1.3
POTOMAC CAPITAL INVESTMENT CORPORATION 1.3
CITICORP 1.2
UNITED TELECOMMUNICATIONS, INC. 0.8
OCCIDENTAL PETROLEUM CORPORATION 0.8
</TABLE>
PORTFOLIO OF INVESTMENTS JANUARY 31, 1995
<TABLE>
<CAPTION>
MARKET VALUE
SHARES (NOTE 1)
<S> <C> <C>
COMMON STOCKS -- 51.1%
FINANCIAL SERVICES -- 10.2%
70,000 ACE Ltd. $ 1,723,750
43,400 Aetna Life & Casualty Company 2,148,300
34,300 Ahmanson (H. F.) & Company 561,663
129,200 American Express Company 4,069,800
21,200 American International Group Inc. 2,207,450
42,611 BankAmerica Corporation 1,837,599
70,000 Bank of Boston Corporation 1,960,000
68,600 Chase Manhattan Corporation 2,272,375
19,700 Crestar Financial Corporation 753,525
53,200 Dean Witter, Discover & Company 1,988,350
19,600 Federal National Mortgage Association 1,401,400
40,600 First Chicago Corporation 1,908,200
11,700 First Tennessee National Corporation 460,688
60,400 Fleet Financial Group Inc. 1,895,050
14,200 Lincoln National Corporation 518,300
43,100 Mid Ocean Ltd.+ 1,206,800
57,700 Morgan (J.P.) & Company, Inc. 3,635,100
11,200 Morgan Stanley Group, Inc. 673,400
49,000 Republic Bank of New York Corporation 2,333,625
58,000 St. Paul Companies Inc. 2,769,500
17,900 Signet Banking Corporation 583,987
39,200 Student Loan Marketing Association 1,465,100
38,373,962
CONSUMER SERVICES -- 7.2%
36,600 American Stores Company 860,100
9,500 Caldor Corporation+ 199,500
84,100 Dilliard Department Stores Inc., Class A 2,207,625
44,000 King World Productions Inc.+ 1,512,500
28,700 Knight Ridder, Inc. 1,492,400
72,700 Kroger Company+ 1,717,538
158,400 Limited, Inc. 2,673,000
57,200 May Department Stores Company 2,009,150
27,500 Meyer (Fred) Inc.+ 893,750
42,700 Penney (J.C.), Inc. 1,772,050
81,600 Price/Costco Inc.+ 1,122,000
62,100 Rite Aid Corporation 1,560,262
37,700 Rogers Cantel Mobile Communication Inc.,
Class B+ 1,013,188
45,700 Sears Roebuck & Company 2,016,512
63,700 Tandy Corporation 2,818,725
68,600 Times Mirror Company, Series A 2,220,925
54,700 United States Shoe Corporation 1,100,838
17,400 Value City Department Stores, Inc.+ 150,075
27,340,138
CONSUMER NON-DURABLES -- 6.2%
27,300 American Brands, Inc. 1,037,400
90,900 American Greetings Corporation, Class A 2,511,112
40,000 Chiquita Brands International, Inc. 515,000
25,300 Libbey Inc. 398,475
75,800 Liz Claiborne 1,260,175
52,300 Loews Corporation 4,831,213
10,000 Nabisco Holdings Corporation 282,500
28,700 Nike Inc., Class B 2,037,700
27,000 Owens-Illinois Inc.+ 280,125
90,400 Philip Morris Companies Inc. 5,390,100
1 Ralcorp Holdings Inc.+ 24
357,300 RJR Nabisco Holdings Corporation+ 2,099,138
50,700 Sara Lee Corporation 1,337,213
19,800 Sherwin Williams Company 663,300
18,500 V. F. Corporation 890,312
23,533,787
CAPITAL GOODS -- 5.9%
60,900 Alcatel Alsthom, ADR 1,058,137
45,500 Armstrong World Industries, Inc. 2,013,375
40,600 General Electric Company 2,090,900
36,300 Honeywell Inc. 1,252,350
43,900 ITT Corporation 3,929,050
9,500 Litton Industries Inc.+ 337,250
50,100 Martin Marietta Corporation 2,235,713
117,700 Philips Electronics, N.V. 3,707,550
20,200 Raytheon Company 1,348,350
50,900 Rockwell International Corporation 1,915,112
64,700 Varity Corporation 2,199,800
22,087,587
ENERGY -- 4.8%
34,800 Amerada Hess Corporation 1,579,050
37,400 Ashland, Inc. 1,220,175
54,200 Chevron Corporation 2,418,675
27,700 Elf Aquitaine, ADR 997,200
35,600 Exxon Corporation 2,225,000
77,000 Horsham Corporation 904,750
19,000 Kerr McGee Corporation 900,125
24,100 MACPO INC. 1,253,200
21,800 Mitchell Energy & Development Corporation,
Class B 362,425
25,300 Mobil Corporation 2,185,287
22,500 Royal Dutch Petroleum Company 2,517,188
34,100 Tosco Corporation 976,112
35,100 USX-Marathon Group 561,600
18,100,787
UTILITIES -- 3.4%
75,700 CMS Energy Corporation 1,778,950
66,300 GTE Corporation 2,245,912
