[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".
- --------------------------------------------------------------------------------
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
- ------------
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
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Concert Social
Awareness Fund
ANNUAL REPORT
January 31, 1998
[LOGO] Smith Barney Mutual Funds
Investing for your future.
Every day.(SM)
- --------------------------------------------------------------------------------
<PAGE>
Concert Social Awareness Fund
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Concert Social Awareness Fund ("Fund") seeks high total return consisting of
current income and capital appreciation. The Fund's investment objectives will
be achieved by investing in a variable combination of stocks and bonds issued by
companies that, in the opinion of the Fund's portfolio managers, make a positive
contribution to society through their products and services or through the way
that they do business. In addition, the Fund will avoid companies that are
engaged in activities that could have a negative social impact.
Concert Social Awareness Fund
Average Annual Total Returns
January 31, 1998
Without Sales Charge*
-------------------------------------------------------
Class A Class B Class C
================================================================================
One-Year 19.89% 18.95% 18.97%
- --------------------------------------------------------------------------------
Five-Year 14.07 13.21 N/A
- --------------------------------------------------------------------------------
Ten-Year N/A 12.79 N/A
- --------------------------------------------------------------------------------
Since Inception++ 14.68 11.50 12.96
================================================================================
With Sales Charge**
-------------------------------------------------------
Class A Class B Class C
================================================================================
One-Year 13.89% 13.95% 17.97%
- --------------------------------------------------------------------------------
Five-Year 12.90 13.09 N/A
- --------------------------------------------------------------------------------
Ten-Year N/A 12.79 N/A
- --------------------------------------------------------------------------------
Since Inception++ 13.57 11.50 12.96
================================================================================
* 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.
** 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%; Class B shares reflect the deduction
of a 5.00% CDSC, which applies if shares are redeemed less than 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, February
2, 1987 and May 5, 1993, respectively.
- --------------------------------------------------------------------------------
FUND HIGHLIGHT
- --------------------------------------------------------------------------------
We are pleased to report that we have successfully achieved the goals set in
February 1997. We increased the Fund's stock exposure, modified the bond and
stock holdings to conform to our new investment analysis emphasis and, most
importantly, we maintained competitive investment returns for our shareholders
during the reporting period.
- --------------------------------------------------------------------------------
NASDAQ SYMBOL
- --------------------------------------------------------------------------------
Class A SSIAX
Class B SESIX
- --------------------------------------------------------------------------------
WHAT'S INSIDE
- --------------------------------------------------------------------------------
Shareholder Letter........................................................ 1
Diversification . . . One key to
understanding the Concert
Social Awareness Fund..................................................... 5
Historical Performance.................................................... 7
Concert Social Awareness Fund
at a Glance............................................................... 9
Schedule of Investments................................................... 10
Statement of Assets and Liabilities....................................... 14
Statement of Operations................................................... 15
Statements of Changes in Net Assets....................................... 16
Notes to Financial Statements............................................. 17
Financial Highlights...................................................... 22
Independent Auditors' Report.............................................. 26
Tax Information........................................................... 27
<PAGE>
- --------------------------------------------------------------------------------
SHAREHOLDER LETTER
- --------------------------------------------------------------------------------
[PHOTO OMITTED] [PHOTO OMITTED]
Heath B. McLendon Ellen S. Cammer
Chairman Investment Officer
[PHOTO OMITTED]
Robert J. Brady, CFA
Investment Officer
Dear Shareholder:
We are pleased to provide the annual report for the Concert Social Awareness
Fund ("Fund") for the year ended January 31, 1998. 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 addition, an article entitled
"Diversification: One Key to Understanding the Concert Social Awareness Fund"
appears on page five of this report.
Investment Objective and Performance
The Fund seeks to provide high total return made up of current income and
capital appreciation, through a carefully determined balance of stocks and bonds
with an emphasis on issuers who, in the opinion of the Fund's portfolio
managers, demonstrate a positive awareness of their impact on society. Under
normal market conditions, the Fund will have between 65% and 85% of its assets
invested in stocks and between 15% and 35% in bonds. The mix of the Fund's
investments may vary from time to time to reflect current market conditions.
