SEMI-ANNUAL REPORT
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Smith Barney
Growth and
Income Fund
----------------------
July 31, 1996
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
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Smith Barney Growth and Income Fund
- -----------------------------------
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the period ended
July 31, 1996 for the Smith Barney Growth and Income Fund. In this report, we
summarize the period's prevailing economic and market conditions and outline our
portfolio strategy. A detailed summary of performance and current holdings can
be found in the appropriate sections that follow in the semi-annual report.
Market and Economic Overview
The stock and bond markets have moved in opposite directions over the last six
months. Buffeted by rising interest rates, bond prices have fallen over this
period. At the same time, stock prices have moved upward. Such a dichotomy in
market direction is rare.
In our view, the underlying U.S. economy may be the cause of this divergence.
For as the months of 1996 rolled on, it became apparent that the U.S. economy
was growing faster than anticipated. Job growth and wages were strong, resulting
in higher retail sales and growing consumer confidence. Such signs of a robust
economy were good news to many, but not to the Governors of the Federal Reserve
Board. Although they had been accommodative last year, this year the Fed has
moved to a neutral stance. Investors were no longer looking forward to a further
easing of monetary policy; instead they were anticipating a Fed tightening, or
raising, of short-term interest rates.
Fearing a whiff of inflation and prospective Fed tightening, long-term interest
rates rose. Lower bond prices were not, however, matched by lower stock prices.
Instead stock investors focused on the positive benefits of a stronger economy,
namely, higher earnings. Corporate earnings were generally higher than expected
by most analysts, providing a lift to stock prices. Stock investors clearly
thought that the boost of higher earnings more than offset any drag from higher
interest rates.
More recently, we have seen an increase in volatility in the U.S. stock market.
Although most obvious in the stock gyrations during July, we believe volatility
has been increasing throughout the past six months. In our view there are two
main reasons for this increased stock market volatility.
The first is the simpler of the two: a reversion to the mean. Stock market
volatility over the past few years has been low relative to history. The last
six months, then, could simply be a return to "normal." The second revolves
around a divided view of what is going on in the economy. During one period
1
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in early July, the bond market was weak due to concerns that the economy was too
strong. Bonds prices fell following reports of low unemployment and significant
wage gains. At the same time, stock market investors were fretting about the
pre-announcement of disappointing earnings numbers. So stock investors were
worrying that the economy was too weak -- a needless fear as subsequent earnings
reports showed. But this is a variation on the theme outlined above: different
interpretations of the same economic numbers by the stock and bond markets.
These opposing views have caused day to day market fluctuations to increase.
Finally, although we agree that stock market volatility has increased in recent
months, we also believe the media has overreacted somewhat. Some media reports
may be self-fulfilling, as investors became more skittish. It is important to
remember that when the current bull market began 14 years ago in August 1982,
the Dow was trading around 780. Today the Dow is trading around 5,500. So a
100-point move in the Dow today is less than a 2% move -- the equivalent of only
a 14-point move in 1982. Therefore, while a 100-point move today is not an
everyday occurrence, it should be viewed in perspective. For with a higher Dow,
100 points isn't the same "news" as it was a decade ago.
Fund's Performance and Investment Strategy
Within the U.S. stock market, technology and retail stocks outperformed during
the period covered by this report. The Growth and Income Fund has a somewhat
larger position in technology stocks than the Standard and Poor's 500 Index
("S&P 500"), which is a capitalization weighted index of 500 widely held common
stocks. The Fund's heavy weighting in technology boosted its performance. The
Fund was underweighted in retail stocks, a disadvantage during this period. The
Fund's six-month total return for the period ended July 31, 1996, was 2.45%.
This compares favorably to the Fund's Lipper peer group average rate of return
of 1.75%, and the 1.77% rate of return produced by the S&P 500 for the same
six-month period.
The Growth and Income Fund seeks to provide investors with steady growth and
current income. In line with these investment objectives, the Fund's strategy
has consistently been to buy stocks of quality or "blue chip" companies with a
history of rising dividends. We believe that our focus on increasing dividends
is one way to identify successful companies. Besides dividend increases, we also
look for companies with strong balance sheets, excellent management teams and
promising product lines.
2
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During the last six months, we sold some of our holdings, and made some new
additions to the Fund. None of these transactions significantly changed the
sector weightings of the Growth and Income Fund. Instead, the transactions were
in response to company specific events, and our desire to broaden our
diversification within the financial sector.
Two of the Fund's purchases and one of the sales were of financial stocks. The
purchases were Beneficial Corporation, a major consumer finance company, and
Mercury General, an auto insurer primarily serving customers in California.
Besides attractive valuations and growth prospects, both companies, in our view,
further diversify the Fund's financial holdings away from its concentration in
banks. Moreover, during the period covered by this report, we sold Firstar, a
bank holding company based in Wisconsin. An important reason was the previously
stated desire for a more diversified financial sector within the Fund.
The Fund's third purchase was Chrysler Corporation, a major automobile
manufacturer. We believe Chrysler's stock represents good value. In addition,
the firm is a market leader in two very strong auto segments: minivans and
four-wheel drive vehicles.
Finally, the Fund's other sale was Schweitzer-Mauduit, a company spun-off from
Kimberly Clark, a major consumer products company. As is the case in many
corporate spin-offs, Schweitzer-Mauduit does not meet all our criteria for a
long-term investment. But we often hold on to the shares received from a
spin-off for a number of months to allow selling pressures in the market to
dissipate. This selling pressure is due to shareholders of the parent company
immediately selling their holdings in the spun-off firm. Once this initial
period is over, we try to sell our shares of the spun-off company at what we
hope will be higher prices.
Outlook
Looking forward, we believe that interest rates will decline and stock prices
will move higher. We believe the markets will work through their current
concerns in a positive fashion. In our opinion, two developments should buttress
the markets: higher corporate earnings and continuing low inflation. Corporate
earnings have been surprisingly strong so far this year, a trend we believe will
continue as economic growth remains steady. Growing worldwide industrial
capacity and the increased mobility of capital and labor should help to keep
inflation in check. In short, we believe that the U.S. economy can grow at
reasonable rates with little fear of accelerating inflation.
3
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In closing, we would like to thank you for your investment in the Smith Barney
Growth and Income Fund. We look forward to continuing to help you achieve your
financial goals over the next few quarters.
Sincerely,
/s/ Heath B. McLendon /s/ R. J. Gerken, CFA
Heath B. McLendon R. Jay Gerken, CFA
Chairman and Investment Officer
Chief Executive Officer
/s/ George V. Novello
George V. Novello
Investment Officer
August 12, 1996
4
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Historical Performance -- Class A Shares
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Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
7/31/96 $12.16 $12.36 $0.10 $0.00 2.45%+
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1/31/96 9.62 12.16 0.20 0.20 30.97
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1/31/95 10.36 9.62 0.19 0.14 (3.93)
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1/31/94 9.58 10.36 0.23 0.00 10.70
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Inception* - 1/31/93 9.50 9.58 0.00 0.00 0.84+
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Total $0.72 $0.34
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Historical Performance -- Class B Shares
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Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
7/31/96 $12.19 $12.38 $0.07 $0.00 2.15%+
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1/31/96 9.65 12.19 0.15 0.20 30.23
- --------------------------------------------------------------------------------
1/31/95 10.38 9.65 0.14 0.14 (4.33)
- --------------------------------------------------------------------------------
1/31/94 9.58 10.38 0.15 0.00 10.01
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Inception* - 1/31/93 9.50 9.58 0.00 0.00 0.84+
================================================================================
Total $0.51 $0.34
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Historical Performance -- Class C Shares
- --------------------------------------------------------------------------------
Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
7/31/96 $12.19 $12.38 $0.07 $0.00 2.15%+
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1/31/96 9.65 12.19 0.15 0.20 30.23
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Inception* - 1/31/95 9.91 9.65 0.06 0.14 (0.58)+
================================================================================
Total $0.28 $0.34
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5
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Historical Performance -- Class Y Shares
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Net Asset Value
---------------------
Beginning End Income Capital Gain Total
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
7/31/96 $12.16 $12.37 $0.11 $0.00 3.29%+
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Inception* - 1/31/96 12.08 12.16 0.00 0.00 N/A
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Total $0.11 $0.00
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It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.
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Average Annual Total Return
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Without Sales Charge(1)
------------------------------------------
Class A Class B Class C Class Y
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Six Months Ended 7/31/96+ 2.45% 2.15% 2.15% 2.61%
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Year Ended 7/31/96 13.95 13.31 13.31 N/A
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Inception* - 7/31/96 9.31 9.68 15.31 3.29+
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With Sales Charge(2)
------------------------------------------
Class A Class B Class C Class Y
================================================================================
Six Months Ended 7/31/96+ (2.67)% (2.85)% 1.15% 2.61%
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Year Ended 7/31/96 8.27 8.31 12.31 N/A
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Inception* - 7/31/96 8.73 9.26 15.31 3.29+
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Cumulative Total Return
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Without Sales Charge(1)
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Class A (Inception* through 7/31/96) 43.90%
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Class B (Inception* through 7/31/96) 41.19
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Class C (Inception* through 7/31/96) 32.24
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Class Y (Inception* through 7/31/96) 3.29+
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and C
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 5.00%; Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed within one
year from initial purchase and declines thereafter by 1.00% per year until
no CDSC is incurred. Class C shares reflect the deduction of a 1.00% CDSC,
which applies if shares are redeemed within the first year of purchase.
* Inception dates for Class A, B, C and Y shares are November 6, 1992,
November 6, 1992, August 15, 1994 and January 31, 1996, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
6
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Historical Performance (unaudited)
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Growth of $10,000 Invested in Class A Shares of
the Smith Barney Growth and Income Fund vs.
Standard & Poor's 500 Index +
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November 1992 -- July 1996
[The following table was represented as a line graph in the printed material.]