16,500 Illinova Corporation 369,188
119,300 MCI Communications Corporation 2,192,138
31,100 NYNEX Corporation 1,228,450
73,800 Pacific Enterprises 1,678,950
49,700 Pinnacle West Capital Corporation 1,031,275
45,300 Public Service Company of New Mexico+ 628,537
88,700 TransCanada Pipeline, Ltd. 1,086,575
23,900 Western Resources, Inc. 761,813
13,001,788
TECHNOLOGY -- 3.4%
42,100 Advanced Micro Devices, Inc.+ 1,236,688
84,700 Apple Computer, Inc. 3,419,762
15,300 Intel Corporation 1,061,438
49,200 International Business Machines Corpora-
tion 3,548,550
48,100 Sun Microsystems, Inc.+ 1,575,275
18,400 Xerox Corporation 2,012,500
12,854,213
HEALTH CARE -- 2.8%
89,000 Astra AB, Class A, ADR+ 2,258,375
17,000 Beckman Instruments Inc. 520,625
64,900 Healthtrust Inc. -- The Hospital Company+ 2,271,500
20,800 Lilly (Eli) & Company 1,370,200
58,700 Pharmacia AB, ADR+ 1,041,925
17,000 Schering Plough Corporation 1,334,500
44,100 SmithKline Beecham PLC, ADR 1,537,987
9,400 Upjohn Company 316,075
10,651,187
BASIC INDUSTRIES -- 2.7%
71,800 Abitibi Price Inc.+ 960,325
1,300 Boise Cascade Corporation 35,100
31,800 Bowater Inc. 842,700
45,100 Champion International Corporation 1,725,075
12,300 Georgia Pacific Corporation 885,600
50,000 Grace (W. R.) & Company 1,937,500
12,100 International Paper Company 860,613
40,300 Louisiana Pacific Corporation 1,062,912
14,475 Rayonier Inc. 416,156
35,500 Temple Inland Inc. 1,615,250
10,341,231
CONSUMER DURABLES -- 2.3%
49,100 Black & Decker Corporation 1,178,400
34,400 Fleetwood Enterprises Inc. 623,500
133,300 Ford Motor Company 3,365,825
47,800 Genuine Parts Company 1,750,675
25,200 Volkswagen, ADR 1,285,200
31,200 Volvo AB, ADR 585,000
8,788,600
TRANSPORTATION -- 1.5%
25,800 AMR Corporation+ 1,448,025
11,900 Burlington Northern Inc. 565,250
190,500 Canadian Pacific, Ltd. 2,595,563
18,000 Consolidated Rail Corporation 963,000
5,571,838
REAL ESTATE -- 0.6%
11,400 Bay Apartment Communities Inc. 226,575
52,100 Crown American Realty 709,863
17,800 Home Properties, New York 333,750
13,300 Liberty Property Trust 262,675
9,400 Smith (Charles E.) Residential Realty Inc. 237,350
28,500 Summit Properties Inc. 484,500
2,254,713
TOTAL COMMON STOCKS (Cost $192,067,291) 192,899,831
FACE VALUE
CORPORATE BONDS AND NOTES -- 16.9%
FINANCIAL SERVICES -- 9.8%
$ 2,500,000 Associates Corporation of North America,
Note,
7.250% due 9/1/99 2,415,625
750,000 Bankamerica Corporation, Sub. Note,
6.850% due 3/1/03 676,875
1,000,000 Centel Capital Corporation, Note,
9.000% due 10/15/19 1,033,750
2,400,000 Chemical Banking Corporation, Medium Term
Note,
3.721% due 8/19/96 2,398,152
5,000,000 Citicorp, Sub. Note,
4.825% due 11/26/97 4,675,000
2,000,000 Deere (John) Capital Corporation,
5.415% due 4/15/98 1,865,000
1,187,720 Equi Credit Corporation, Home Equity, Asset
Backed Note,
5.150% due 9/15/08 1,104,580
1,550,000 Ford Motor Credit Corporation, Note,
5.625% due 3/3/97 1,486,063
General Motors Acceptance Corporation,
Notes:
5,000,000 5.350% due 2/27/95 4,993,750
2,000,000 7.250% due 5/5/99 1,912,500
635,000 9.625% due 12/15/01 673,100
3,000,000 Grand Metro Investment Corporation, Note,
Zero Coupon due 1/6/04 1,466,250
1,450,000 Inter-American Development Bank, Bond,
8.875% due 6/1/09 1,562,375
1,000,000 International Business Machines Credit Cor-
poration,
4.550% due 12/28/96 972,500
2,185,000 MBNA Master Credit Card,
4.713% due 3/15/01 2,172,027
700,000 Midland Bank, Plc, Sub. Note,
8.625% due 12/15/04 702,625
5,000,000 Potomac Capital Investment Corporation,
5.650% due 6/21/95 4,962,500
2,000,000 Sears Credit Account Master Trust, Series
95-2A,
8.100% due 6/15/04 2,018,125
37,090,797
TELEPHONE COMMUNICATIONS -- 2.6%
2,000,000 AT & T Corporation, Note,
7.500% due 6/1/06 1,910,000
1,100,000 GTE South, Inc., Debenture,
7.250% due 8/1/02 1,047,750
