[PHOTOS OMITTED]
Smith Barney
Growth and
Income Fund
-------------
ANNUAL REPORT
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January 31, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
<PAGE>
Smith Barney
Growth and Income Fund
================================================================================
The Smith Barney Growth and Income Fund ("Fund"), seeks long-term capital growth
and income by investing in income-producing stocks, including dividend-paying
common stocks and securities that are convertible into common stocks and
warrants. The Fund's management uses investment criteria designed to identify
companies with consistent dividend paying histories, relatively high levels of
dividends, the capacity to raise dividends in the future and the potential for
capital appreciation.
Smith Barney Growth and Income Fund
Average Annual Total Returns
January 31, 1998
Without Sales Charges*
------------------------------------------------------
Class A Class B Class C
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One-Year 16.30% 15.65% 15.65%
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Five-Year 14.40 13.81 N/A
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Since Inception++ 13.89 13.32 18.54
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With Sales Charges**
------------------------------------------------------
Class A Class B Class C
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One-Year 10.51% 10.65% 14.65%
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Five-Year 13.24 13.69 N/A
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Since Inception++ 12.78 13.32 18.54
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* 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.
** Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A shares reflect the deduction
of the maximum initial sales charge of 5.00%; and Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed 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.
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.
++ Inception dates for Class A, B, and C shares are November 6, 1992, November
6, 1992 and August 15, 1994, respectively.
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SPECIAL SHAREHOLDER UPDATE
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On March 25, 1998, shareholders of the Fund approved changing the Fund's
investment objective to long-term capital growth. The Fund will fulfill this
investment objective by investing primarily in the common stock of
large-capitalization domestic companies that exhibit growth and/or value
attributes. In conjunction with shareholders approving this investment objective
change, the Fund's Board of Trustees has approved changing the Fund's name to
Smith Barney Large Cap Blend Fund. This new name will better reflect the Fund's
asset class and investment strategy of buying large-cap stocks that exhibit a
blend of growth and value characteristics. Future annual and semi-annual reports
will reflect this new Fund name.
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NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SGIAX
Class B SGIBX
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What's Inside
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Shareholder Letter....................................................... 1
Historical Performance................................................... 5
Smith Barney Growth and Income Fund
at a Glance.............................................................. 6
Schedule of Investments.................................................. 7
Statement of Assets and Liabilities......................................10
Statement of Operations..................................................11
Statements of Changes in Net Assets......................................12
Notes to Financial Statements............................................13
Financial Highlights.....................................................18
Independent Auditors' Report.............................................22
Tax Information..........................................................23
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Shareholder Letter
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[PHOTO OMITTED]
Heath B. McLendon
Chairman
[PHOTO OMITTED]
R. Jay Gerken, CFA
Vice President and Investment Officer
Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney Growth and
Income Fund for the year ended January 31, 1998. For your convenience, we have
outlined the investment strategy of the Fund and its current portfolio strategy.
A detailed summary of performance and current holdings of the Fund can be found
in the appropriate sections that follow.
Performance Update and Investment Strategy
For the period ended January 31, 1998, the Class A, B and C shares of the Smith
Barney Growth and Income Fund ("Fund") generated total returns of 16.30%, 15.65%
and 15.65%, respectively, without sales charges. In comparison, the Lipper
Analytical Services, Inc. peer group total return average during the period was
21.83%. (Lipper is a major fund-tracking organization.) Moreover, the Standard &
Poor's 500 Index ("S&P 500"), had a total return of 26.90% over the same time
period.
The Growth and Income Fund focuses on quality companies with rising dividends.
Over the past year, this dividend policy has hurt performance, as those
large-capitalization stocks that pay dividends have underperformed those stocks
that do not. For example, of the 1,000 largest domestic companies, those that do
not pay dividends had average returns last year that were 6% greater than the
firms that did pay dividends. The market seems to be rewarding the generally
faster-growing, non-dividend paying companies. In addition, stock prices have
risen so sharply in the last year that even the Fund's small positions in cash
and intermediate-term bonds have penalized its relative performance.
Nirvana's Origins Hardly Seem Asian...
In our letter to you six months ago, we wrote of "an economy that has been
described as somewhere between perfection and nirvana." Growth was strong,
inflation low and all markets were headed upward.
It's interesting to note that "nirvana" is a word with Sanskrit roots, and
Sanskrit is an ancient language of India. But despite its roots on the
subcontinent, and the subcontinent's geographical location in Asia, we maintain
that nirvana is not an Asian word. No, we are not talking linguistics - we are
talking economics. The interruption of our economic nirvana emanated from Asia.
It was turmoil in the nations of Southeast Asia, particularly Thailand,
Indonesia and Korea that interrupted our perfect prospects. Although the
economic reverberations are still unfolding, market impacts were immediate:
bonds rallied, while stocks lagged.
Nirvana, Please Meet Pollyanna and Cassandra
All of the reported economic numbers for the U.S. still look outstanding as of
this writing. Inflation for calendar year 1997 was only at a 1.70% annual rate
as measured by the Consumer Price Index ("CPI"). Meanwhile, real economic growth
was 3.8%. We have continued to enjoy a nirvana-like economy. Forecasters are
split as to whether past will be prologue. Most agree that the Asian "contagion"
will slow growth worldwide the question is to what degree. The Pollyannas argue
such a slowdown will prolong the low inflation for the U.S. economy, the
Cassandras believe that Asian economies will collapse and damage U.S. corporate
profitability.