Growth and Income S&P 500
----------------- -------
11/6/92 9,500 10,000
1/93 9,580 10,554
7/93 9,817 10,932
1/94 10,605 11,910
7/94 10,161 11,495
1/95 10,188 11,973
7/95 11,996 14,491
1/96 13,344 16,596
7/31/96 13,671 16,890
+ Hypothetical illustration of $10,000 invested in Class A shares at
inception 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, if any, at net asset value through July 31, 1996. The
Standard & Poor's 500 Index is an index composed of widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange and
the over-the-counter market. Figures for the index include reinvestment of
dividends. The index is unmanaged and is not subject to the same management
and trading expenses as a mutual fund. The performance of the Fund's other
classes may be greater or less than the Class A shares' performance
indicated on this chart, depending on whether greater or lesser sales
charges and fees were incurred by shareholders investing in other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
7
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- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) July 31, 1996
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 83.7%
Commercial Services -- 3.2%
65,000 Reuters Holdings PLC ADR $ 4,070,625
65,000 W.W. Grainger Inc. 4,566,250
- --------------------------------------------------------------------------------
8,636,875
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Consumer Services -- 2.7%
100,000 McDonald's Corp. 4,637,500
100,000 TCA Cable Television Inc. 2,612,500
- --------------------------------------------------------------------------------
7,250,000
- --------------------------------------------------------------------------------
Consumer Durables -- 4.4%
170,000 Chrysler Corp. 4,823,750
95,000 Genuine Parts Co. 4,025,625
110,000 Leggett & Platt Inc. 2,860,000
- --------------------------------------------------------------------------------
11,709,375
- --------------------------------------------------------------------------------
Consumer Non-Durables -- 7.5%
160,000 Coca-Cola Co. 7,500,000
100,000 International Flavors & Fragrances Inc. 4,275,000
50,000 Kimberly Clark Corp. 3,800,000
50,000 Procter & Gamble Co. 4,468,750
- --------------------------------------------------------------------------------
20,043,750
- --------------------------------------------------------------------------------
Electronics Technology -- 12.1%
120,000 AMP Inc. 4,635,000
90,000 Electronic Data Systems 4,758,750
60,000 Harris Corp. 3,450,000
240,000 Hewlett-Packard Co. 10,560,000
7,500 Imation Corp. 170,625
90,000 Motorola Inc. 4,860,000
80,000 Raytheon Co. 3,880,000
- --------------------------------------------------------------------------------
32,314,375
- --------------------------------------------------------------------------------
Energy -- 4.9%
55,000 Exxon Corp. 4,523,750
40,000 Mobil Corp. 4,415,000
100,000 Phillips Petroleum Co. 3,950,000
- --------------------------------------------------------------------------------
12,888,750
- --------------------------------------------------------------------------------
Finance --10.1%
75,000 Beneficial Corp. 4,050,000
85,000 Greenpoint Financial Corp. 2,688,125
130,000 Keycorp 5,021,250
70,000 Mercury General Corp. 2,992,500
See Notes to Financial Statements.
8
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- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) July 31, 1996
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Finance --10.1% (continued)
60,000 J.P. Morgan & Co., Inc. $ 5,160,000
80,000 NationsBank Corp. 6,870,000
- --------------------------------------------------------------------------------
26,781,875
- --------------------------------------------------------------------------------
Health Technology -- 6.3%
140,000 Johnson & Johnson 6,685,000
90,000 Eli Lilly & Co. 5,040,000
80,000 Merck & Co. 5,140,000
- --------------------------------------------------------------------------------
16,865,000
- --------------------------------------------------------------------------------
Industrial Services -- 1.7%
75,000 Fluor Corp. 4,518,750
- --------------------------------------------------------------------------------
Minerals -- 1.3%
180,000 Worthington Industries 3,420,000
- --------------------------------------------------------------------------------
Process Industries -- 7.2%
80,000 A. Schulman, Inc. 1,800,000
100,000 Bemis, Inc. 3,262,500
130,000 M.A. Hanna Co. 2,470,000
225,000 Monsanto Co. 7,031,250
95,000 Temple-Inland Inc. 4,500,625
- --------------------------------------------------------------------------------
19,064,375
- --------------------------------------------------------------------------------
Producer Manufacturer -- 7.0%
100,000 Belden Inc. 2,750,000
100,000 General Electric Co. 8,237,500
40,000 Hubbell Inc., Class B Shares 2,745,000
75,000 Minnesota Mining & Manufacturing Co. 4,875,000
- --------------------------------------------------------------------------------
18,607,500
- --------------------------------------------------------------------------------
Retail -- 3.0%
140,000 Circuit City Stores, Inc. 4,410,000
75,000 May Department Stores Co. 3,365,625
8,800 Payless ShoeSource, Inc. 284,900
- --------------------------------------------------------------------------------
8,060,525
- --------------------------------------------------------------------------------
Technology Services -- 1.9%
130,000 Automatic Data Processing Inc. 5,151,250
- --------------------------------------------------------------------------------
Transportation -- 4.6%
80,000 CSX Corp. 3,860,000
70,000 Conrail Inc. 4,585,000
55,000 Union Pacific Corp. 3,767,500
- --------------------------------------------------------------------------------
12,212,500
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
9
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- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) July 31, 1996
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Utilities -- 5.8%
90,000 Ameritech Corp. $ 4,995,000
100,000 Bellsouth Corp. 4,100,000
110,000 GTE Corp. 4,537,500
40,000 Northern States Power Co. 1,790,000
- --------------------------------------------------------------------------------
15,422,500
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $167,521,670) 222,947,400
================================================================================
FOREIGN COMMON STOCK -- 1.8%
Australia -- 1.8%
372,975 Broken Hill Proprietary Co.
(Cost -- $4,550,186) 4,839,788
================================================================================
CONVERTIBLE PREFERRED STOCK -- 1.4%
Energy -- 1.4%
65,000 Unocal Corp.
(Cost -- $3,504,500) 3,640,000
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
CORPORATE DEBENTURES -- 5.4%
Financial Services -- 3.0%
$4,000,000 Dean Witter, Discover & Co., 6.875% due 3/1/03 3,925,000
4,000,000 General Motors Acceptance Corp., 7.000% due 9/15/02 3,960,000
- --------------------------------------------------------------------------------
7,885,000
- --------------------------------------------------------------------------------
Industrial Services -- 1.5%
4,000,000 Limited Inc., 7.800% due 5/15/02 3,965,000
- --------------------------------------------------------------------------------
Producer Manufacturer -- 0.9%
950,000 Thermo Electron Corp., Convertible,
4.625% due 8/1/97 2,403,500
- --------------------------------------------------------------------------------
TOTAL CORPORATE DEBENTURES
(Cost -- $13,174,626) 14,253,500
================================================================================
REPURCHASE AGREEMENT -- 7.7%
20,619,000 Chase Manhattan Bank, 5.550% due 8/1/96; Proceeds
at maturity -- $20,622,176; (Fully collateralized by
U.S. Treasury Notes, 6.250% due 7/31/98;
Market value -- $21,039,838)(Cost -- $20,619,000) 20,619,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $209,369,982*) $266,299,688
================================================================================
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
10
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- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) July 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $209,369,982) $ 266,299,688
Cash 924
Receivable for Fund shares sold 1,347,129
Dividends and interest receivable 452,459
Deferred organization cost 26,448
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Total Assets 268,126,648
- -------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 2,842,915
Investment advisory fees payable 100,770
Distribution fees payable 100,083
Administration fees payable 44,786
Accrued expenses 81,800
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Total Liabilities 3,170,354
- -------------------------------------------------------------------------------
Total Net Assets $ 264,956,294
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 21,418
Capital paid in excess of par value 207,038,110
Overdistributed net investment income (44,788)
Accumulated net realized gain on security transactions 1,011,848
Net unrealized appreciation of investments 56,929,706
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Total Net Assets $ 264,956,294
================================================================================
Shares Outstanding:
Class A 9,049,146
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Class B 9,324,368
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Class C 134,942
---------------------------------------------------------------------------
Class Y 2,909,276
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Net Asset Value:
Class A (and redemption price) $12.36
---------------------------------------------------------------------------
Class B* $12.38
---------------------------------------------------------------------------
Class C** $12.38
---------------------------------------------------------------------------
Class Y (and redemption price) $12.37
---------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share) $13.01
================================================================================
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from initial purchase (See Note 2).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
11
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- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended July 31, 1996
INVESTMENT INCOME:
Dividends $ 2,442,223
Interest 906,670
Less: Foreign withholding tax (8,288)
- -------------------------------------------------------------------------------
Total Investment Income 3,340,605
- -------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 585,770
Investment advisory fees (Note 2) 554,123
Administration fees (Note 2) 252,669
Shareholder and system servicing fees 156,194
Audit and legal 50,124
Registration fees 19,726
Shareholder communications 17,354
Trustees' fees 12,432
Amortization of deferred organization cost 10,579
Custody 4,774
- -------------------------------------------------------------------------------
Total Expenses 1,663,745
- -------------------------------------------------------------------------------
Net Investment Income 1,676,860
- -------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 3,077,971
Cost of securities sold 2,347,975
- -------------------------------------------------------------------------------
Net Realized Gain 729,996
- -------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 54,786,451
End of period 56,929,706
- -------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 2,143,255
- -------------------------------------------------------------------------------
Net Gain on Investments 2,873,251
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 4,550,111
===============================================================================
See Notes to Financial Statements.