2,000,000 GTE Southwest Corporation, Debenture,
5.820% due 12/1/99 1,825,000
1,000,000 MCI Communications Corporation, Note,
6.250% due 3/23/99 938,750
670,000 NYNEX Capital Funding Corporation, Medium
Term Note,
8.100% due 11/1/99 666,650
105,000 Pacific Telephone & Telegraph Company, De-
benture,
7.250% due 2/1/08 95,812
540,000 Southern Bell Telephone & Telegraph, Deben-
ture,
6.000% due 10/1/04 467,775
2,800,000 United Telecommunications Inc., Note,
9.750% due 4/1/00 2,978,500
9,930,237
CONSUMER NON-DURABLES -- 1.4%
1,250,000 Hertz Corporation, Jr. Sub. Note,
6.625% due 7/15/00 1,159,375
2,000,000 Penske Truck Leasing Company, Sr. Note,
7.750% due 5/15/99 1,955,000
Sears Roebuck & Company, Medium Term
Notes:
1,000,000 8.000% due 1/16/02 1,005,000
1,000,000 8.620% due 4/2/02 1,028,750
5,148,125
OIL -- 1.1%
2,900,000 Occidental Petroleum Corporation, Deben-
ture,
8.750% due 1/15/23 2,834,750
1,300,000 Petroliam Nasional Berhad, Note,
6.875% due 7/1/03++ 1,165,151
3,999,901
BASIC INDUSTRY -- 0.8%
575,000 Carter Holt Harvey, Ltd., Sr. Note,
8.875% due 12/1/04 589,375
990,000 Grace (W.R.) & Company, Note,
8.000% due 8/15/04 942,975
1,550,000 Swire Pacific, Ltd., Note,
8.500% due 9/29/04++ 1,563,563
3,095,913
INSURANCE -- 0.8%
1,225,000 Kemper Corporation, Note,
6.875% due 9/15/03 1,114,750
2,220,000 Metropolitan Life Insurance Company, Sur-
plus Note,
6.300% due 11/1/03++ 1,889,775
3,004,525
TECHNOLOGY -- 0.3%
1,000,000 Telecommunications Inc., Medium Term Notes,
6.430% due 3/9/98 948,750
TRANSPORTATION -- 0.1%
350,000 Southwest Airlines Company, Series 1994-A3,
8.700% due 7/1/11 350,000
TOTAL CORPORATE BONDS AND NOTES
(Cost $66,467,382) 63,568,248
OTHER BOND AND NOTE -- 0.4% (Cost $2,000,000)
2,000,000 Newfoundland, Province of Canada, Deben-
ture,
7.320% due 10/13/23 1,660,000
MORTGAGE-BACKED SECURITIES -- 10.5%
FEDERAL NATIONAL MORTGAGE ASSOCIATION
(FNMA) CERTIFICATES -- 5.0%
FNMA:
381,786 5.500% due 3/1/99 337,880
432,373 8.000% due 2/1/23 423,611
464,843 8.000% due 5/1/24 452,975
5,107,502 8.500% due 1/1/25 5,091,557
2,747,426 8.000% due 6/1/24 2,677,748
5,654,053 8.000% due 7/1/24 5,510,176
725,101 8.000% due 10/1/24 706,545
2,120,000 FNMA REMIC Pass Through Certificate,
5.200% due 12/25/16 1,898,450
1,500,000 FNMA REMIC Pass Through Certificate,
6.500% due 6/25/19 1,324,112
485,551 FNMA REMIC Pass Through Certificate, PO,
due 1/25/22 352,783
18,775,837
FEDERAL HOME LOAN MORTGAGE COMPANY (FHLMC)
CERTIFICATES -- 1.0%
FHLMC:
79,242 6.250% due 7/1/02 75,897
202,276 8.500% due 12/1/02 201,661
4,000,000 FHLMC Multiclass Mortgage,
6.400% due 1/15/19 3,621,250
3,898,808
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION
(GNMA) CERTIFICATES -- 4.5%
GNMA:
5,576,194 7.000% due 9/15/24 5,098,732
7,000,000 8.000% due 1/15/25 6,811,875
5,164,575 8.500% due 12/15/24 5,141,980
17,052,587
TOTAL MORTGAGE-BACKED SECURITIES
(Cost $40,211,421) 39,727,232
U.S. TREASURY OBLIGATIONS -- 7.7%
U.S. TREASURY BILL,
5,341,000 6.750%# due 12/14/95 5,036,004
U.S. TREASURY BONDS,
1,748,000 7.125% due 2/15/23 1,625,535
U.S. TREASURY NOTES:
7,550,000 7.500% due 1/31/96 7,601,641
9,000,000 6.875% due 3/31/97 8,928,629
500,000 5.125% due 3/31/98 467,815
16,998,085
OTHER TREASURY OBLIGATIONS:
2,750,000 Generic CUBES,
Zero Coupon due 2/15/01 1,746,580
3,000,000 Synthetic Off-The-Run Treasury Receipt, Se-
ries 94-2,
6.000% due 8/15/09+++ 2,493,750
1,500,000 Treasury Synthetic -- Linked Coupon Securi-
ties, Series 94-A,
6.000% due 8/15/09+++ 1,246,875
5,487,205
TOTAL U.S. TREASURY OBLIGATIONS (Cost
$29,677,833) 29,146,829
SHARES
PREFERRED CONVERTIBLE STOCK -- 0.6% (Cost $2,182,740)
28,600 Ford Motor Company, Depositary Shares Rep-
resenting 1/1000 Pfd. Conv., Series A,
$4.20 2,348,775
FACE VALUE
COMMERCIAL PAPER -- 4.0% (Cost $15,000,000)