For the year ended January 31, 1998, the Fund generated a total return of 19.89%
for Class A shares. In comparison, the Standard & Poor's 500 Index* ("S&P 500
Index") returned 26.90% and the Lehman Brothers Government/Corporate Bond
Index** returned 11.17% for the same period.
Last year proved to be a very exciting and memorable one for the Fund. We began
the year as the Smith Barney Strategic Investors Fund, with our portfolio's
asset allocation among cash, bonds and stocks dictated by the guidelines
provided by the Smith Barney Research Department. However, the selection and
management of the individual securities continued to be our responsibility as
co-managers of the Fund. In February, shareholders approved modifying the
investment discipline to recognize what we believe is an evolution in investment
analysis -- the careful consideration of the non-financial aspects of a
company's business activities. In addition, we became responsible for the asset
allocation decisions. Coinciding with the change in investment discipline was
the change of the Fund's name to the Concert Social Awareness Fund.
We are pleased to report that we have successfully achieved the goals we set out
to attain in February 1997. We increased the Fund's stock exposure, modified the
bond and stock holdings to conform to our new investment analysis emphasis and,
most importantly, we maintained competitive investment returns for our
shareholders during the reporting period.
Bond Market Update and Portfolio Changes
Most domestic bond investors were rewarded in 1997. Yields declined
significantly over the last six months of the year and continued on to new
historic lows in mid-January as the yield on the 30-year U.S.
- ----------
* The S&P 500 Index is a capitalization-weighted measure of 500 widely held
common stocks.
** The Lehman Government/Corporate Bond Index is a combination of publicly
issued intermediate- and long-term U.S. government bonds and corporate
bonds.
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 1
<PAGE>
Treasury bond reached 5.60%. Several factors contributed to the positive tone of
the bond market, despite the surprisingly strong U.S. economy and low
unemployment rate.
The big story of 1997 was the collapse of many Asian economies. The "Asian
contagion" decimated the region's local currencies and capital markets, causing
the typical "flight to quality" to U.S. Treasury securities and other perceived
"safe havens." Prior to this calamity, Federal Reserve Board ("Fed") Chairman
Alan Greenspan begun to hint in his remarks to Congress that the Fed was
becoming concerned about a stronger-than-expected economy and tight labor
markets. However, the turmoil in global markets and scant evidence of
inflationary pressures allowed the Fed to remain on the sidelines, and postpone
any tightening of its monetary policy.
Inflationary pressures continued to be virtually non-existent as gains in labor
productivity more than offset any rise in wages. Price indices at both the
producer and consumer levels actually declined over the course of the year to
the bewilderment of some economists and investors who had anticipated an
inevitable rise in inflation in an economy running at full throttle. In
addition, commodity prices deteriorated as gold, copper and other key raw
materials were weakened by the crises in Asia. Given the possible repercussions
from the collapse in Asian economies, many economists are starting to sound
alarms about deflation taking hold of the global economy.
The surprising strength of the U.S. economy in 1997 has had a big impact on
federal government fiscal policy and debt management. The federal budget deficit
has narrowed tremendously over the last eighteen months due to
higher-than-expected tax receipts. This tax windfall will enable the U.S.
Treasury to reduce significantly the supply of bonds needed to finance the
government's operations. The end result of the improved financial condition of
the U.S. government, coupled with the anticipated decline in supply in bonds,
has been lower yields across the maturity spectrum during the last six months.
For example, yields on the U.S. Treasury securities in the two-to-three year
range declined 70 basis points (0.70%) although they declined almost 100 basis
points (1.00%) from the highs seen early in the third quarter to the lows in
mid-January. As of January 31, 1998 the yield on the 30-year U.S. Treasury bond
was 5.80%, only 10 basis points (0.10%) higher than the mid-January low and 55
basis points (0.55%) lower than at the beginning of the period.