Domestic markets have, until recently, behaved as if the Cassandras were right.
During the second half of
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Smith Barney Growth and Income Fund 1
<PAGE>
1997, stock markets were flat while bond prices rose as a result of declining
interest rates. This divergence, bonds rising while stocks mark time, has not
been typical market behavior over the last several years. The more usual pattern
has been bond and stock markets moving in tandem: if bonds move up, then stocks
follow. But the divergence in the latter part of 1997 was likely an indication
that many investors feared an Asian-induced economic slowdown.
Bonds reacted positively to this potential economic slowing. A slowing economy
would mean lower inflation, allowing interest rates to ease further. A
slower-than-expected economy is an unmitigated blessing for a bond investor.
For a stock investor, however, the picture is mixed. The lower inflation that
often accompanies a slowing economy is usually a positive for stock valuations.
Investors will pay more for a given stream of earnings or dividends when
inflation is low, boosting stock prices. Offsetting this boost, however, are
fears about what that stream of earnings will actually be. A slowing economy
also puts corporate profitability at risk. So, in the last few months of 1997,
these two conflicting forces -- higher valuations, but on a less certain
earnings base -- offset each other, leading to flat stock market performance.
As we write this letter, however, Pollyanna has reappeared and markets are
shifting once again. Stocks perked up in the beginning of 1998, as earnings
reports appeared more robust than analysts had thought likely. Domestic
companies have managed their Asian exposures in such a way that the earnings
impact has been far less than most investors originally thought. But then again,
it would not be surprising to see the cycle repeat, as Asian economic
difficulties or fears of an Iraqi military conflict re-emerge.
And the Winner Is...
Looking ahead is never easy. It is always much easier to say with precision what
has happened in the past than to even approximate what the future holds. But the
task today seems particularly daunting. There are the Asian and Mideast problems
referred to before, as well as markets that cannot decide whether it is
Pollyanna or Cassandra that has the better advice.
Nonetheless, it seems to us that inflation still looks terrific, that is, there
is none to be found! We are now in the seventh year of an economic recovery and
inflation is still extremely low. As noted previously, the CPI shows inflation
up just 1.7%. Wholesale prices are actually down, as the Producer Price Index
("PPI") measured -0.7% for 1997. This past summer there were some fears that
domestic employment growth would trigger inflation pressures. But this fear
dissipated with the Asian economic turmoil. It seems clear that the Asian
slowdown, if nothing else, has dampened worldwide growth and demand. Commodity
prices provide striking evidence, for they all are pointed in one direction --
down. It's hard to imagine how prices can re-accelerate over the next six to
twelve months, so inflation should remain low, and provide support to bond
prices and stock valuations.
The economic growth picture is more mixed. We believe that the economic turmoil
in Asia may indeed slow growth more dramatically for domestic companies than
recent earnings reports, or stock market increases, may suggest. The
used-to-be-called "tiger" economies of Southeast Asia were the world's
fastest-growing countries over the past few years. Many Southeast Asian
economies had growth rates three times faster than the developed countries. It
seems to us that the deceleration, or even cessation of growth in the ex-tigers,
will have more meaningful effects than we have seen so far. Companies may not be
able to continue to manage their profitability as successfully as they have over
the last few months. Does this mean that we believe the stock market is headed
for a big decline? No. But it does mean that stock prices will probably be more
volatile as the market sorts through the various earnings impacts of a possible
worldwide slowdown. Ultimately, while we think that while Pollyanna will
prevail, we also believe Cassandra is due for a few more appearances.
- --------------------------------------------------------------------------------
2 1998 Annual Report to Shareholders
<PAGE>
Portfolio Update
Stocks sold out of the Fund over the last six months included Chrysler
Corporation, Monsanto and BellSouth. We sold Chrysler due to fears of more
intense competition in their core businesses. Their minivans and sport utility
vehicles are now facing more competitive products. And some of that competition
will be from Asian manufacturers who now have the additional benefit of lower
costs due to depressed currencies.
Monsanto was sold after it had successfully restructured itself into a pure play
pharmaceutical and agri-chemical company. The company's valuation seemed to
fully reflect a successful transition. BellSouth was sold, in order to decrease
the portfolio's emphasis on the Bell operating companies and increase exposure
to long distance companies.
Recent purchases include two long distance carriers, MCI Communications and
AT&T; as well as Caterpillar. The long distance carriers should thrive as
businesses make heavier usage of long distance services for not only voice
traffic, but importantly, data as well. Corporate transmission of data is
growing much more rapidly than voice, as companies try to efficiently pass
information from one often far-flung office to another. Caterpillar builds the
ubiquitous yellow heavy machinery seen at most highway projects and construction
sites. We purchased this company after its price was depressed due to the
economic turmoil in Asia. Although business may slow somewhat, we think the
market's reaction was overdone. Caterpillar is known for quality products, and
boasts the strongest dealer network of any heavy equipment manufacturer.
Thank you for your investment in the Smith Barney Growth and Income Fund. We
look forward to continuing to help you pursue your long-term financial goals.