12
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- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended July 31, 1996 (unaudited)
and the Year Ended January 31, 1996
July 31 January 31
================================================================================
OPERATIONS:
Net investment income $ 1,676,860 $ 3,060,648
Net realized gain 729,996 3,447,016
Increase in net unrealized appreciation 2,143,255 47,361,227
- -------------------------------------------------------------------------------
Increase in Net Assets From Operations 4,550,111 53,868,891
- -------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (1,755,558) (3,195,880)
Net realized gains -- (3,659,283)
- -------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (1,755,558) (6,855,163)
- -------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sales 65,069,676 21,941,512
Net asset value of shares issued
for reinvestment of dividends 1,453,111 6,321,441
Cost of shares reacquired (28,307,471) (38,622,469)
- -------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Fund Share Transactions 38,215,316 (10,359,516)
- -------------------------------------------------------------------------------
Increase in Net Assets 41,009,869 36,654,212
NET ASSETS:
Beginning of period 223,946,425 187,292,213
- -------------------------------------------------------------------------------
End of period* $ 264,956,294 $ 223,946,425
- -------------------------------------------------------------------------------
* Includes undistributed (overdistributed)
net investment income of: $ (44,788) $ 33,910
===============================================================================
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Growth and Income Fund ("Fund"), a separate investment
fund of the Smith Barney Equity Funds ("Trust"), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust consists of this
Fund and one other separate investment fund, the Smith Barney Strategic
Investors Fund. The financial statements and financial highlights for the other
fund are presented in a separate semi-annual report.
The significant accounting policies consistently followed by the Fund are:
(a) security transactions are accounted for on trade date; (b) securities traded
on national securities markets are valued at the closing prices on such markets;
securities for which no sales price were reported and U.S. Government and Agency
Obligations are valued at current quoted bid prices; (c) securities that have a
maturity of more than 60 days are valued at prices based on market quotations
for securities of similar type, yield and maturity; (d) securities maturing
within 60 days are valued at cost plus accreted discount, or minus amortized
premium which approximates market value; (e) dividend income is recorded on
ex-dividend date and interest income is recorded on the accrual basis; (f) gains
or losses on the sale of securities are recorded on the identified cost basis;
(g) dividends and distributions to shareholders are recorded on the ex-dividend
date; (h) the accounting records are maintained in U.S. dollars. All assets and
liabilities denominated in foreign currencies are translated into U.S. dollars
based on the rate of exchange of such currencies against U.S. dollars on the
date of valuation. Purchases and sales of securities, and income and expenses
are translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian bank;
(i) direct expenses are charged to each class; management fees and general fund
expenses are allocated on the basis of relative net assets; (j) the Fund intends
to comply with the applicable provisions of the Internal Revenue Code of 1986,
as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (k) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
The Fund also has a compensating balance arrangement with its custodian,
PNC Bank. This arrangement does not result in any offset to the Fund's custody
fee.
14
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
In addition, organization costs have been deferred and are being amortized
on a straight line basis over a five-year period, beginning with the
commencement of the Fund's operations in November 1992.
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION
AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Mutual Funds Management Inc. ("SBMFM"), a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as an investment advisor to the Trust. The
Fund pays SBMFM an advisory fee calculated at an annual rate of 0.45% of the
average daily net assets. This fee is calculated daily and paid monthly.
SBMFM also acts as the Fund's administrator for which it receives a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
six months ended July 31, 1996, SB received brokerage commissions of $5,250 and
sales charges of approximately $92,000 on sales of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B
shares, which applies if redemption occurs less than one year from initial
purchase and thereafter declines by 1.00% per year until no CDSC is incurred.
Class C shares have a 1.00% CDSC, which applies if redemption occurs within the
first year of purchase. For the six months ended July 31, 1996, CDSCs paid to SB
were:
Class B Class C
================================================================================
CDSCs $124,000 $1,000
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect
to Class A, B and C shares calculated at the annual rate of 0.25% of the average
daily net assets for each respective class. In addition, the Fund pays a
distribution fee with respect to Class B and C shares calculated at the annual
rate of 0.50% of the average daily net assets for each class. For the six months
ended July 31, 1996, total Distribution Plan fees incurred were:
Class A Class B Class C
================================================================================
Distribution Plan Fees $143,110 $437,340 $5,320
================================================================================
All officers and one Trustee of the Trust are employees of SB.
15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
3. INVESTMENTS
During the six months ended July 31, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $29,291,658
- --------------------------------------------------------------------------------
Sales 3,077,971
================================================================================
At July 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were approximately
as follows:
================================================================================
Gross unrealized appreciation $57,754,549
Gross unrealized depreciation (824,843)
- --------------------------------------------------------------------------------
Net unrealized appreciation $56,929,706
================================================================================
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian take possession of) U.S. Government
Securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed-upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
5. SHARES OF BENEFICIAL INTEREST
At July 31, 1996, the Trust had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share. The Fund has the
ability to issue multiple classes of shares. Each share of a class represents an
identical interest and has the same rights, except that each class bears certain
expenses specifically related to the distribution of its shares.
At July 31, 1996, total paid-in capital amounted to the following for each
class:
Class A Class B Class C Class Y
================================================================================
Total Paid-in Capital $87,878,742 $80,864,804 $1,582,225 $36,733,757
================================================================================
16
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
July 31, 1996 January 31, 1996
-------------------------- --------------------------
Shares Amount Shares Amount
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A
Shares sold 884,833 $ 11,109,158 398,594 $ 4,510,317
Shares issued on
reinvestment 68,439 865,771 309,676 3,512,515
Shares redeemed (957,521) (12,008,761) (1,532,561) (16,678,833)
- ---------------------------------------------------------------------------------------
Net Decrease (4,249) $ (33,832) (824,291) $ (8,656,001)
=======================================================================================
Class B
Shares sold 1,287,204 $ 16,244,876 1,475,451 $ 16,587,023
Shares issued on
reinvestment 45,643 579,062 244,263 2,793,248
Shares redeemed (1,269,483) (16,011,417) (2,011,887) (21,878,315)
- ---------------------------------------------------------------------------------------
Net Increase (Decrease) 63,364 $ 812,521 (292,173) $ (2,498,044)
=======================================================================================
Class C
Shares sold 78,457 $ 986,885 74,320 $ 839,172
Shares issued on
reinvestment 651 8,278 1,352 15,678
Shares redeemed (22,969) (287,293) (5,726) (65,321)
- ---------------------------------------------------------------------------------------
Net Increase 56,139 $ 707,870 69,946 $ 789,529
=======================================================================================
Class Y*
Shares sold 2,908,862 $ 36,728,757 414 $ 5,000
Shares issued on
reinvestment -- -- -- --
Shares redeemed -- -- -- --
- ---------------------------------------------------------------------------------------
Net Increase 2,908,862 $ 36,728,757 414 $ 5,000
=======================================================================================
</TABLE>
* Inception date is January 31, 1996.
17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1996(1) 1996(2) 1995 1994(2) 1993(3)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 12.16 $ 9.62 $ 10.36 $ 9.58 $ 9.50
- -------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.10 0.20 0.20 0.20 0.01
Net realized and unrealized gain (loss) 0.20 2.74 (0.61) 0.81 0.07
- -------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Operations 0.30 2.94 (0.41) 1.01 0.08
- -------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.10) (0.20) (0.19) (0.23) --
Net realized gains -- (0.20) (0.14) -- --
- -------------------------------------------------------------------------------------------------------------
Total Distributions (0.10) (0.40) (0.33) (0.23) --
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.36 $ 12.16 $ 9.62 $ 10.36 $ 9.58
- -------------------------------------------------------------------------------------------------------------
Total Return 2.45%++ 30.97% (3.93)% 10.70% 0.84%++
- -------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $111,820 $110,089 $ 95,054 $ 4,468 $ 3,520
- -------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.14%+ 1.16% 1.41% 1.54% 1.41%+
Net investment income 1.58+ 1.77 1.86 2.00 0.28+
- -------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 1% 15% 127% 79% 1%
- -------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $ 0.06 $ 0.06 -- -- --
=============================================================================================================
</TABLE>
(1) For the six months ended July 31, 1996 (unaudited).
(2) 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.
(3) For the period from November 6, 1992 (inception date) to January 31, 1993.
(4) As of October 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
18
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares 1996(1) 1996(2) 1995 1994(2) 1993(3)
=================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 12.19 $ 9.65 $ 10.38 $ 9.58 $ 9.50
- -----------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) 0.07 0.14 0.17 0.15 (0.01)
Net realized and unrealized gain (loss) 0.19 2.75 (0.62) 0.80 0.09
- -----------------------------------------------------------------------------------------------------------------
Total Income (Loss) from Operations 0.26 2.89 (0.45) 0.95 0.08
- -----------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.07) (0.15) (0.14) (0.15) --
Net realized gains -- (0.20) (0.14) -- --
- -----------------------------------------------------------------------------------------------------------------
Total Distributions (0.07) (0.35) (0.28) (0.15) --
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.38 $ 12.19 $ 9.65 $ 10.38 $ 9.58
- -----------------------------------------------------------------------------------------------------------------
Total Return 2.15%++ 30.23% (4.33)% 10.01% 0.84%++
- -----------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $115,463 $112,891 $ 92,153 $ 68,144 $ 35,173
- -----------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.63%+ 1.65% 1.90% 1.99% 1.91%+
Net investment income (loss) 1.07+ 1.27 1.38 1.55 (0.22)+
- -----------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 1% 15% 127% 79% 1%
- -----------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $ 0.06 $ 0.06 -- -- --
=================================================================================================================
</TABLE>
(1) For the six months ended July 31, 1996 (unaudited).
(2) 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.
(3) For the period from November 6, 1992 (inception date) to January 31, 1993.