The overall decline in interest rates during the reporting period helped the
Lehman Government/ Corporate Index post a 5.12% total return for the six-month
period ended January 31, 1998. The lengthening in duration and lightening of the
Fund's exposure to mortgage-backed securities implemented earlier in the year
enabled the bond portion of the Fund to perform well over the last six months.
(Duration is a measure of a fund's volatility relative to a given change in
interest rates.)
We believe that the fundamental and technical underpinnings of the bond market
remain positive. A strong U.S. dollar, low inflation and decreasing supply of
bonds should help to keep interest rates from rising significantly in the near
term. However, we think that interest rates cannot go much lower unless the
economy shows signs of teetering on the brink of recession. With so much good
news for bond investors already factored into the market, we believe a somewhat
cautious posture is warranted. As of January 31, 1998 the duration of the bond
component is roughly 5 years compared with a duration of approximately 5.75
years as of July 31, 1997. At the close of the reporting period, the Fund's bond
assets were made up of 40% government bonds, 37% corporate bonds, 17%
mortgage-backed securities and 6% asset backed securities.
Stock Market Update and Portfolio Changes
The U.S. stock market's continued strength provided a solid background within
which to actively manage investments during the twelve months ended in January
1998. In hindsight it looked like simply one more straight-up year, with many
U.S. stocks posting
- --------------------------------------------------------------------------------
2 1998 Annual Report to Shareholders
<PAGE>
strong price gains (i.e., mid-teens to mid-twenties percent changes). But that
view masked a key truth behind the stock market's rise: When you bought and
sold, and where you were positioned greatly affected your investment results.
During the period under review, market volatility was a way of life for many
stock investors. For example, in eight of twelve months, the S&P 500 Index rose
or fell in excess of 4%. (Please keep in mind that in a more "normal" year, if
stock prices rise by 10% annually, that would equate to an average gain of only
0.8% per month.) In 1997, U.S. financial markets were the place to invest;
stocks, bonds and the U.S. dollar all performed well. Inflation bets were
losers; the prices of many commodities and gold actually went down.
International stock markets also lagged in comparison with the U.S. market, with
some showing smaller gains, others falling in price. Within the U.S.,
large-capitalization stocks outdistanced mid- to small-capitalization companies.
Growth style investing was favored over a value focus. (Growth style investing
is generally considered to be investing in a company with the primary aim of
achieving growth of capital through the company's rise in earnings. Value
investing usually refers to investing in companies that are fundamentally sound
but may be out-of-favor with many investors.) Communication services, health
care, financial and consumer cyclicals were all industries that did well. On the
opposite side of the ledger, basic materials, energy and utilities industries
were the big relative underperformers during the reporting period.
In reviewing our stock investments, the timing of our purchase and sales along
with our individual stock selection contributed more positively to the Fund's
performance than did our industry emphasis. Most of our selling took place into
market strength (i.e., April & May), and the major share of our buying occurred
during market weakness (i.e., March & October). In all, we were net buyers of
approximately $11 million worth of stock. We estimate that our emphasis on high
quality, mid- to large-capitalization company stocks with a growth at the right
price, value focus enabled us to keep pace with the major market indices, which
generally appreciated in the mid-20% range.
As a result of new purchasing and this market appreciation, our stock holdings
increased from about 49% of the fund's portfolio at the beginning of the fiscal
year to about 67% by fiscal year end. We initiated 58 trades by which we reduced
or eliminated stock holdings, and another 76 trades that established new
positions or added to existing ones.
In accordance with our social awareness criteria, we sold a number of stocks
during the past year that failed to pass our social research screens. For
example, we sold Lucas Variety after a merger introduced a defense business to
the company as well as Lockheed Martin and General Electric for their
participation in defense and/or nuclear businesses. In addition, we also sold
Olin Corporation because of its chemical operations, Eastman Kodak because of
its toxic disposal policies and Nabisco Holdings because of its cash flow
connections to tobacco.