Sincerely
/s/ Heath B. McLendon /s/ R. Jay Gerken
Heath B. McLendon R. Jay Gerken, CFA
Chairman Vice President and
Investment Officer
February 26, 1998
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Top Ten Holdings* As of January 31, 1998
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1. Hewlett-Packard Co. 3.2%
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2. Eli Lilly & Co. 2.8
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3. Walt Disney Co. 2.6
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4. Mercury General Corp. 2.5
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5. General Electric Co. 2.5
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6. NationsBank Corp. 2.4
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7. Merck & Co. 2.3
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8. Johnson & Johnson 2.3
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9. Rite Aid Corp. 2.2
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10. Automatic Data Processing, Inc. 2.2
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* As a percentage of total stock.
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Smith Barney Growth and Income Fund 3
<PAGE>
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Historical Performance -- Class A Shares
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Net Asset Value
------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================
1/31/98 $14.30 $15.72 $0.19 $0.70 16.30%
- --------------------------------------------------------------------------------
1/31/97 12.16 14.30 0.20 0.18 20.97
- --------------------------------------------------------------------------------
1/31/96 9.62 12.16 0.20 0.20 30.97
- --------------------------------------------------------------------------------
1/31/95 10.36 9.62 0.19 0.14 (3.93)
- --------------------------------------------------------------------------------
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+
================================================================================
Total $1.01 $1.22
================================================================================
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Historical Performance -- Class B Shares
- --------------------------------------------------------------------------------
Net Asset Value
------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================
1/31/98 $14.33 $15.72 $0.14 $0.70 15.65%
- --------------------------------------------------------------------------------
1/31/97 12.19 14.33 0.15 0.18 20.43
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
Inception*-- 1/31/93 9.50 9.58 0.00 0.00 0.84+
================================================================================
Total $0.73 $1.22
================================================================================
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Historical Performance -- Class C Shares
- --------------------------------------------------------------------------------
Net Asset Value
------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================
1/31/98 $14.33 $15.72 $0.14 $0.70 15.65%
- --------------------------------------------------------------------------------
1/31/97 12.19 14.33 0.15 0.18 20.43
- --------------------------------------------------------------------------------
1/31/96 9.65 12.19 0.15 0.20 30.23
- --------------------------------------------------------------------------------
Inception*-- 1/31/95 9.91 9.65 0.06 0.14 (0.58)+
================================================================================
Total $0.50 $1.22
================================================================================
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4 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class Y Shares
- --------------------------------------------------------------------------------
Net Asset Value
------------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================
1/31/98 $14.34 $15.73 $0.28 $0.70 16.76%
1/31/97 12.16 14.34 0.22 0.18 21.48
Inception*-- 1/31/96 12.08 12.16 0.00 0.00 N/A**
================================================================================
Total $0.50 $0.88
================================================================================
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
================================================================================
Year Ended 1/31/98 16.30% 15.65% 15.65% 16.76%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/98 14.40 13.81 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/98 13.89 13.32 18.54 19.43
================================================================================
Without Sales Charge(1)
-----------------------------------------------
Class A Class B Class C Class Y
================================================================================
Year Ended 1/31/98 10.51% 10.65% 14.65% 16.76%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/98 13.24 13.69 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/98 12.78 13.32 18.54 19.43
================================================================================
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Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 1/31/98) 97.61%
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Class B (Inception* through 1/31/98) 92.51
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Class C (Inception* through 1/31/98) 80.31
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Class Y (Inception* through 1/31/98) 42.78
================================================================================
(1) Assumes reinvestment of all dividend 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 dividend and capital gain distributions, if any,
at net asset value. In addition, Class A shares reflect the deduction of the
maximum initial sales charge of 5.00% and Class B shares reflect the
deduction of a 5.00% CDSC, which applies if shares are redeemed within one
year from initial purchase and declines thereafter by 1.00% per year until
no CDSC occurs. Class C shares reflect the deduction of a 1.00% CDSC, which
applies if shares are redeemed within the first year of purchase.
+ Total return is not annualized, as it may not be representative of the total
return for the year.
* 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.
** Information is not meaningful since the class was only open for one day.
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Smith Barney Growth and Income Fund 5
<PAGE>
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Smith Barney Growth and Income Fund at a Glance (unaudited)
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Growth of $10,000 Invested in Class A and B Shares of the
Smith Barney Growth and Income Fund vs. Standard &Poor's 500 Index+
- --------------------------------------------------------------------------------
November 1992 --January 1998
[THE FOLLOWING WAS DEPICTED AS A LINE GRAPH IN THE PRINTED MATERIAL]
SB G&I Class A SB G&I Class B S&P 500 Index
Nov 1992 9500 10000 10000
Jan 1993 9580 9584 10554
Jan 1994 10605 10694 11910
Jan 1995 10188 10314 11973
Jan 1996 13344 13362 16596
Jan 1997 16142 16546 20965
Jan 1998 18773 19251 26606
+ Hypothetical illustration of $10,000 invested in Class A and B shares at
inception on November 6, 1992, assuming deduction of the maximum 5.00% sales
charge at the time of investment for Class A shares and the deduction of the
maximum 5.00% CDSC for Class B shares. It also assumes reinvestment of
dividends and capital gains, if any, at net asset value through January 31,
1998. The Standard & Poor's 500 Index is composed of 500 widely held common
stocks listed on the New York Stock Exchange, American Stock Exchange and
over-the-counter market. 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 and B shares'
performance indicated on this chart, depending on whether greater or lesser
sales charges and fees were incurred by shareholders investing in the other
classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption values may be more or less than the original cost. No adjustment
has been made for shareholder tax liability on dividends or capital gains.