(4) As of October 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
19
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares Class Y Shares
---------------------------------- -------------------------
1996(1) 1996(2) 1995(3) 1996(1) 1996(2)(4)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 12.19 $ 9.65 $ 9.91 $ 12.16 $ 12.08
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.07 0.13 0.07 0.10 --
Net realized and unrealized gain (loss) 0.19 2.76 (0.13) 0.22 0.08
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.26 2.89 (0.06) 0.32 0.08
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.07) (0.15) (0.06) (0.11) --
Net realized gains -- (0.20) (0.14) -- --
- ---------------------------------------------------------------------------------------------------------------
Total Distributions (0.07) (0.35) (0.20) (0.11) --
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 12.38 $ 12.19 $ 9.65 $ 12.37 $ 12.16
- ---------------------------------------------------------------------------------------------------------------
Total Return 2.15%++ 30.23% (0.58)%++ 3.29%++ N/A
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 1,671 $ 961 $ 85 $ 36,002 $ 5
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.63%+ 1.62% 1.83%+ 0.76%+ N/A*
Net investment income 1.05+ 1.11 1.44+ 1.79+ N/A*
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 1% 15% 127% 1% 15%
- ---------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(5) $ 0.06 $ 0.06 -- $ 0.06 $ 0.06
===============================================================================================================
</TABLE>
(1) For the six months ended July 31, 1996 (unaudited).
(2) 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.
(3) For the period from August 15, 1994 (inception date) to January 31, 1995.
(4) Inception date is January 31, 1996.
(5) As of October 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
* Information is not meaningful since the class was only open for 1 day.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
20
<PAGE>
Smith Barney SMITH BARNEY
Growth and ------------
Income Fund
A Member of Travelers Group [Logo]
Trustees
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon, Chairman
Madelon DeVoe Talley
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President and Treasurer
R. Jay Gerken
Investment Officer
George V. Novello
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Adviser
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank, N.A.
Shareholder
Servicing Agent
First Data Investors Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for the general
information of the shareholders of Smith
Barney Growth and Income Fund. It is not
authorized for distribution to
prospective investors unless accompanied
or preceded by a current Prospectus for
the Fund, which contains information
concerning the Fund's investment
policies and expenses as well as other
pertinent information.
Smith Barney Growth
and Income Fund
388 Greenwich Street
New York, New York 10013
FD0425 9/96
SEMI-ANNUAL REPORT
================================================================================
Smith Barney
Strategic
Investors
Fund
-------------
July 31, 1996
[Logo] Smith Barney Mutual Funds
Investing for your future.
Every day.
<PAGE>
- --------------------------------------------------------------------------------
Smith Barney Strategic Investors Fund
- --------------------------------------------------------------------------------
Dear Shareholder:
We are pleased to provide you with the semi-annual report for the period ended
July 31, 1996 for the Smith Barney Strategic Investors Fund. In this report, we
summarize the period's prevailing economic and market conditions and outline our
portfolio strategy. A detailed summary of performance and current holdings can
be found in the appropriate sections that follow in the semi-annual report.
Fund's Investment Objective and Performance
The Smith Barney Strategic Investors Fund seeks to provide opportunities for
high total return made up of current income and capital appreciation, through a
carefully determined balance of stocks, bonds and money market instruments. The
Fund's asset allocation is based on guidelines set by Smith Barney's Investment
Policy Group, and the Portfolio Managers make their selection of individual
securities within the model's framework. At July 31, 1996, the asset allocation
of the Fund was 47% stocks, 38% bonds, and 15% cash. The following table shows
the Investment Policy Group's asset allocation recommendations during the period
covered by this report:
Date Stocks Bonds Cash
---- ------ ----- ----
2/22/96 60% 35% 5%
3/11/96 55% 35% 10%
5/6/96 50% 35% 15%
7/10/96 45% 40% 15%
Over the six month period covering this report, the Strategic Investors Fund
paid dividends totaling $0.290 per share and had a total return of -0.24% for
Class A shares. Over the same period, the Standard and Poor's 500 Index ("S&P
500") posted a total return of 1.77%, and the Lehman Brothers Government
Corporate Bond Index had a return of -2.26%. Although the Fund underperformed
the stock market, it outperformed the bond market.
Equity Market and Portfolio Update
If nothing else, 1996 so far has proven to be a very interesting year for the
stock market. In general, investors have been rewarded for staying in the
market. However, virtually all of the gains were recorded in January and August,
the two months not included in the above performance recap. Volatility in the
stock market has increased in recent months. Rather than
1
<PAGE>
sustaining an overall decline, however, the stock market experienced a series of
rotations among various market sectors. For example, cyclical stocks such as
automobiles and retailers, which were major underperformers in 1995, became the
market's new leaders, while more defensive stocks such as utilities,
transportation and consumer-product companies performed poorly. In the face of
higher interest rates and slower corporate earnings growth, the stock market as
a whole has performed relatively well during the past six months.
Despite the reasonable returns generated by the stock market so far, we believe
that the market's risk profile has changed. Consequently, the Fund's stock
allocation has been reduced in a series of steps since February -- coincident
with the changes in the interest rate structure. The portion of the Fund
allocated to stocks went from 60%, which was close to the high end of the
historic range, to a current 45%, which is close to the low end of the range.
The bond allocation absorbed one-third of the shift, while the remainder was
moved into cash. In early July, the stock market experienced a correction, and
the S&P 500 declined by approximately 10% from its most recent high. In our
view, the recent stock market correction is not a reflection of extreme
over-valuation in the market place, or even a downgraded perspective of the
long-term prospects for stock investments. Instead, we believe that the factors
working together are that of a more mature bull market, combined with a
temporary loss of momentum in the forces that have been driving stock prices
higher -- declining interest rates, extraordinary earnings and cash flow growth,
and tremendous flows of capital into equity mutual funds. In our opinion, too
many new investors have set their future return expectations unrealistically
high based on past conditions, rather than in line with more reasonable ones
based upon our future economic outlook.
As of July 31, 1996, the Strategic Investors Fund owned 79 stocks, with
approximately two-thirds of them rated as core long-term favorites. The Fund
remains well-diversified across economic and industry sectors, with no one stock
constituting more than 1.6% of total portfolio assets. The Fund is overweighted
in consumer cyclical and financial sectors relative to the S&P 500, and
underweighted in consumer staples and utilities.
Bond Market and Portfolio Update
The very beginning of 1996 was characterized by low inflation, somewhat weaker
U.S. economic growth and a positive tone to the bond market. All signs pointed
to a weaker U.S. economy, which is generally positive for the bond market, and
many investors expected that the Federal Reserve would possibly lower interest
rates, as they had done in December 1995 and January 1996. However, what
unfolded over the first half of the year was a dramatically
2
<PAGE>
different story. Bond market sentiment shifted in early March, on the heels of a
stunning U.S. employment report that indicated 705,000 new jobs had been created
during the month of February.
By early July it became apparent that the U.S. economy was growing at a rate
stronger than expected by most investors. Interest rates had risen sharply since
the end of January, with yields on longer maturity Treasury securities
increasing by over 1%. The level of U.S. economic growth as evidenced by strong
gains in job creation and rising wages, seemed to be pointing to a robust pick
up from last year's levels. Moreover, the general consensus was that the Federal
Reserve Board would raise short-term interest rates before the end of the summer
in order to avoid potential inflationary pressures.
Investors remain divided over whether the U.S. economy is too hot, too cool or
just right. A rather credible case can be made for each position. There is data
to support the view that U.S. economic growth will continue at a rate that will
induce the Fed to tighten monetary policy. On the other hand, a case can also be
made for moderating economic growth based upon the higher interest rate
structure, extremely high levels of consumer debt, and a potential slowdown in
corporate earnings. This divergence of views has been the main catalyst for
recent bond market volatility.
Given the increased level of volatility in the financial markets, there were
several shifts in the asset allocation of the Strategic Investors Fund during
the period covered by this report. The first change occurred in late February,
adding 5% to bonds. This gave us the opportunity to implement a slightly more
defensive posture by adding to our positions in mortgage securities, which tend
to provide a higher income stream in periods of rising interest rates. In
addition, we shortened the Fund's duration, which is a measure of how sensitive
a fixed-income security's price level is to a 1% move in interest rates.
Generally, the shorter a portfolio's duration, the less sensitive it is to
interest rate fluctuations. The fixed income portfolio currently has a 4.5-year
duration, shortened from the approximately 5-year duration maintained at the
beginning of 1996.
The most recent allocation shift on July 10, increased the Strategic Investors
Fund's assets to 40% invested in bonds. While there may be near-term risks
associated with the bond market (i.e. yields might rise higher), we believe that
yields at current levels represent good value. This 5% increase in the fixed
income sector of the portfolio was conservatively deployed into the intermediate
sector of the U.S. Treasury market. The portfolio is currently invested 36% in
U.S. government securities, 30% in mortgages, 7% in asset-backed securities and
27% in corporate bonds.
3
<PAGE>
Outlook
Over the near term, we believe the bond market will continue to face pressure
resulting from ongoing investor concerns over possible monetary tightening by
the Fed. Although we believe that an interest rate increase at the next Open
Market Committee meeting is unlikely, the Fed remains committed to fighting
inflation, and a more restrictive monetary policy going forward cannot be
completely discounted.
With respect to our outlook for the stock market -- although the market has
experienced a recent correction, we believe the stock market will continue to
provide consistent returns if corporate earnings growth continues, the U.S.
economy continues to expand at a non-inflationary pace, and interest rates begin
to moderate. It is our view that all of these conditions will be met, and we are
therefore optimistic about the stock market for the remainder of 1996.
In closing, we would like to thank you for your investment in the Smith Barney
Strategic Investors Fund. We look forward to continuing to help you achieve your
financial goals.