$15,000,000 General Electric Capital Corporation,
5.800% due 2/1/95 15,000,000
REPURCHASE AGREEMENTS -- 11.5%
21,454,000 Agreement with Union Bank of Switzerland
Securities Inc., 5.750% dated 1/31/95 to
be repurchased at $21,457,427 on 2/1/95,
collateralized by $21,670,000 U.S. Trea-
sury Notes, 7.500% due 11/15/01 21,454,000
21,719,000 Agreement with Salomon Brothers Inc.,
5.750% dated 1/31/95 to be repurchased at
$21,722,469 on 2/1/95, collateralized by
$20,759,000 U.S. Treasury Notes, 8.625%
due 8/15/97 21,719,000
TOTAL REPURCHASE AGREEMENTS (Cost
$43,173,000) 43,173,000
TOTAL INVESTMENTS (Cost $390,779,667*) 102.7% 387,523,915
OTHER ASSETS AND LIABILITIES (NET) (2.7) (10,270,320)
NET ASSETS 100.0% $377,253,595
<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.
# Represents annualized yield to maturity (unaudited).
Abbreviations:
ADR -- American Depositary Receipts
PO -- Principal Only.
CUBES -- Coupons Under Book-Entry Safekeeping
</TABLE>
See Notes to Financial Statements.
STATEMENT OF ASSETS AND LIABILITIES JANUARY 31, 1995
<TABLE>
<S> <C> <C>
ASSETS:
Investments, at value (Cost $390,779,667) (Note
1)
See accompanying schedule:
Securities $344,350,915
Repurchase Agreements 43,173,000 $387,523,915
Cash 2,745
Interest receivable 1,806,216
Receivable for Fund shares sold 524,414
Receivable for investment securities sold 511,733
Dividends receivable 355,895
TOTAL ASSETS 390,724,918
LIABILITIES:
Payable for investment securities purchased $ 12,580,656
Payable for Fund shares redeemed 294,628
Investment advisory fee payable (Note 2) 176,917
Distribution fee payable (Note 3) 139,257
Service fee payable (Note 3) 80,417
Administration fee payable (Note 2) 64,333
Transfer agent fees payable (Note 2) 55,040
Custodian fees payable (Note 2) 18,000
Accrued expenses and other payables 62,075
TOTAL LIABILITIES 13,471,323
NET ASSETS $377,253,595
NET ASSETS CONSIST OF:
Undistributed net investment income $1,367,230
Accumulated net realized gain on investments
sold 1,213,519
Net unrealized depreciation of investments (3,255,752)
Par value 23,663
Paid-in capital in excess of par value 377,904,935
TOTAL NET ASSETS $377,253,595
NET ASSETS:
CLASS A SHARES:
Net asset value and redemption price per share
($159,246,781 / 10,012,321 shares of benefi-
cial interest outstanding) $15.91
Maximum offering price per share ($15.91 / 0.95)
(based on sales charge of 5.00% of the offer-
ing price on January 31, 1995) $16.75
CLASS B SHARES:
Net asset value and offering price per share+
($216,034,889 / 13,527,240 shares of benefi-
cial interest outstanding) $15.97
CLASS C SHARES:
Net asset value and offering price per share+
($1,971,925 / 123,475 shares of beneficial in-
terest outstanding) $15.97
<FN>
+ Redemption price per share is equal to net asset value less any applica-
ble CDSC.
</TABLE>
See Notes to Financial Statements.
STATEMENT OF OPERATIONS FOR THE YEAR ENDED JANUARY 31,
1995
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 10,943,483
Dividends (net of foreign withholding taxes of
$35,277) 4,484,747
TOTAL INVESTMENT INCOME 15,428,230
EXPENSES:
Distribution fee (Note 3) $2,300,929
Investment advisory fee (Note 2) 2,013,080
Service fee (Note 3) 915,037
Administration fee (Note 2) 732,029
Transfer agent fees (Notes 2 and 4) 617,701
Custodian fees (Note 2) 91,405
Legal and audit fees 69,288
Trustees' fees and expenses (Note 2) 31,423
Other 160,103
TOTAL EXPENSES 6,930,995
NET INVESTMENT INCOME 8,497,235
REALIZED AND UNREALIZED GAIN/(LOSS) ON INVESTMENTS
(NOTES 1 AND 5):
Net realized gain on investments during the year 13,742,008
Net unrealized depreciation of investments during
the year (37,407,775)
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS
(23,665,767)
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
$(15,168,532)
</TABLE>
See Notes to Financial Statements.