[THE FOLLOWING WAS DEPICTED AS A BAR GRAPH IN THE PRINTED MATERIAL]
Industry Diversification*
- ------------------------------------------------
Banks 9.4%
Consumer Non-Durables 8.7%
Electronic Technology 8.7%
Energy 6.0%
Financial Services 5.8%
Healthcare and Pharmaceuticals 7.4%
Consumer Services 5.0%
Manufacturing--Diversified Industries 10.8%
Retail 6.0%
Utilities 5.4%
Other 26.8%
* As a percentage of total stock.
[THE FOLLOWING WAS DEPICTED AS A PIE CHART IN THE PRINTED MATERIAL]
Investment Breakdown
- ---------------------------------
2.9% Corporate Debentures
3.3% Repurchase Agreement
93.8% Stock
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6 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments January 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
STOCK -- 93.8%
Banks -- 8.8%
70,000 Chase Manhattan Corp. $7,503,125
70,000 J.P. Morgan & Co., Inc.+ 7,083,125
130,000 KeyCorp 8,450,000
160,000 NationsBank Corp. 9,600,000
100,000 State Street Boston Corp. 5,600,000
- --------------------------------------------------------------------------------
38,236,250
- --------------------------------------------------------------------------------
Commercial Services -- 2.7%
65,000 Reuters Holdings PLC ADR 3,485,625
85,000 W. W. Grainger, Inc. 8,181,250
- --------------------------------------------------------------------------------
11,666,875
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Consumer Durables -- 2.3%
150,000 Genuine Parts Co.+ 4,978,125
110,000 Leggett & Platt, Inc.+ 4,970,625
- --------------------------------------------------------------------------------
9,948,750
- --------------------------------------------------------------------------------
Consumer Non-Durables -- 8.1%
120,000 Coca-Cola Co. 7,770,000
100,000 Colgate-Palmolive Co.+ 7,325,000
120,000 Kimberly-Clark Corp. 6,262,500
150,000 Liz Claiborne Inc. 6,075,000
100,000 Procter & Gamble Co. 7,837,500
- --------------------------------------------------------------------------------
35,270,000
- --------------------------------------------------------------------------------
Consumer Services -- 4.7%
85,000 McDonald's Corp. 4,005,625
120,000 TCA Cable Television, Inc. 5,610,000
100,000 Walt Disney Co. 10,656,250
- --------------------------------------------------------------------------------
20,271,875
- --------------------------------------------------------------------------------
Electronic Technology -- 8.1%
180,000 AMP, Inc. 7,200,000
220,000 Hewlett-Packard Co. 13,200,000
200,000 LM Ericsson Telephone Co. ADR 7,725,000
120,000 Motorola, Inc. 7,132,500
- --------------------------------------------------------------------------------
35,257,500
- --------------------------------------------------------------------------------
Energy -- 5.6%
130,000 Exxon Corp. 7,710,625
90,000 Mobil Corp. 6,131,250
150,000 Phillips Petroleum Co. 6,600,000
72,540 Unocal Capital Corp. Preferred,
Exchangeable 6.25% 3,862,755
- --------------------------------------------------------------------------------
24,304,630
- --------------------------------------------------------------------------------
Financial Services -- 5.5%
100,000 Beneficial Corp.+ 7,762,500
85,000 Greenpoint Financial Corp. 5,886,250
210,000 Mercury General Corp. 10,119,375
- --------------------------------------------------------------------------------
23,768,125
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
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Smith Barney Growth and Income Fund 7
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) January 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Healthcare and Pharmaceuticals -- 7.0%
170,000 Eli Lilly & Co. $11,475,000
140,000 Johnson & Johnson 9,371,250
80,000 Merck & Co. 9,380,000
- --------------------------------------------------------------------------------
30,226,250
- --------------------------------------------------------------------------------
Industrial Services -- 1.0%
120,000 Fluor Corp. 4,522,500
- --------------------------------------------------------------------------------
Manufacturing-Diversified Industries -- 10.1%
140,000 Caterpillar Inc. 6,720,000
165,000 Dana Corp.+ 8,270,625
130,000 General Electric Co. 10,075,000
100,000 Hubbell, Inc., Class B Shares 5,006,250
100,000 Minnesota Mining & Manufacturing Co. 8,350,000
275,000 Pall Corp. 5,482,813
- --------------------------------------------------------------------------------
43,904,688
- --------------------------------------------------------------------------------
Minerals -- 1.8%
391,142 Broken Hill Proprietary Co. 3,869,330
225,000 Worthington Industries, Inc. 3,782,813
- --------------------------------------------------------------------------------
7,652,143
- --------------------------------------------------------------------------------
Paper and Packaging -- 2.7%
115,000 Bemis, Inc. 4,959,375
120,000 Temple-Inland Inc. 6,660,000
- --------------------------------------------------------------------------------
11,619,375
- --------------------------------------------------------------------------------
Plastics -- 0.7%
150,000 M.A. Hanna Co. 3,056,250
- --------------------------------------------------------------------------------
Real Estate -- 4.2%
145,000 Arden Realty, Inc. 4,096,250
130,000 Kilroy Realty Corp. 3,705,000
176,000 SL Green Realty Corp. 4,906,000
100,000 Starwood Hotels & Resorts+ 5,437,500
- --------------------------------------------------------------------------------
18,144,750
- --------------------------------------------------------------------------------
Retail -- 5.7%
150,000 May Department Stores Co. 7,884,375
150,000 Nordstrom, Inc. 7,631,250
145,000 Rite Aid Corp. 9,053,436
- --------------------------------------------------------------------------------
24,569,061
- --------------------------------------------------------------------------------
Technology Services -- 4.1%
150,000 Automatic Data Processing Inc. 8,971,875
210,000 Electronic Data Systems Corp. 8,741,250
- --------------------------------------------------------------------------------
17,713,125
- --------------------------------------------------------------------------------
Telephone/Communications -- 3.3%
110,000 AT&T Corp. 6,888,750
160,000 MCI Communications Corp. 7,430,000
- --------------------------------------------------------------------------------
14,318,750
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
8 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) January 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Transportation -- 2.4%
160,000 Knightsbridge Tankers Ltd. $4,460,000
100,000 Union Pacific Corp. 6,000,000
- --------------------------------------------------------------------------------
10,460,000
- --------------------------------------------------------------------------------
Utilities -- 5.0%
200,000 Ameritech Corp. 8,587,500
135,000 Duke Energy Corp. 7,315,313
110,000 GTE Corp. 6,001,875
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21,904,688
- --------------------------------------------------------------------------------