Sincerely,
/s/ Heath B. McLendon /s/ Ellen S. Cammer
Heath B. McLendon Ellen S. Cammer
Chairman and Vice President and
Investment Officer Investment Officer
/s/ Robert J. Brady
Robert J. Brady, CFA
Vice President and
Investment Officer
August 14, 1996
4
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
Net Asset Value
----------------------
Beginning End Income Capital Gain Total(1)
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
7/31/96 $19.00 $18.67 $0.29 $0.00 (0.24)%+
- --------------------------------------------------------------------------------
1/31/96 15.91 19.00 0.52 0.52 26.47
- --------------------------------------------------------------------------------
1/31/95 17.72 15.91 0.47 0.66 (3.82)
- --------------------------------------------------------------------------------
1/31/94 16.85 17.72 0.56 1.46 17.80
- --------------------------------------------------------------------------------
Inception* - 1/31/93 16.80 16.85 0.11 0.85 6.12+
================================================================================
Total $1.95 $3.49
================================================================================
- --------------------------------------------------------------------------------
Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
Net Asset Value
----------------------
Beginning End Income Capital Gain Total(1)
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
7/31/96 $19.05 $18.72 $0.22 $0.00 (0.60)%+
- --------------------------------------------------------------------------------
1/31/96 15.97 19.05 0.42 0.52 25.58
- --------------------------------------------------------------------------------
1/31/95 17.79 15.97 0.35 0.66 (4.54)
- --------------------------------------------------------------------------------
1/31/94 16.84 17.79 0.34 1.46 16.88
- --------------------------------------------------------------------------------
1/31/93 17.26 16.84 0.50 1.49 9.68
- --------------------------------------------------------------------------------
1/31/92 15.61 17.26 0.55 0.88 19.96
- --------------------------------------------------------------------------------
1/31/91 15.57 15.61 0.51 0.46 6.80
- --------------------------------------------------------------------------------
1/31/90 15.03 15.57 0.71 0.38 10.76
- --------------------------------------------------------------------------------
1/31/89 13.62 15.03 0.48 0.11 15.10
- --------------------------------------------------------------------------------
Inception* - 1/31/88 14.00 13.62 0.23 0.07 (0.57)+
================================================================================
Total $4.31 $6.03
================================================================================
- --------------------------------------------------------------------------------
Historical Performance -- Class C Shares
- --------------------------------------------------------------------------------
Net Asset Value
---------------------
Beginning End Income Capital Gain Total(1)
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
7/31/96 $19.08 $18.75 $0.22 $0.00 (0.60)%+
- --------------------------------------------------------------------------------
1/31/96 15.97 19.08 0.42 0.52 25.77
- --------------------------------------------------------------------------------
1/31/95 17.79 15.97 0.35 0.66 (4.54)
- --------------------------------------------------------------------------------
Inception* - 1/31/94 17.54 17.79 0.28 1.46 11.83+
================================================================================
Total $1.27 $2.64
================================================================================
5
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
Net Asset Value
---------------------
Beginning End Income Capital Gain Total(1)
Period Ended of Period of Period Dividends Distributions Returns(1)
================================================================================
Inception* - 7/31/96 $19.00 $18.69 $0.16 $0.00 (0.83)%+
================================================================================
It is the Fund's policy to distribute dividends quarterly and capital gains, if
any, annually.
- --------------------------------------------------------------------------------
Average Annual Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
----------------------------------------------
Class A Class B Class C Class Y
================================================================================
Six Months Ended 7/31/96+ (0.24)% (0.60)% (0.60)% N/A
- --------------------------------------------------------------------------------
Year Ended 7/31/96 9.30 8.46 8.50 N/A
- --------------------------------------------------------------------------------
Five Years Ended 7/31/96 N/A 10.60 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 7/31/96 11.80 10.04 9.31 (0.83)%+
================================================================================
With Sales Charge(2)
----------------------------------------------
Class A Class B Class C Class Y
================================================================================
Six Months Ended 7/31/96+ (5.23)% (5.60)% (1.60)% N/A
- --------------------------------------------------------------------------------
Year Ended 7/31/96 3.84 3.46 7.50 N/A
- --------------------------------------------------------------------------------
Five Years Ended 7/31/96 N/A 10.47 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 7/31/96 10.29 10.04 9.31 (0.83)%+
================================================================================
6
<PAGE>
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 7/31/96) 51.69%
- --------------------------------------------------------------------------------
Class B (Inception* through 7/31/96) 148.06
- --------------------------------------------------------------------------------
Class C (Inception* through 7/31/96) 33.46
- --------------------------------------------------------------------------------
Class Y (Inception* through 7/31/96) (0.83)+
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Class A shares or the applicable contingent
deferred sales charges ("CDSC") with respect to Class B and C shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 5.00%; Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed within one
year from initial purchase and declines thereafter by 1.00% per year until
no CDSC is incurred. Class C shares reflect the deduction of a 1.00% CDSC,
which applies if shares are redeemed within the first year of purchase.
* Inception dates for Class A, B, C and Y shares are November 6, 1992,
February 2, 1987, May 5, 1993 and March 28, 1996, respectively.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
7
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of
the Smith Barney Strategic Investors Fund vs. Lehman
Gov't./Corporate Bond Index, Lehman Gov't./Corporate
Long-Term Bond Index and Standard & Poor's 500 Index+
- --------------------------------------------------------------------------------
February 1987 -- July 1996
[The following table was represented as a line graph in the printed material]
SB Strategic Lehman Government/ Lehman Government Standard
Investors Corporate Bond Long-Term & Poor's
Fund Index Bond Index 500 Index
---- ----- ---------- ---------
2/2/87 $10,000 $10,000 $10,000 $10,000
Jan-88 9,944 10,437 10,248 9,666
Jan-89 11,445 11,001 10,859 11,608
Jan-90 12,677 12,232 12,152 13,288
Jan-91 13,539 13,581 13,506 14,403
Jan-92 16,240 15,364 15,493 17,672
Jan-93 17,812 17,142 17,752 19,542
Jan-94 20,818 18,908 20,564 22,060
Jan-95 19,872 18,320 19,131 22,175
Jan-96 24,955 21,567 24,249 30,746
7/31/96 24,806 21,080 22,804 31,290
+ Hypothetical illustration of $10,000 invested in Class B shares at inception
on February 2, 1987, assuming reinvestment of dividends and capital gains, if
any, at net asset value through July 31, 1996. The Lehman
Government/Corporate Bond Index is a combination of the Government and
Corporate Bond indexes, 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. The Standard & Poor's 500 Index is composed of widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange and the
over-the-counter market. Figures for the index include reinvestment of
dividends. The indexes are unmanaged and are not subject to the same
management and trading expenses as a mutual fund. The performance of the
Fund's other classes may be greater or less than the Class B shares'
performance indicated on this chart, depending on whether greater or lesser
sales charges and fees were incurred by shareholders investing in other
classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
8
<PAGE>
- --------------------------------------------------------------------------------
Portfolio Highlights (unaudited) July 31, 1996
- --------------------------------------------------------------------------------
Portfolio Breakdown
[The following table was represented as a pie graph in the printed material]
Retail 4.1%
Petroleum 3.3%
Other Common Stocks and Corporate Bonds 23.2%
Banking 3.2%
Insurance 2.7%
Financial Services 7.2%
Mortgage-Backed Securities 11.1%
Pharmaceuticals 3.2%
Diversified Holding Co. 2.2%
Telecommunications 3.0%
Industrial 2.1%
Healthcare 3.0%
Asset-Backed Securities 2.7%
Repurchase Agreement 15.2%
U.S. Government Obligations 13.8%
Percentage of
Total Investments
================================================================================
Top Five Holdings in Common Stock
Lockheed Martin Corp. 1.6%
Chevron Corp. 1.3
International Business Machines Corp. 1.2
MCI Communications Corp. 1.2
Aluminum Co. of America 1.2
Top Five Holdings in Corporate Bonds & Notes
Norwest Corp. 1.5%
Hydro-Quebec 0.7
USX Corp. 0.7
Associates Corp. North America 0.7
Chemical Banking Corp. 0.6
================================================================================
9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) July 31, 1996
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCKS -- 46.9%
Aerospace -- 1.9%
70,000 Lockheed Martin Corp. $ 5,801,250
25,900 Rockwell International Corp. 1,359,750
- --------------------------------------------------------------------------------
7,161,000
- --------------------------------------------------------------------------------
Auto Parts-Replacement -- 1.4%
70,000 Echlin Inc. 2,336,250
64,700 Varity Corp.+ 3,040,900
- --------------------------------------------------------------------------------
5,377,150
- --------------------------------------------------------------------------------
Banking -- 3.2%
35,000 Bank of Boston Corp. 1,855,000
40,311 BankAmerica Corp. 3,214,802
62,088 Chase Manhattan Bank 4,315,116
30,900 J.P. Morgan & Co. 2,657,400
- --------------------------------------------------------------------------------
12,042,318
- --------------------------------------------------------------------------------
Chemicals -- 1.4%
5,000 Engelhard Corp. 102,500
25,000 Olin Corp. 2,118,750
80,000 Praxair, Inc. 3,070,000
- --------------------------------------------------------------------------------
5,291,250
- --------------------------------------------------------------------------------
Computers -- 1.6%
13,800 Digital Equipment Corp.+ 488,175
30,000 EMC Corp.+ 581,250
42,400 International Business Machines Corp. 4,573,900
34,000 Madge Networks N.V.+ 378,250
- --------------------------------------------------------------------------------
6,021,575
- --------------------------------------------------------------------------------
Diversified/Conglomerate Service -- 0.4%
25,000 ITT Corp.+ 1,418,750
- --------------------------------------------------------------------------------
Diversified/Holding Company -- 2.2%
46,300 General Electric Co. 3,813,962
53,900 Textron, Inc. 4,312,000
- --------------------------------------------------------------------------------
8,125,962
- --------------------------------------------------------------------------------
Electronics -- 1.4%
48,500 Intel Corp. 3,643,562