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
YEAR YEAR
ENDED ENDED
1/31/95 1/31/94
<S> <C> <C>
Net investment income $ 8,497,235 $ 6,599,779
Net realized gain on investments sold during the
year 13,742,008 27,571,787
Net unrealized appreciation/(depreciation) on in-
vestments during
the year (37,407,775) 14,596,793
Net increase/(decrease) in net assets resulting
from operations (15,168,532) 48,768,359
Distributions to shareholders from net investment
income:
Class A (1,415,447) (141,463)
Class B (6,383,429) (5,841,811)
Class C (formerly Class D) (24,664) (4,926)
Distributions to shareholders from net realized
gain on investments:
Class A (2,058,358) (443,959)
Class B (11,409,401) (25,063,436)
Class C (formerly Class D) (47,515) (29,445)
Net increase/(decrease) in net assets from Fund
share transactions: (Note 6)
Class A 156,057,835 5,470,486
Class B (84,984,410) 29,240,621
Class C (formerly Class D) 1,657,620 399,877
Net increase in net assets 36,223,699 52,354,303
NET ASSETS:
Beginning of year 341,029,896 288,675,593
End of year (including undistributed net invest-
ment income of $1,367,230 and $1,133,571, re-
spectively) $377,253,595 $341,029,896
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT EACH YEAR.
<TABLE>
<CAPTION>
YEAR YEAR PERIOD
ENDED ENDED ENDED
1/31/95# 1/31/94+ 1/31/93*
<S> <C> <C> <C>
Net asset value, beginning of year $17.72 $16.85 $16.80
Income from investment operations:
Net investment income 0.57 0.52 0.13
Net realized and unrealized gain/(loss) on
investments (1.25) 2.37 0.88
Total from investment operations (0.68) 2.89 1.01
Less distributions:
Distributions from net investment income (0.47) (0.56) (0.11)
Distributions from net realized capital
gains (0.66) (1.46) (0.85)
Total distributions (1.13) (2.02) (0.96)
Net asset value, end of year $15.91 $17.72 $16.85
Total return++ (3.82)% 17.80% 6.12%
Ratios to average net assets/Supplemental
data:
Net assets, end of year (in 000's) $159,247 $6,216 $693
Ratio of operating expenses to average net
assets 1.33% 1.25% 1.25%**
Ratio of net investment income to average
net assets 2.89% 2.85% 3.61%**
Portfolio turnover rate 103% 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 period 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 YEAR.
<TABLE>
<CAPTION>
YEAR YEAR YEAR
ENDED ENDED ENDED
1/31/95# 1/31/94+ 1/31/93*
<S> <C> <C> <C>
Net asset value, beginning of year $17.79 $16.84 $17.26
Income from investment operations:
Net investment income 0.39 0.38 0.51
Net realized and unrealized gain/(loss) on
investments (1.20) 2.37 1.06
Total from investment operations (0.81) 2.75 1.57
Less distributions:
Distributions from net investment income (0.35) (0.34) (0.50)
Distributions from net realized capital
gains (0.66) (1.46) (1.49)
Distributions from capital -- -- --
Total distributions (1.01) (1.80) (1.99)
Net asset value, end of year $15.97 $17.79 $16.84
Total return++ (4.54)% 16.88% 9.68%
Ratios to average net assets/Supplemental
data:
Net assets, end of year (000's) $216,035 $334,408 $287,983
Ratio of operating expenses to average net
assets 2.00% 1.98% 2.02%
Ratio of net investment income to average
net assets 2.21% 2.11% 2.84%
Portfolio turnover rate 103% 131% 93%
<FN>
* The Fund commenced operations on February 2, 1987. On November 6,
1992, the Fund commenced selling Class A shares. Any shares outstand-
ing prior to November 6, 1992 were designated as Class B shares.
** Annualized.
*** Net investment income before waiver by investment adviser for the pe-
riod ended January 31, 1988 was $0.37.
+ The per share amounts have been calculated using the monthly average
shares method, which more appropriately presents per share data for
this period 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 operating expense ratio before waiver by investment adviser
for the period ended January 31, 1988 was 2.18%.
# 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 Advisors, Inc. The Boston Company Advisors, Inc. is
currently the sub-investment adviser to the Fund.
</TABLE>
See Notes to Financial Statements.
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED
1/31/92 1/31/91 1/31/90 1/31/89 1/31/88*
<S> <C> <C> <C> <C>
$ 15.61 $ 15.57 $ 15.03 $ 13.62 $ 14.00
0.52 0.54 0.53 0.52 0.36***
2.56 0.47 1.10 1.48 (0.44)
3.08 1.01 1.63 2.00 (0.08)
(0.55) (0.51) (0.69) (0.48) (0.23)
(0.88) (0.46) (0.38) (0.11) (0.07)
-- -- (0.02) -- --
(1.43) (0.97) (1.09) (0.59) (0.30)
$ 17.26 $ 15.61 $ 15.57 $ 15.03 $ 13.62
19.96% 6.80% 10.76% 15.10% (0.57)%
$234,321 $197,170 $206,385 $146,987 $151,223
2.06% 2.09% 2.24% 2.29% 2.14%**+++
3.02% 3.43% 3.46% 3.59% 2.83%**
76% 56% 61% 42% 56%
</TABLE>
See Notes to Financial Statements.