TOTAL STOCK
(Cost-- $278,049,392) 406,815,585
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
CORPORATE DEBENTURES -- 2.9%
Financial Services -- 1.9%
$4,000,000 Dean Witter Discover & Co., 6.875%
due 3/1/03 4,135,000
4,000,000 General Motors Acceptance Corp.,
7.000% due 9/15/02 4,170,000
- --------------------------------------------------------------------------------
8,305,000
- --------------------------------------------------------------------------------
Retail -- 1.0%
4,000,000 The Limited Inc., 7.800% due 5/15/02 4,195,000
- --------------------------------------------------------------------------------
TOTAL CORPORATE DEBENTURES
(Cost-- $11,858,940) 12,500,000
================================================================================
REPURCHASE AGREEMENT -- 3.3%
14,233,000 Goldman, Sachs & Co., 5.539% due
2/2/98; Proceeds at maturity --
$14,239,569; (Fully collateralized by
U.S. Treasury Notes, 5.750% due
11/15/00; Market value-- $14,524,470)
(Cost-- $14,233,000) 14,233,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $304,141,332*) $433,548,585
================================================================================
+ A portion of this security is on loan (Note 8).
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
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Smith Barney Growth and Income Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities January 31, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost-- $304,141,332) $433,548,585
Cash 497
Collateral for securities loaned (Note 8) 22,954,167
Receivable for Fund shares sold 1,237,053
Dividends and interest receivable 755,478
- --------------------------------------------------------------------------------
Total Assets 458,495,780
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities loaned (Note 8) 22,954,167
Payable for securities purchased 5,427,049
Investment advisory fees payable 152,304
Payable for Fund shares purchased 125,721
Administration fees payable 67,691
Distribution fees payable 25,260
Accrued expenses 131,588
- --------------------------------------------------------------------------------
Total Liabilities 28,883,780
- --------------------------------------------------------------------------------
Total Net Assets $429,612,000
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $27,331
Capital paid in excess of par value 291,298,127
Overdistributed net investment income (225,094)
Accumulated net realized gain from security transactions 9,104,383
Net unrealized appreciation of investments 129,407,253
- --------------------------------------------------------------------------------
Total Net Assets $429,612,000
================================================================================
Shares Outstanding:
Class A 9,652,673
-----------------------------------------------------------------------------
Class B 9,775,639
-----------------------------------------------------------------------------
Class C 318,456
-----------------------------------------------------------------------------
Class Y 7,583,794
-----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $15.72
-----------------------------------------------------------------------------
Class B* $15.72
-----------------------------------------------------------------------------
Class C** $15.72
-----------------------------------------------------------------------------
Class Y (and redemption price) $15.73
-----------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value per share) $16.55
================================================================================
* 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.
10 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended January 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $8,064,924
Interest 1,731,810
- --------------------------------------------------------------------------------
Total Investment Income 9,796,734
- --------------------------------------------------------------------------------
EXPENSES:
Investment advisory fees (Note 2) 1,796,197
Distribution fees (Note 2) 1,491,240
Administration fees (Note 2) 798,309
Shareholder and system servicing fees 372,045
Registration fees 73,005
Shareholder communications 67,018
Audit and legal 42,865
Amortization of deferred organization costs 28,849
Trustees' fees 24,865
Custody 9,548
Other 1,987
- --------------------------------------------------------------------------------
Total Expenses 4,705,928
- --------------------------------------------------------------------------------
Net Investment Income 5,090,806
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE3):
Realized Gain From Security Transactions
(excluding short-term securities):
Proceeds from sales 59,222,453
Cost of securities sold 34,234,800
- --------------------------------------------------------------------------------
Net Realized Gain 24,987,653
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 100,511,435
End of year 129,407,253
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 28,895,818
- --------------------------------------------------------------------------------
Net Gain on Investments 53,883,471
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 58,974,277
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Smith Barney Growth and Income Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended January 31,
- --------------------------------------------------------------------------------
1998 1997
================================================================================
OPERATIONS:
Net investment income $5,090,806 $3,610,084
Net realized gain 24,987,653 6,026,402
Increase in net unrealized appreciation 28,895,818 45,724,984
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 58,974,277 55,361,470
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (5,088,324) (3,848,619)
Net realized gains (18,011,944) (4,202,531)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions to Shareholders (23,100,268) (8,051,150)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 108,117,839 128,069,584
Net asset value of shares issued for
reinvestment of dividends 15,187,036 6,071,405
Cost of shares reacquired (81,176,417) (53,788,201)
- --------------------------------------------------------------------------------
Increase in Net Assets From
Fund Share Transactions 42,128,458 80,352,788
- --------------------------------------------------------------------------------
Increase in Net Assets 78,002,467 127,663,108
NET ASSETS:
Beginning of year 351,609,533 223,946,425
- --------------------------------------------------------------------------------
End of year* $429,612,000 $351,609,533
================================================================================
* Includes overdistributed net investment income of: $(225,094) $(219,075)
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
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, Concert Social Awareness Fund. The
financial statements and financial highlights for the other fund are presented
in a separate annual report.