51,800 Philips Electronics N.V. 1,715,875
- --------------------------------------------------------------------------------
5,359,437
- --------------------------------------------------------------------------------
Environmental Control -- 0.2%
39,200 Browning Ferris Industries, Inc. 877,100
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) July 31, 1996
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Financial Services -- 2.8%
93,300 American Express Co. $ 4,081,875
60,000 Associates First Capital Corp. 2,302,500
26,300 Federal Home Loan Mortgage Corp. 2,215,775
64,800 H.F. Ahmanson & Co. 1,636,200
- --------------------------------------------------------------------------------
10,236,350
- --------------------------------------------------------------------------------
Food Processing -- 1.3%
80,000 Nabisco Holdings Corp., Class A Shares 2,700,000
15,000 Unilever N.V. 2,133,750
- --------------------------------------------------------------------------------
4,833,750
- --------------------------------------------------------------------------------
Grocery/Convenience Stores -- 1.1%
72,000 American Stores Co. 2,682,000
38,700 Kroger Co.+ 1,460,925
- --------------------------------------------------------------------------------
4,142,925
- --------------------------------------------------------------------------------
Healthcare -- 3.0%
63,400 Aetna Inc. 3,685,125
39,900 Beckman Instruments, Inc. 1,436,400
46,464 Columbia Healthcare Corp. 2,381,280
190,500 Tenet Healthcare Corp. 3,690,938
- --------------------------------------------------------------------------------
11,193,743
- --------------------------------------------------------------------------------
Homebuilders -- 0.6%
193,400 Kaufman & Broad Home Corp. 2,296,625
- --------------------------------------------------------------------------------
Insurance -- 2.7%
45,000 Ace Ltd. 1,980,000
70,547 Allstate Corp. 3,156,978
25,000 ITT Hartford Group, Inc. 1,321,875
17,200 Lincoln National Corp. 733,150
23,100 Mid Ocean Ltd. 929,775
35,400 St. Paul Co., Inc. 1,831,950
- --------------------------------------------------------------------------------
9,953,728
- --------------------------------------------------------------------------------
Leisure -- 0.1%
17,200 Fleetwood Enterprises, Inc. 522,450
- --------------------------------------------------------------------------------
Metals -- 1.3%
75,000 Aluminum Co. of America 4,350,000
25,000 Century Aluminum Co.+ 365,625
- --------------------------------------------------------------------------------
4,715,625
- --------------------------------------------------------------------------------
Oil-Gas-International -- 1.2%
34,900 Kerr McGee Corp. 1,989,300
61,100 Enron Corp. 2,405,812
- --------------------------------------------------------------------------------
4,395,112
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) July 31, 1996
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Oil Well Equipment & Service -- 0.3%
13,500 Schlumberger Ltd. $ 1,080,000
- --------------------------------------------------------------------------------
Petroleum -- 3.3%
85,000 Chevron Corp. 4,919,375
15,600 Exxon Corp. 1,283,100
36,300 Mobil Corp. 4,006,613
8,400 Royal Dutch Petroleum Co. ADR 1,267,350
44,100 YPF Sociedad Anonima ADR 926,100
- --------------------------------------------------------------------------------
12,402,538
- --------------------------------------------------------------------------------
Pharmaceuticals -- 3.2%
56,600 American Home Products Corp. 3,212,050
83,375 Pharmacia & Upjohn, Inc. 3,439,219
64,000 Schering-Plough Corp. 3,528,000
30,000 Smithkline Beecham ADR 1,612,500
- --------------------------------------------------------------------------------
11,791,769
- --------------------------------------------------------------------------------
Photography -- 0.7%
34,200 Eastman Kodak Co. 2,552,175
- --------------------------------------------------------------------------------
Railroads -- 0.8%
11,900 Burlington Northern, Inc. 938,612
100,500 Canadian Pacific Ltd. 2,185,875
- --------------------------------------------------------------------------------
3,124,487
- --------------------------------------------------------------------------------
Real Estate Investment Trust -- 0.3%
49,000 Bay Apartment Communities, Inc. 1,243,375
- --------------------------------------------------------------------------------
Retail -- 4.1%
69,100 Dillard Department Stores, Inc. 2,185,287
74,700 Liz Clairborne, Inc. 2,437,087
89,700 May Department Stores Co. 4,025,288
54,000 Nine West Group, Inc.+ 2,612,250
14,352 Payless Shoesource, Inc.+ 464,646
24,000 Tandy Corp. 1,014,000
100,100 Toys 'R' Us+ 2,640,138
- --------------------------------------------------------------------------------
15,378,696
- --------------------------------------------------------------------------------
Telecommunications -- 3.0%
40,000 American Telephone & Telegraph Corp. 2,085,000
57,000 GTE Corp. 2,351,250
60,000 Lucent Technologies, Inc. 2,227,500
183,200 MCI Communications Corp. 4,511,300
- --------------------------------------------------------------------------------
11,175,050
- --------------------------------------------------------------------------------
Textiles -- 0.3%
18,500 VF Corp. 1,033,688
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) July 31, 1996
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Tobacco -- 0.9%
31,400 Philip Morris Cos., Inc. $ 3,285,225
- --------------------------------------------------------------------------------
Transportation -- 1.0%
50,000 Greenwich Air Services, Inc.+ 875,000
75,000 Mesaba Holdings, Inc.+ 778,125
24,300 Pittston Burlington Group 443,475
58,600 Pittston Services Group 1,670,100
- --------------------------------------------------------------------------------
3,766,700
- --------------------------------------------------------------------------------
Utilities - Electric -- 1.2%
75,700 CMS Energy Corp. 2,299,387
16,500 Illinova Corp. 424,875
83,700 Public Service Company of New Mexico 1,663,538
- --------------------------------------------------------------------------------
4,387,800
- --------------------------------------------------------------------------------
TOTAL COMMON STOCKS
(Cost -- $139,806,191) 175,186,353
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
CORPORATE BONDS AND NOTES -- 10.3%
Financial Services -- 4.4%
$ 2,500,000 Associates Corp. North American, Notes, 7.250%
due 9/1/99 2,534,375
2,400,000 Chemical Banking Corp., Notes,
5.688% due 8/19/96++ 2,399,664
950,000 First USA Bank, Notes, 8.100% due 2/21/97 960,013
1,550,000 Ford Motor Credit Co., Notes, 5.625% due 3/3/97 1,548,388
2,000,000 John Deere Capital Corp., Medium Term Notes,
5.535% due 4/15/98++ 1,967,500
1,500,000 Massachusetts Mutual Life Insurance Co., Surplus Notes,
7.625% due 11/15/23 1,404,375
5,450,000 Norwest Corp., Medium Term Notes,
7.700% due 11/15/97 5,550,171
- --------------------------------------------------------------------------------
16,364,486
- --------------------------------------------------------------------------------
Industrial -- 2.1%
1,500,000 Case Corp., Notes, 7.250% due 8/1/05 1,468,125
1,500,000 Lucent Technologies, Inc., Notes, 7.250% due 7/15/06 1,494,375
2,000,000 Service Corp. International, Sr. Notes, 7.000%
due 6/1/15 1,995,000
350,000 Southwest Airlines Co., Series 1994-A3, 8.700%
due 7/1/11 368,813
2,500,000 USX Corp., Debentures, 8.500% due 3/1/23 2,540,625
- --------------------------------------------------------------------------------
7,866,938
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) July 31, 1996
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
Yankee -- 2.7%
$ 2,000,000 ABN AMRO Bank NV Chicago, Sub. Notes,
7.550% due 6/28/06 $ 2,015,000
1,500,000 Dresdner Bank New York, Sub. Notes,
6.625% due 9/15/05 1,426,875
2,500,000 Hydro-Quebec, Debentures, 8.050% due 7/7/24 2,634,375
2,000,000 Philips Electronics N.V., Notes, 7.200% due 6/1/26 1,965,000
2,000,000 Santander Financial Issues Ltd., Sub. Notes,
7.000% due 4/1/06 1,925,000
- --------------------------------------------------------------------------------
9,966,250
- --------------------------------------------------------------------------------
Utilities -- 1.1%
2,000,000 HNG Internorth, Inc., Notes, 9.625% due 3/15/06 2,237,500
2,000,000 MCI Communications Corp., Sr. Notes, 7.125% due 6/15/27 2,017,500
- --------------------------------------------------------------------------------
4,255,000
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost -- $38,949,354) 38,452,674
================================================================================
ASSET-BACKED SECURITIES -- 2.7%
5,000,000 Carco Auto Loan Master Trust, Series 1994-2,
7.875% due 7/15/99 5,091,950
762,711 Equity Credit Corp., Home Equity Loan Trust,
Series 1993-3, 5.150% due 9/15/08 716,896
2,347,574 FNMA Remic Pass Thru Certificates, Series 1993-104,
5.500% due 3/25/98 2,327,268
2,000,000 Sears Credit Account Master Trust, Series 95-2A,
8.100% due 6/15/04 2,095,400
- --------------------------------------------------------------------------------
TOTAL ASSET-BACKED SECURITIES
(Cost -- $10,225,873) 10,231,514
================================================================================
U.S. GOVERNMENT OBLIGATIONS -- 13.8%
13,200,000 U.S. Treasury Bonds, 7.125% due 2/15/23 13,269,960
3,000,000 U.S. Treasury Notes, 5.625% due 10/31/97 2,987,010
12,350,000 U.S. Treasury Notes, 5.750% due 9/30/97 12,321,225
5,978,000 U.S. Treasury Notes, 6.375% due 8/15/02 5,905,726
6,000,000 U.S. Treasury Notes, 6.625% due 3/31/97 6,034,680
2,000,000 U.S. Treasury Notes, 6.875% due 5/15/06 2,011,720
6,700,000 U.S. Treasury Notes, 7.125% due 2/29/00 6,837,618
2,000,000 U.S. Treasury Notes, 7.375% due 11/15/97 2,032,840
- --------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT OBLIGATIONS
(Cost -- $52,560,165 51,400,779
================================================================================
See Notes to Financial Statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) July 31, 1996
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
MORTGAGE-BACKED SECURITIES -- 11.1%
$ 37,703 Federal Home Loan Mortgage Association,
6.250% due 7/1/02 $ 34,910
98,247 Federal Home Loan Mortgage Association,
8.500% due 7/1/02 100,610
184,144 Federal National Mortgage Association,
5.500% due 3/1/99 170,044
2,002,661 Federal National Mortgage Association,
6.000% due 2/1/11 1,890,633
4,903,742 Federal National Mortgage Association,
6.500% due 3/1/11 4,735,151
3,712,793 Federal National Mortgage Association,
7.500% due 10/1/09 3,725,528
4,954,660 Federal National Mortgage Association,
7.500% due 5/1/25 4,878,754
3,519,878 Federal National Mortgage Association,
8.000% due 3/1/10 3,584,750
140,090 Federal National Mortgage Association,
8.000% due 7/1/24 140,966
26,649 Government National Mortgage Association,
6.000% due 8/15/08 25,258
874,440 Government National Mortgage Association,
6.000% due 9/15/08 828,803
29,914 Government National Mortgage Association,
6.000% due 10/15/08 28,352
3,172,586 Government National Mortgage Association,
6.000% due 1/15/09 3,007,009
161,736 Government National Mortgage Association,
6.000% due 2/15/09 153,295
655,503 Government National Mortgage Association,
6.000% due 3/15/09 621,293
619,432 Government National Mortgage Association,
6.000% due 4/15/09 587,103
9,869,052 Government National Mortgage Association,
6.500% due 4/15/26 9,168,941
3,176,505 Government National Mortgage Association,
7.000% due 12/15/24 3,051,414
4,961,488 Government National Mortgage Association,
7.500% due 2/15/26 4,879,276
- --------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost -- $41,803,888) 41,612,090
================================================================================
SUB-TOTAL INVESTMENTS
(Cost -- $283,345,471) 316,883,410
================================================================================
See Notes to Financial Statements.