FINANCIAL HIGHLIGHTS
FOR A CLASS C SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
1/31/95# 1/31/94*+
<S> <C> <C>
Net asset value, beginning of period $17.79 $17.54
Income from investment operations:
Net investment income 0.38 0.32
Net realized and unrealized gain/(loss) on invest-
ments (1.19) 1.67
Total from investment operations (0.81) 1.99
Less distributions:
Distributions from net investment income (0.35) (0.28)
Distributions from net realized capital gains (0.66) (1.46)
Total distributions (1.01) (1.74)
Net asset value, end of period $15.97 $17.79
Total return++ (4.54)% 11.83%
Ratios to average net assets/Supplemental data:
Net assets, end of period (000's) $1,972 $399
Ratio of operating expenses to average net assets 1.98% 1.93%**
Ratio of net investment income to average net as-
sets 2.24% 2.16%**
Portfolio turnover rate 103% 131%
<FN>
* The Fund commenced selling Class C shares (formerly 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 period 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 Advisors, 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
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Equity Funds (the "Trust") (formerly known as Smith Barney
Shearson Equity Funds) 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 Securi-
ties and Exchange Commission under the Investment Company Act of 1940, as
amended (the "1940 Act"), as a diversified, open-end management investment
company. The Trust offers two managed investment portfolios: Smith Barney
Growth and Income Fund and Smith Barney Strategic Investors Fund (the
"Fund"). Effective November 7, 1994, the Fund began offering Class Y
shares and continued to offer Class A, Class B and Class C shares (Class C
shares were previously designated "Class D" shares). As of January 31,
1995, no Class Y shares have been sold. Class A shares are sold with a
front-end sales charge. Class B and Class C shares may be subject to a
contingent deferred sales charge ("CDSC") upon redemption. Class B shares
will convert automatically to Class A shares eight years after the origi-
nal purchase date. Class Y shares are available to investors making an
initial investment of at least $5 million and are not subject to any sales
charges, distribution or service fees. All classes of shares have identi-
cal rights and privileges except with respect to the effect of the respec-
tive sales charges to each class, 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 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, sub-
investment adviser or 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
primarily due to differing treatments of income and gains on various
investment securities held by the Fund, timing differences and differing
characterization of distributions made by the Fund as a whole. Permanent
differences incurred during the Fund's fiscal year resulting from the
acquisition of capital loss carry forwards related to the reorganization
(see Note 9) and different book and tax accounting for certain debt
instruments have been reclassified to paid-in-capital at year end.
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 (the "Advisory Agreement") with The Bos-
ton 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"), a division of Smith Barney Mutual Funds
Management Inc. ("SBMFM") (formerly known as "Smith, Barney Advisers,
Inc."), succeeded Boston Advisors as the Fund's investment adviser. SBMFM
is a wholly owned subsidiary of Smith Barney Holdings Inc. ("Holdings").
Holdings is a wholly owned subsidiary of The Travelers Inc. The new in-
vestment advisory agreement contains substantially the same terms and con-
ditions, 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, Boston Advisors provided the Fund with administra-
tion services under the terms of the Advisory Agreement between the Fund
and Boston Advisors. Under this agreement, the Fund paid a monthly fee at
the annual rate of 0.20% of the value of the Fund's average daily net
assets. On May 4, 1994, SBMFM succeeded Boston Advisors as the Fund's ad-
ministrator. For administration services rendered, the Fund pays SBMFM a
monthly fee at the same rate as the predecessor agreement.
On May 4, 1994, the Fund and SBMFM also entered into a sub- administration
agreement (the "Sub-Administration Agreement") with Boston Advisors. Under
the Sub-Administration Agreement, SBMFM pays Boston Advisors a portion of
its fee at a rate agreed upon from time to time between SBMFM and Boston
Advisors.
For the year ended January 31, 1995, the Fund incurred total brokerage
commissions of $541,403, of which $117,328 was paid to Smith Barney Inc.
("Smith Barney").
For the year ended January 31, 1995, Smith Barney received $13,735 from
investors representing commissions (sales charges) on sales of Class A
shares.
A CDSC is generally payable by a shareholder in connection with the
redemption of certain Class A, Class B and Class C shares. In circum-
stances in which the CDSC is imposed, the amount of the charge will vary
depending on the number of years since the date of purchase. For the year
ended January 31, 1995, Smith Barney received from shareholders $311,572
and $55 in CDSCs on the redemption of Class B and Class C shares,
respectively.