The significant accounting policies consistently followed by the Fund are: (a)
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 agencies
and 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 value; (e) dividend income is recorded on
the ex-dividend date and interest income is recorded on an 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 or 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;
(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, 1998, 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. 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.
In addition, organization costs have been deferred and amortized on a straight
line basis over a five-year period that began with the commencement of the
Fund's operations in November 1992. As of January 31, 1998, organization costs
have been completely amortized.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Mutual Management Corp. ("MMC"), formerly known as Smith Barney Mutual Funds
Management Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
acts as investment advisor to the Trust. The Fund pays MMC 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.
- --------------------------------------------------------------------------------
Smith Barney Growth and Income Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
MMC 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 SSBH, acts as distributor of
Fund shares and primary broker for its portfolio agency transactions. For the
year ended January 31, 1998, SB received sales charges of approximately $117,000
on sales of the Fund's Class A shares and brokerage commissions of $1,500.
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. In certain cases, Class A shares also have a 1.00% CDSC, which applies
if redemption occurs within the first year of purchase. This CDSC only applies
to those purchases of Class A shares which, when combined with current holdings
of Class A shares, equal or exceed $500,000 in the aggregate. These purchases do
not incur an initial sales charge. For the year ended January 31, 1998, CDSCs
paid to SB were:
Class A Class B
===============================================================
CDSCs $1,000 $45,000
===============================================================
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 year ended
January 31, 1998, total Distribution Plan fees incurred were:
Class A Class B Class C
===============================================================
Distribution Plan Fees $360,865 $1,100,095 $30,280
===============================================================
All officers and one Trustee of the Trust are employees of SB.
3. Investments
During the year ended January 31, 1998, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
===============================================================
Purchases $89,141,136
- ---------------------------------------------------------------
Sales 59,222,453
===============================================================
At January 31, 1998, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
===============================================================
Gross unrealized appreciation $134,315,625
Gross unrealized depreciation (4,908,372)
- ---------------------------------------------------------------
Net unrealized appreciation $129,407,253
===============================================================
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. Reverse Repurchase Agreement
The Fund may enter into reverse repurchase agreement transactions for leveraging
purposes. A reverse repurchase agreement involves a sale by the Fund of
securities that it holds with an agreement by the Fund to repurchase the same
securities at an agreed upon price and date. A reverse repurchase agreement
involves the risk that the market value of the securities sold by the Fund may
decline below the repurchase price of the securities. The Fund will establish a
segregated account with its custodian, in which the Fund will maintain cash,
U.S. government securities or other liquid high grade debt obligations equal in
- --------------------------------------------------------------------------------
14 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
value to its obligations with respect to reverse repurchase agreements.
At January 31, 1998, the Fund had no reverse repurchase agreements.
6. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contracts. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by "marking to market" on a daily basis to reflect
the market value of the contract at the end of each day's trading. Variation
margin payments are made or received and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transactions and the Fund's basis in the contract. The Fund enters into such
contracts to hedge a portion of its portfolio. The Fund bears the market risk
that arises from changes in the value of the financial instruments and
securities indices (futures contracts).
At January 31, 1998, the Fund had no open futures contracts.
7. Options Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments which are marked-to-market daily. When a purchase option expires,
the Fund will realize a loss in the amount of the premium paid. When the fund
enters into a closing sales transaction, the Fund will realize a gain or loss
depending on whether the proceeds from the closing sales transaction are greater
or less than the premium paid for the option. When the Fund exercises a put
option, it will realize a gain or loss from the sale of the underlying security
and the proceeds from such sale will be decreased by the premium originally
paid. When the Fund exercises a call option, the cost of the security which the
Fund purchases upon exercise will be increased by the premium origanally paid.
At January 31, 1998, the Fund had no open purchased call or put option
contracts.
When a Fund writes a covered call or put option, an amount equal to the premium
received by the Fund is recorded as a liability, the value of which is
marked-to-market daily. When a written option expires, the Fund realizes a gain
equal to the amount of the premium received. When the Fund enters into a closing
purchase transaction, the Fund realizes a gain or loss depending upon whether
the cost of the closing transaction is greater or less than the premium
originally received without regard to any unrealized gain or loss on the
underlying security, and the liability related to such option is eliminated.