15
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) July 31, 1996
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
REPURCHASE AGREEMENT -- 15.2%
$56,644,000 Chase Manhattan Bank, 5.545% due 8/2/96;
Proceeds at maturity -- $56,652,725; (Fully
collateralized by U.S. Treasury Notes, 6.250%
due 7/31/98; Market value -- $57,800,116)
(Cost -- $56,644,000) $ 56,644,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost -- $339,989,471*) $373,527,410
================================================================================
+ Non-income producing security.
++ Variable rate note - interest rate resets quarterly.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
16
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) July 31, 1996
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $283,345,471) $316,883,410
Repurchase agreement (Cost -- $56,644,000) 56,644,000
Receivable for Fund shares sold 98,301
Interest receivable 2,406,525
Dividends receivable 189,080
Other receivable 4,058
Other assets 68,101
- --------------------------------------------------------------------------------
Total Assets 376,293,475
- --------------------------------------------------------------------------------
LIABILITIES:
Distribution fees payable 136,124
Investment advisory fees payable 130,746
Administration fees payable 47,544
- --------------------------------------------------------------------------------
Total Liabilities 314,414
- --------------------------------------------------------------------------------
Total Net Assets $375,979,061
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 20,107
Capital paid in excess of par value 314,872,035
Undistributed net investment income 1,547,042
Accumulated net realized gain from security transactions 26,001,938
Net unrealized appreciation of investments 33,537,939
- --------------------------------------------------------------------------------
Total Net Assets $375,979,061
================================================================================
Shares Outstanding:
Class A 9,108,406
----------------------------------------------------------------------------
Class B 10,791,962
----------------------------------------------------------------------------
Class C 201,164
----------------------------------------------------------------------------
Class Y 5,265
----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $18.67
----------------------------------------------------------------------------
Class B* $18.72
----------------------------------------------------------------------------
Class C** $18.75
----------------------------------------------------------------------------
Class Y (and redemption price) $18.69
- --------------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share) $19.65
================================================================================
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within one year from initial purchase (See Note 2).
** Redemption price is NAV of Class C shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
17
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations (unaudited)
- --------------------------------------------------------------------------------
For the Six Months Ended July 31, 1996
INVESTMENT INCOME:
Interest $ 5,936,642
Dividends 2,437,194
Less: Foreign withholding tax (42,999)
- --------------------------------------------------------------------------------
Total Investment Income 8,330,837
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 1,313,758
Investment advisory fees (Note 2) 1,086,090
Administration fees (Note 2) 394,942
Shareholder and system servicing fees 219,764
Shareholder communications 41,428
Registration fees 26,901
Audit and legal 18,752
Trustees' fees 14,459
Custody 7,768
Other 75,447
- --------------------------------------------------------------------------------
Total Expenses 3,199,309
- --------------------------------------------------------------------------------
Net Investment Income 5,131,528
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 152,480,772
Cost of securities sold 132,095,280
- --------------------------------------------------------------------------------
Net Realized Gain 20,385,492
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 60,421,558
End of period 33,537,939
- --------------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (26,883,619)
- --------------------------------------------------------------------------------
Net Loss on Investments (6,498,127)
- --------------------------------------------------------------------------------
Decrease in Net Assets From Operations $ (1,366,599)
================================================================================
See Notes to Financial Statements.
18
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Six Months Ended July 31, 1996 (unaudited)
and the Year Ended January 31, 1996
July 31 January 31
================================================================================
OPERATIONS:
Net investment income $ 5,131,528 $ 10,396,146
Net realized gain 20,385,492 15,912,267
Increase (decrease) in net
unrealized appreciation (26,883,619) 63,677,310
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets
From Operations (1,366,599) 89,985,723
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,173,816) (10,078,312)
Net realized gains -- (10,995,342)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions To Shareholders (5,173,816) (21,073,654)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 5):
Net proceeds from sale of shares 19,768,481 31,431,185
Net asset value of shares issued for
reinvestment of dividends 4,838,080 19,789,136
Cost of shares reacquired (46,850,081) (92,622,989)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (22,243,520) (41,402,668)
- --------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (28,783,935) 27,509,401
NET ASSETS:
Beginning of period 404,762,996 377,253,595
- --------------------------------------------------------------------------------
End of period* $ 375,979,061 $ 404,762,996
================================================================================
* Includes undistributed net investment
income of: $ 1,547,042 $ 1,589,330
================================================================================
See Notes to Financial Statements.
19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Strategic Investors Fund ("Fund"), a separate investment
fund of the Smith Barney Equity Funds ("Trust"), a Massachusetts business trust,
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Trust consists of the
Fund and one other separate investment fund, the Smith Barney Growth and Income
Fund. The financial statements and financial highlights for the other fund are
presented in a separate semi-annual report.
The significant accounting policies followed by the Fund are: (a) security
transactions are accounted for on trade date; (b) securities traded on national
securities markets are valued at the closing prices on such markets or, if there
were no sales during the day, at current quoted bid price; securities primarily
traded on foreign exchanges are generally valued at the preceding closing values
of such securities on their respective exchanges, except that when a significant
occurrence subsequent to the time a value was so established is likely to have
significantly changed the value, then the fair value of those securities will be
determined by consideration of other factors by or under the direction of the
Board of Trustees or its delegates. Over-the-counter securities and U.S.
Government and Agency obligations are valued at the mean between the bid and the
ask prices; (c) securities that have a maturity of 60 days or more are valued at
prices based on market quotations for securities of similar type, yield and
maturity; (d) securities maturing within 60 days are valued at cost plus
accreted discount, or minus amortized premium, as applicable; (e) dividend
income is recorded on the ex-dividend date and interest income, adjusted for
accretion of original issue discount, is recorded on the accrual basis; (f)
gains or losses on the sale of securities are calculated by using the specific
identification method; (g) dividends and distributions to shareholders are
recorded on the ex-dividend date; (h) the accounting records are maintained in
U.S. dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank; (i) direct expenses are charged to each
class; management fees and general fund expenses are allocated on the basis of
relative net assets; (j) the Fund intends to comply with the applicable
provisions of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
20
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
sufficient to relieve it from substantially all Federal income and excise taxes;
(k) the character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At January 31, 1996, reclassifications were made to the
Fund's capital accounts to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations. Accordingly, a
portion of accumulated net realized gains amounting to $609,732 has been
reclassified to paid-in capital. Net investment income, net realized gains and
net assets were not affected by this change; and (l) estimates and assumptions
are required to be made regarding assets, liabilities and changes in net assets
resulting from operations when financial statements are prepared. Changes in the
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
2. INVESTMENT ADVISORY AGREEMENT, ADMINISTRATION
AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Strategy Advisors Inc. ("SBSA"), a subsidiary of Smith Barney
Mutual Funds Management Inc. ("SBMFM"), which, in turn, is a subsidiary of Smith
Barney Holdings Inc. ("SBH"), acts as investment adviser to the Fund. The Fund
pays SBSA an investment advisory fee calculated at an annual rate of 0.55% of
the average daily net assets. This fee is calculated daily and paid monthly.
SBMFMacts as the Trust's administrator for which the Fund pays a fee
calculated at an annual rate of 0.20% of the average daily net assets. This fee
is calculated daily and paid monthly.
Smith Barney Inc. ("SB"), another subsidiary of SBH, acts as distributor of
Trust shares and primary broker for its portfolio agency transactions. For the
six months ended July 31, 1996, SB received brokerage commissions of $6,276 and
sales charges of $40,000 on sales of the Fund's Class A shares.
There is a contingent deferred sales charge ("CDSC") of 5.00% on Class B
shares, which applies if redemption occurs within one year from initial purchase
and declines thereafter by 1.00% per year until no CDSC is incurred. Class C
shares have a 1.00% CDSC, which applies if redemption occurs within the first
year of purchase. For the six months ended July 31, 1996, CDSCs paid to SB were:
Class B Class C
================================================================================
CDSCs $196,000 $1,000
================================================================================
21
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
Pursuant to a Distribution Plan, the Fund pays a service fee with respect
to Class A, B and C shares calculated at the annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B and C shares calculated at the annual rate of 0.75% of
the average daily net assets for each class, respectively. For the six months
ended July 31, 1996, total Distribution Plan fees incurred were:
Class A Class B Class C
================================================================================
Distribution Plan Fees $223,585 $1,071,501 $18,672
================================================================================
All officers and one Trustee of the Trust are employees of SB.