No officer, director or employee of Smith Barney or any of its affiliates
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 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 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 C shareholders, and covers expenses incurred in distrib-
uting Class B and Class C shares. Smith Barney is paid an annual service
fee with respect to Class A, Class B and Class C shares of the Fund at the
rate of 0.25% of the value of the average daily net assets of each respec-
tive class of shares. Smith Barney is also paid an annual distribution fee
with respect to Class B and Class C shares at the rate of 0.75% of the
value of the average daily net assets attributable to those shares. For
the year ended January 31, 1995, the Fund paid service fees of $148,061,
$764,217, and $2,759 for Class A, Class B and Class C shares, respec-
tively. For the year ended January 31, 1995, the Fund paid distribution
fees of $2,292,652 and $8,277 for Class B and Class C shares, respec-
tively.
Under its terms, the Plan shall remain in effect from year to year, pro-
vided that such continuance is approved annually by vote of the Fund's
Trustees, including a majority of those Trustees who are not "interested
persons" of the Fund and who have no direct or indirect financial interest
in the operation of the Plan.
4. EXPENSE ALLOCATION
Expenses of the Fund not directly attributable to the operations of any
class of shares are prorated among the classes based upon the relative net
assets of each class. Operating expenses directly attributable to a class
of shares are charged to that class' operations. In addition to the above
service and distribution fees, class specific operating expenses include
transfer agent fees. For the year ended January 31, 1995, the Fund paid
transfer agent fees of $137,816, $478,414 and $1,471 for Class A, Class B,
and Class C shares, respectively.
5. PURCHASES AND SALES OF SECURITIES
Cost of purchases and proceeds from sales of securities, excluding U.S.
Government short-term investments aggregated $259,829,065 and
$242,243,279, respectively, during the year ended January 31, 1995.
Cost of purchases and proceeds from sales of long-term U.S. Government se-
curities, excluding all short-term investments aggregated $86,160,502 and
$56,018,098, respectively, during the year ended January 31, 1995.
At January 31, 1995, aggregate gross unrealized appreciation for all secu-
rities in which there was an excess of value over tax cost was $10,667,972
and aggregate gross unrealized depreciation for all securities in which
there was an excess of tax cost over value was $13,923,724.
6. SHARES OF BENEFICIAL INTEREST
The Trustees have authority to issue an unlimited number of shares of ben-
eficial interest of the Trust with a par value of $0.001 per share. The
shares of beneficial interest of the Fund are divided into four classes,
Class A, Class B, Class C and Class Y. Changes in shares of beneficial in-
terest in the Fund were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/95 1/31/94
CLASS A SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 10,330,857 $166,775,894 308,990 $5,480,439
Issued in exchange for
shares of Smith Barney
Shearson Sector Analysis
Fund (Note 8) 122,866 1,989,195 -- --
Issued as reinvestment of
dividends 210,226 3,315,773 33,250 568,728
Redeemed (1,002,524) (16,023,027) (32,479) (578,681)
Net increase 9,661,425 $156,057,835 309,761 $5,470,486
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
1/31/95 1/31/94
CLASS B SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 2,272,852 $38,150,522 2,934,899 $52,511,316
Issued in exchange for
shares of Smith Barney
Shearson Sector Analysis
Fund (Note 8) 5,621,206 91,457,025 -- --
Issued as reinvestment of
dividends 1,001,613 16,250,259 1,680,078 28,838,201
Redeemed (14,163,327) (230,842,216) (2,920,527) (52,108,89)
Net increase/(decrease) (5,267,656) $(84,984,410) 1,694,450 $29,240,621
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
1/31/95 1/31/94*
CLASS C SHARES: Shares Amount Shares Amount
<S> <C> <C> <C> <C>
Sold 100,481 $1,649,383 22,137 $396,964
Issued in exchange for
shares of Smith Barney
Shearson Sector Analysis
Fund (Note 8) 1 14 -- --
Issued as reinvestment of
dividends 4,488 72,180 2,006 34,371
Redeemed (3,919) (63,957) (1,720) (31,458)
Net increase 101,051 $1,657,620 22,423 $399,877
<FN>
* Class C shares (formerly Class D shares) commenced operations on May 5,
1993.
</TABLE>
As of January 31, 1995, no Class Y shares had been sold.
7. LINE OF CREDIT
The Fund and several affiliated entities participate in a $50 million line
of credit provided by Bank of America (formerly known as Continental Bank
N.A.) under an Amended and Restated Line of Credit Agreement (the "Agree-
ment") 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 securi-
ties. The Fund may borrow up to the lesser of $25 million or 25% of its
net assets. However, pursuant to the Fund's prospectus, the Fund may only
borrow up to 10% of its net assets. Interest is payable either at the
bank's Money Market Rate or the London Interbank Offered Rate
(LIBOR) plus 0.375% on an annualized basis. Under the terms of the Agree-
ment, as amended, the Fund and the other affiliated entities are charged
an aggregate commitment fee of $100,000, which is allocated equally among
each of the participants. The Agreement requires, among other provisions,
each participating fund to maintain a ratio of net assets (not including
funds borrowed pursuant to the Agreement) to aggregate amount of indebted-
ness pursuant to the Agreement of no less than 5 to 1. During the year
ended January 31, 1995, the Fund did not borrow under the Agreement.