When a written call option is exercised, the cost of the security sold will be
decreased by the premium originally received. When a put option is exercised,
the amount of the premium originally received will reduce the cost of the
security which the Fund purchased upon exercise. When written index options are
exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Fund enters into options for hedging purposes. The risk in writing a
covered call option is that the Fund gives up the opportunity to participate in
any increase in the price of the underlying security beyond the exercise price.
The risk in writing a put option is that the Fund is exposed to the risk of a
loss if the market price of the underlying security declines.
During the year ended January 31, 1998, the Fund did not write any options.
- --------------------------------------------------------------------------------
Smith Barney Growth and Income Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
8. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations. Fees earned by the Fund on securities lending are recorded as
interest income. Loans of securities by the Fund are collateralized by cash,
U.S. Government securities or high quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the loaned securities, plus a margin which may vary depending on the type of
securities loaned. The custodian establishes and maintains the collateral in a
segregated account. The Fund maintains exposure for the risk of any losses in
the investment of amounts received as collateral.
At January 31, 1998, the Fund had loaned common stocks having a value of
$22,258,458 and holds the following collateral for loaned securities:
Security Description Value
================================================================================
Mercantile Bank Time Deposit, 5.656% due 2/2/98 $ 1,922,830
Svenska Handelsbanken, 5.594% due 2/2/98 1,538,106
Goldman, Sachs & Co. Repurchase Agreement, 5.540% due 2/2/98 16,128,278
Morgan Stanley Repurchase Agreement, 5.650% due 2/2/98 3,364,953
- --------------------------------------------------------------------------------
Total $22,954,167
================================================================================
9. Shares of Beneficial Interest
At January 31, 1998, the Trust had an unlimited number of shares of beneficial
interest authorized with a par value of $0.001 per share. The Fund has the
ability to issue multiple classes of shares. Each share of a class represents an
identical interest and has the same rights, except that each class bears certain
direct expenses, including those specifically related to the distribution of its
shares.
At January 31, 1998, total paid-in capital amounted to the following for each
class:
Class A Class B Class C Class Y
================================================================================
Total Paid-in Capital $97,155,040 $87,552,723 $4,269,700 $102,347,995
================================================================================
- --------------------------------------------------------------------------------
16 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
January 31, 1998 January 31, 1997
--------------------------- ---------------------------
Shares Amount Shares Amount
==========================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 1,710,260 $26,635,444 1,784,241 $23,454,721
Shares issued on reinvestment 499,592 7,860,894 245,313 3,295,197
Shares redeemed (1,874,428) (29,033,664) (1,765,700) (22,970,126)
- ------------------------------------------------------------------------------------------
Net Increase 335,424 $ 5,462,674 263,854 $ 3,779,792
==========================================================================================
Class B
Shares sold 1,910,597 $29,398,347 2,434,025 $31,747,272
Shares issued on reinvestment 450,933 7,110,288 201,222 2,723,850
Shares redeemed (2,161,382) (33,300,840) (2,320,760) (30,178,477)
- ------------------------------------------------------------------------------------------
Net Increase 200,148 $ 3,207,795 314,487 $ 4,292,645
==========================================================================================
Class C
Shares sold 151,583 $ 2,360,172 172,314 $ 2,259,911
Shares issued on reinvestment 13,673 215,854 3,845 52,358
Shares redeemed (53,223) (853,352) (48,539) (639,598)
- ------------------------------------------------------------------------------------------
Net Increase 112,033 $ 1,722,674 127,620 $ 1,672,671
==========================================================================================
Class Y
Shares sold 3,240,170 $49,723,876 5,451,289 $70,607,680
Shares redeemed (1,108,079) (17,988,561) -- --
- ------------------------------------------------------------------------------------------
Net Increase 2,132,091 $31,735,315 5,451,289 $70,607,680
==========================================================================================
</TABLE>
- --------------------------------------------------------------------------------
Smith Barney Growth and Income Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year:
<TABLE>
<CAPTION>
Class A Shares 1998 1997 1996(1) 1995 1994(1)
=================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $14.30 $12.16 $9.62 $10.36 $9.58
- -------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.21 0.19 0.20 0.20 0.20
Net realized and unrealized gain (loss) 2.10 2.33 2.74 (0.61) 0.81
- -------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.31 2.52 2.94 (0.41) 1.01
- -------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.19) (0.20) (0.20) (0.19) (0.23)
Net realized gains (0.70) (0.18) (0.20) (0.14) --
- -------------------------------------------------------------------------------------------------
Total Distributions (0.89) (0.38) (0.40) (0.33) (0.23)
- -------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.72 $14.30 $12.16 $9.62 $10.36
- -------------------------------------------------------------------------------------------------
Total Return 16.30% 20.97% 30.97% (3.93)% 10.70%
- -------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $151,696 $133,272 $110,089 $95,054 $4,468
- -------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.09% 1.12% 1.16% 1.41% 1.54%
Net investment income 1.35 1.48 1.77 1.86 2.00
- -------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 9% 15% 127% 79%
- -------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(2) $0.06 $0.06 $0.06 -- --
=================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
18 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year:
<TABLE>
<CAPTION>
Class B Shares 1998 1997 1996(1) 1995 1994(1)
==================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $14.33 $12.19 $9.65 $10.38 $9.58
- --------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.13 0.13 0.14 0.17 0.15
Net realized and unrealized gain (loss) 2.10 2.34 2.75 (0.62) 0.80
- --------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.23 2.47 2.89 (0.45) 0.95
- --------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.14) (0.15) (0.15) (0.14) (0.15)
Net realized gains (0.70) (0.18) (0.20) (0.14) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.84) (0.33) (0.35) (0.28) (0.15)
- --------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.72 $14.33 $12.19 $9.65 $10.38