3. INVESTMENTS
During the six months ended July 31, 1996, the aggregate cost of purchases
and proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $124,565,241
- --------------------------------------------------------------------------------
Sales 152,480,772
================================================================================
At July 31, 1996, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were approximately
as follows:
================================================================================
Gross unrealized appreciation $39,534,105
Gross unrealized depreciation (5,996,166)
- --------------------------------------------------------------------------------
Net unrealized appreciation $33,537,939
================================================================================
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. Government
Securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed upon higher repurchase price. The Fund requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
5. SHARES OF BENEFICIAL INTEREST
At July 31, 1996, the Trust had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share. The Fund has the
ability to issue multiple classes of shares. Each share of a class represents an
identical interest and has the same rights, except that each class
22
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
- --------------------------------------------------------------------------------
bears certain direct expenses, including those specifically related to the
distribution of its shares.
At July 31, 1996, total paid-in capital amounted to the following for each
class:
Class A Class B Class C Class Y
================================================================================
Total Paid-in Capital $148,289,567 $162,970,112 $3,532,422 $100,041
================================================================================
Transactions in shares of each class were as follows:
Six Months Ended Year Ended
July 31, 1996* January 31, 1996
---------------------- ------------------------
Shares Amount Shares Amount
================================================================================
Class A
Shares sold 528,614 $ 10,098,787 541,718 $ 9,924,073
Shares issued on
reinvestment 132,709 2,531,313 502,417 8,979,258
Shares redeemed (763,804) (14,553,123) (1,845,569) (32,325,484)
- --------------------------------------------------------------------------------
Net Decrease (102,481) $ (1,923,023) (801,434) $(13,422,153)
================================================================================
Class B
Shares sold 454,001 $ 8,667,198 1,095,309 $ 19,529,792
Shares issued on
reinvestment 118,274 2,263,003 588,732 10,665,928
Shares redeemed (1,663,520) (31,795,436) (3,328,074) (59,194,543)
- --------------------------------------------------------------------------------
Net Decrease (1,091,245) $(20,865,235) (1,644,033) $(28,998,823)
================================================================================
Class C
Shares sold 47,173 $ 903,274 111,657 $ 1,977,320
Shares issued on
reinvestment 2,240 42,945 7,158 143,950
Shares redeemed (26,222) (501,522) (64,317) (1,102,962)
- --------------------------------------------------------------------------------
Net Increase 23,191 $ 444,697 54,498 $ 1,018,308
================================================================================
Class Y
Shares sold 5,222 $ 99,222 -- --
Shares issued on
reinvestment 43 819 -- --
Shares redeemed -- -- -- --
- --------------------------------------------------------------------------------
Net Increase 5,265 $ 100,041 -- --
================================================================================
* Transactions for Class Y shares are for the period from March 28, 1996
(inception date) to July 31, 1996.
23
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class A Shares 1996(1) 1996 1995 1994(2) 1993(3)
========================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 19.00 $ 15.91 $ 17.72 $ 16.85 $ 16.80
- ------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.28 0.61 0.57 0.52 0.13
Net realized and unrealized
gain (loss) (0.32) 3.52 (1.25) 2.37 0.88
- ------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.04) 4.13 (0.68) 2.89 1.01
- ------------------------------------------------------------------------------------------------------------------------
Less Distribution From:
Net investment income (0.29) (0.52) (0.47) (0.56) (0.11)
Net realized gains -- (0.52) (0.66) (1.46) (0.85)
- ------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.29) (1.04) (1.13) (2.02) (0.96)
- ------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 18.67 $ 19.00 $ 15.91 $ 17.72 $ 16.85
- ------------------------------------------------------------------------------------------------------------------------
Total Return (0.24)%++ 26.47% (3.82)% 17.80% 6.12%++
- ------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 170,081 $ 175,007 $ 159,247 $ 6,216 $ 693
- ------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.24%+ 1.21% 1.33% 1.25% 1.25%+
Net investment income 3.02+ 3.10 2.89 2.85 3.61+
- ------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 37% 81% 103% 131% 93%
========================================================================================================================
Average commissions per share
paid on equity transactions(4) $ 0.06 $ 0.06 -- -- --
========================================================================================================================
</TABLE>
(1) For the six months ended July 31, 1996 (unaudited).
(2) 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.
(3) For the period from November 6, 1992 (inception date) to January 31, 1993.
(4) As of October 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
24
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class B Shares 1996(1) 1996 1995 1994(2) 1993 1992
=============================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 19.05 $ 15.97 $ 17.79 $ 16.84 $ 17.26 $ 15.61
- -----------------------------------------------------------------------------------------------------------------------------
Income (Loss) From
Operations:
Net investment income 0.21 0.49 0.39 0.38 0.51 0.52
Net realized and
unrealized gain (loss) (0.32) 3.53 (1.20) 2.37 1.06 2.56
- -----------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From
Operations (0.11) 4.02 (0.81) 2.75 1.57 3.08
- -----------------------------------------------------------------------------------------------------------------------------
Less Distribution From:
Net investment income (0.22) (0.42) (0.35) (0.34) (0.50) (0.55)
Net realized gains -- (0.52) (0.66) (1.46) (1.49) (0.88)
- -----------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.22) (0.94) (1.01) (1.80) (1.99) (1.43)
- -----------------------------------------------------------------------------------------------------------------------------
Net Asset Value,
End of Period $ 18.72 $ 19.05 $ 15.97 $ 17.79 $ 16.84 $ 17.26
- -----------------------------------------------------------------------------------------------------------------------------
Total Return (0.60)%++ 25.58% (4.54)% 16.88% 9.68% 19.96%
- -----------------------------------------------------------------------------------------------------------------------------
Net Assets,
End of Period (000s) $ 202,027 $ 226,360 $ 216,035 $ 334,408 $ 287,983 $ 234,321
- -----------------------------------------------------------------------------------------------------------------------------
Ratios to Average
Net Assets:
Expenses 1.99%+ 1.94% 2.00% 1.98% 2.02% 2.06%
Net investment income 2.28+ 2.37 2.21 2.11 2.84 3.02
- -----------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 37% 81% 103% 131% 93% 76%
=============================================================================================================================
Average commissions
per share paid on
equity transactions(3) $ 0.06 $ 0.06 -- -- -- --
=============================================================================================================================
</TABLE>
(1) For the six months ended July 31, 1996 (unaudited).
(2) 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. (3) As of October 1995, the SEC instituted new
guidelines requiring the disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
25
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
<TABLE>
<CAPTION>
Class C Shares 1996(1) 1996 1995(2) 1994(3)(4)
================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 19.08 $ 15.97 $ 17.79 $ 17.54
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.21 0.45 0.38 0.32
Net realized and unrealized
gain (loss) (0.32) 3.60 (1.19) 1.67
- ------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.11) 4.05 (0.81) 1.99
- ------------------------------------------------------------------------------------------------
Less Distribution From:
Net investment income (0.22) (0.42) (0.35) (0.28)
Net realized gains -- (0.52) (0.66) (1.46)
- ------------------------------------------------------------------------------------------------
Total Distributions (0.22) (0.94) (1.01) (1.74)
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 18.75 $ 19.08 $ 15.97 $ 17.79
- ------------------------------------------------------------------------------------------------
Total Return (0.60)%++ 25.77% (4.54)% 11.83%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 3,772 $ 3,396 $ 1,972 $ 399
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.95%+ 1.94% 1.98% 1.93%+
Net investment income 2.31+ 2.31 2.24 2.16+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 37% 81% 103% 131%
================================================================================================
Average commissions per share
paid on equity transactions(5) $ 0.06 $ 0.06 -- --
================================================================================================
</TABLE>
(1) For the six months ended July 31, 1996 (unaudited).
(2) On November 7, 1994, the former Class D shares were renamed Class C shares.
(3) 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.
(4) For the period from May 5, 1993 (inception date) to January 31, 1994.
(5) As of October 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
26
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
period:
Class Y Shares 1996(1)
================================================================================
Net Asset Value, Beginning of Period $19.00
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.22
Net realized and unrealized loss (0.37)
- --------------------------------------------------------------------------------
Total Loss From Operations (0.15)
- --------------------------------------------------------------------------------
Less Distribution From:
Net investment income (0.16)
- --------------------------------------------------------------------------------
Total Distributions (0.16)
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $18.69
- --------------------------------------------------------------------------------
Total Return++ (0.83)%
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $ 99
- --------------------------------------------------------------------------------
Ratios to Average Net Assets+:
Expenses 0.88%
Net investment income 3.29
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 37%
================================================================================
Average commissions per share
paid on equity transactions $ 0.06
================================================================================
(1) For the period from March 28, 1996 (inception date) to July 31, 1996
(unaudited).
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
27
<PAGE>
Smith Barney SMITH BARNEY
Strategic Investors ------------
Fund
A Member of TravelersGroup[LOGO]
Trustees
Lee Abraham
Antoinette C. Bentley
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon, Chairman
Madelon DeVoe Talley
Officers
Heath B. McLendon
Chief Executive Officer
Jessica M. Bibliowicz
President
Lewis E. Daidone
Senior Vice President
and Treasurer
Robert J. Brady, CFA
Investment Officer
Ellen S. Cammer
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Adviser
Smith Barney
Strategy Advisers Inc.
Administrator
Smith Barney Mutual Funds
Management Inc.
Distributor
Smith Barney Inc.
Custodian
PNC Bank, N.A.
Shareholder
Servicing Agent
First Data Investor Services Group, Inc.
P.O. Box 9134
Boston, MA 02205-9134
This report is submitted for
the general information of the
shareholders of the Smith Barney
Strategic Investors Fund. It is not
authorized for distribution to prospective
investors unless accompanied or preceded
by a current Prospectus for the Fund,
which contains information concerning
the Fund's investment policies and
expenses as well as other pertinent
information.
Smith Barney
Strategic Investors Fund
388 Greenwich Street
New York, New York 10013
FD0423 9/96