8. REORGANIZATION
On July 18, 1994, the Fund acquired the assets and certain liabilities of
Smith Barney Shearson Sector Analysis Fund (the "Acquired Fund"), in a
tax-free exchange for shares of the Fund, pursuant to a plan of reorgani-
zation approved by the Acquired Fund's shareholders on July 5, 1994. Total
shares issued by the Fund, the total net assets of the Acquired Fund and
the Fund are as follows:
<TABLE>
<CAPTION>
TOTAL NET
SHARES ASSETS OF TOTAL NET
ACQUIRING ACQUIRED ISSUED BY ACQUIRED
ASSETS OF
FUND FUND THE FUND FUND THE 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 Fund immedi-
ately after the acquisition were $417,439,560.
9. CAPITAL LOSS CARRYFORWARD
As of July 18, 1994, the Acquired Fund had $3,697,975 of unused capital
loss carryforwards. Due to limitations under Internal Revenue Code Section
382, only $3,031,166 could be used to offset current year gains of the
Fund. The remaining $666,809 is a loss carryforward available to offset
future gains of the Fund, expiring in January 31, 1998.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES OF
SMITH BARNEY STRATEGIC INVESTORS FUND OF
SMITH BARNEY EQUITY FUNDS:
We have audited the accompanying statement of assets and liabilities of
Smith Barney Strategic Investors Fund of Smith Barney Equity Funds
(formerly Smith Barney Shearson Strategic Investors Fund of Smith Barney
Shearson Equity Funds), including the schedule of portfolio investments,
as of January 31, 1995, the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two
years in the period then ended and the financial highlights for each of
the seven years in the period then ended and for the period from February
2, 1987 (commencement of operations) to January 31, 1988. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and fi-
nancial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclo-
sures in the financial statements. Our procedures included confirmation of
securities owned as of January 31, 1995 by correspondence with the custo-
dian and brokers. An audit also includes assessing the accounting princi-
ples used and significant estimates made by management, as well as evalu-
ating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of Smith Barney Strategic Investors Fund of the Smith Barney Equity Funds
as of January 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the pe-
riod then ended and the financial highlights for each of the seven years
in the period then ended and for the period from February 2, 1987 (com-
mencement of operations) to January 31, 1988, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 22, 1995
TAX INFORMATION (UNAUDITED) FISCAL YEAR ENDED JANUARY 31,
1995
Of the distributions from ordinary income made by the Fund during the fis-
cal year ended January 31, 1995, 26.51% will qualify for the dividend- re-
ceived deduction available to corporate shareholders.
During the fiscal year ended January 31, 1995, the Fund paid $12,696,208
of long-term capital gains to its shareholders.
ADDITIONAL INFORMATION (UNAUDITED)
On July 6, 1994, a special meeting of the shareholders of the Fund was
held for the purpose of voting on the following matter:
1. To approve or disapprove for the Fund a new investment advisory agree-
ment between the Trust, on behalf of the Fund, and SBSA (formerly,
Smith Barney Shearson Strategy Advisers, Inc.) ("Proposal 1"); and
2. To approve or disapprove for the Fund the Sub-Advisory Agreement be-
tween the Trust, on behalf of the Fund, SBSA, as investment adviser,
and Boston Advisors ("Proposal 2").
The results of the vote on Proposal 1 were as follows:
<TABLE>
<CAPTION>
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
<S> <C> <C> <C>
Affirmative 8,995,411.743 46.230% 88.600%
Against 247,654.742 1.273 2.439
Abstain 909,817.860 4.676 8.961
Total 10,152,884.345 52.179% 100.00%
</TABLE>
The results of the vote on Proposal 2 were as follows:
<TABLE>
<CAPTION>
% OF
OUTSTANDING % OF SHARES
VOTE NO. OF SHARES SHARES VOTED
<S> <C> <C> <C>
Affirmative 8,834,291.510 45.402% 87.013%
Against 347,190.358 1.785 3.419
Abstain 971,402.477 4.992 9.568
Total 10,152,884.345 52.179% 100.00%
</TABLE>
PARTICIPANTS
DISTRIBUTOR
Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
INVESTMENT ADVISER
AND ADMINISTRATOR
Smith Barney Mutual Funds
Management Inc.
388 Greenwich Street
New York, New York 10013
SUB-ADVISER
The Boston Company Advisors, Inc.
One Boston Place
Boston, Massachusetts 02108
COUNSEL
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
TRANSFER AGENT
The Shareholder Services
Group, Inc.
Exchange Place
Boston, Massachusetts 02109
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
Jessica M. Bibliowicz
President
William W. Carter
Investment Administrator
Lewis E. Daidone
Senior Vice President
and Treasurer
Christina T. Sydor
Secretary
Recycled
Recyclable
SMITH BARNEY
A Member of TravelersGroup
This report is submitted for the
general information of the
shareholders of Smith Barney
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
concerning the Fund's investment
policies, fees and expenses as well
as other pertinent information.
SMITH BARNEY
MUTUAL FUNDS
388 Greenwich Street
New York, New York 10013
Fund 38, 233, 246, 454
FD2165 C5