- --------------------------------------------------------------------------------------------------
Total Return 15.65% 20.43% 30.23% (4.33)% 10.01%
- --------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $153,651 $137,187 $112,891 $92,153 $68,144
- --------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.59% 1.62% 1.65% 1.90% 1.99%
Net investment income 0.86 0.98 1.27 1.38 1.55
- --------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 9% 15% 127% 79%
- --------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(2) $0.06 $0.06 $0.06 -- --
==================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
- --------------------------------------------------------------------------------
Smith Barney Growth and Income Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year:
<TABLE>
<CAPTION>
Class C Shares 1998 1997 1996(1) 1995(2)
===================================================================================================
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $14.33 $12.19 $9.65 $9.91
- ---------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.13 0.14 0.13 0.07
Net realized and unrealized gain (loss) 2.10 2.33 2.76 (0.13)
- ---------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.23 2.47 2.89 (0.06)
- ---------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.14) (0.15) (0.15) (0.06)
Net realized gains (0.70) (0.18) (0.20) (0.14)
- ---------------------------------------------------------------------------------------------------
Total Distributions (0.84) (0.33) (0.35) (0.20)
- ---------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.72 $14.33 $12.19 $9.65
- ---------------------------------------------------------------------------------------------------
Total Return 15.65% 20.43% 30.23% (0.58)%++
- ---------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $5,007 $2,958 $961 $85
- ---------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.57% 1.61% 1.62% 1.83%+
Net investment income 0.86 0.94 1.11 1.44+
- ---------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 9% 15% 127%
- ---------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(3) $0.06 $0.06 $0.06 --
===================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) For the period from August 15, 1994 (inception date) to July 31, 1995.
(3) As of September 1995, the SEC instituted new guidelines requiring the
disclosure of average commissions per share.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
20 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights (continued)
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year:
Class Y Shares 1998 1997 1996(1)(2)
================================================================================
Net Asset Value, Beginning of Year $14.34 $12.16 $12.08
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.27 0.22 --
Net realized and unrealized gain 2.10 2.36 0.08
- --------------------------------------------------------------------------------
Total Income From Operations 2.37 2.58 0.08
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.28) (0.22) --
Net realized gains (0.70) (0.18) --
- --------------------------------------------------------------------------------
Total Distributions (0.98) (0.40) --
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $15.73 $14.34 $12.16
- --------------------------------------------------------------------------------
Total Return 16.76% 21.48% N/A*
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $119,258 $78,192 $5
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.69% 0.73% N/A*
Net investment income 1.73 1.73 N/A*
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 17% 9% 15%
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.06 $0.06 $0.06
================================================================================
(1) Per share amounts have been calculated using the monthly average shares
method, rather than the undistributed net investment income method, because
it more accurately reflects the per share data for the period.
(2) Inception date is January 31, 1996.
* Information is not meaningful since the class was only open for one day.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Smith Barney Growth and Income Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees of
the Smith Barney Equity Funds:
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of Smith Barney Growth and Income Fund of
Smith Barney Equity Funds as of January 31, 1998, the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the three-year period then ended. These
financial statements and the financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for each of the years in the two-year period ended January 31, 1995
were audited by other auditors whose report thereon, dated March 22, 1995,
expressed an unqualified opinion on those financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
January 31, 1998, by correspondence with the custodian. As to securities
purchased but not yet received, we performed other appropriate auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
Smith Barney Growth and Income Fund of Smith Barney Equity Funds as of January
31, 1998, the results of its operations for the year then ended, the changes in
its net assets for each of the years in the two-year period then ended, and its
financial highlights for each of the years in the three-year period then ended,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
New York, New York
March 16, 1998
- --------------------------------------------------------------------------------
22 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Tax Information (unaudited)
- --------------------------------------------------------------------------------
For Federal tax purposes the Fund hereby designates for the fiscal year ended
January 31, 1998:
o 76.90% of the ordinary dividends paid as qualifying for the
corporate dividends received deduction.
o The Taxpayer Relief Act of 1997 enacted differing rates of tax on
various long-term capital gain transactions. As a result, the Fund
designates:
o Total long-term capital gain distributions paid of
$16,483,374:
$3,082,774 are considered "28 percent rate gains".
$13,400,600 are considered "20 percent rate gains".
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Smith Barney Growth and Income Fund 23
<PAGE>
Smith Barney
Growth and
Income Fund
Trustees
Lee Abraham
Allan J. Bloostein
Richard E. Hanson, Jr.
Heath B. McLendon, Chairman
Officers
Heath B. McLendon
President and
Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
R. Jay Gerken
Vice President and Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
Investment Advisor
Mutual Management Corp.
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 shareholders of Smith
Barney Growth and Income Fund. It is not authorized for distribution to
prospective investors unless accompanied or preceded by an effective Prospectus
for the Fund, which contains information concerning the Fund's investment
policies and expenses as well as other pertinent information.
SMITH BARNEY
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A Member of Travelers Group [LOGO]
Smith Barney Growth and Income Fund
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
www.smithbarney.com
FD01089 3/98