As noted above, we also found many companies that presented both good investment
opportunity and a favorable social profile such as American Express, NationsBank
and Enron. We bought American Express, a diversified financial services company,
because we believed that it represented good investment value. Moreover,
American Express has been widely recognized for its charitable giving and its
leadership in work and family programs. Our valuation model suggested to us that
NationsBank, a bank holding company, was significantly undervalued. NationsBank
has maintained an active gift-giving program and offers a wide variety of family
programs to its employees. Enron, one of the largest power providers, has been
involved with two of the world's largest solar energy projects in addition to
significant participation in education and community initiatives. These
successful companies are but a few of the numerous companies that have
recognized that socially aware policies can also make good business sense.
We continue to maintain good diversification in our stock portfolio, owning 68
separate issues at fiscal year-
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 3
<PAGE>
end. Consistent with our management style, however, we have put more of our
money in our most timely favorites. The amount of money committed to our top
twenty holdings has increased noticeably, although those holdings in total
represent only about 30% of the Fund's assets.
Outlook
We see 1998 as a year in which good stock selection, always a critical factor,
will be more important than ever. In our judgment, the overall market is fairly
valued under today's economic conditions, so it will remain highly sensitive to
external elements that impact prospects for such things as the economy's growth
rate, inflation, interest rates and/or corporate earnings growth. We have
recently tilted towards a bit more domestic consumer focus in the Fund's stock
exposure, since we believe that U.S. business activity will likely remain
robust. Profits at the company level will be harder to both get and keep, so
therefore we are giving preference to predictability as a corporate trait.
Despite its dynamic launch in the first month of the calendar year, we believe
the stock market will likely turn in a more traditional year. Overall investment
returns may end up in the high single to low double-digit range, still quite
acceptable in a world of 1% to 2% inflation per year.
We thank you for your continued support of our efforts on your behalf, and look
forward to another exciting and challenging year.
Sincerely,
/s/ Heath B. McLendon /s/ Robert J. Brady, CFA
Heath B. McLendon Robert J. Brady, CFA
Chairman Investment Officer
/s/ Ellen S. Cammer
Ellen S. Cammer
Investment Officer
February 9, 1998
- --------------------------------------------------------------------------------
Top Ten Holdings* As of January 31, 1998
- --------------------------------------------------------------------------------
1. Schering-Plough Corp. 2.8%
- --------------------------------------------------------------------------------
2. Chase Manhattan Corp. 2.6
- --------------------------------------------------------------------------------
3. Tenet Healthcare Corp. 2.6
- --------------------------------------------------------------------------------
4. Lucent Technologies, Inc. 2.5
- --------------------------------------------------------------------------------
5. Xerox Corp. 2.5
- --------------------------------------------------------------------------------
6. Allstate Corp. 2.5
- --------------------------------------------------------------------------------
7. Cisco Systems, Inc. 2.4
- --------------------------------------------------------------------------------
8. Compaq Computer Corp. 2.4
- --------------------------------------------------------------------------------
9. Aluminum Co. of America 2.3
- --------------------------------------------------------------------------------
10. Unilever N.V. 2.2
- --------------------------------------------------------------------------------
* As a percentage of total common stock.
- --------------------------------------------------------------------------------
4 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
Diversification...One key to understanding the
Concert Social Awareness Fund
Diversification--one word that expresses the essence of the Concert Social
Awareness Fund. A word that relates to the structure, the management and the
investment discipline of the Fund.
In the world of finance, the word balance has often been used to define the
structure of a diversified portfolio of individual investments. Investment
professionals talk about the allocation of assets being balanced, or
diversified, among various asset classes such as cash, bonds or stocks. A
balanced portfolio structure offers an opportunity to participate in certain
markets known for their asset growth potential and others for their
income-generating capabilities. In addition, a well diversified portfolio can
help to moderate investment risk (i.e., actual loss and/or volatility-induced
uncertainty) by combining still other more stable elements such as cash,
short-term bonds and convertible bonds. A balanced approach seeks a risk
tolerance between ultra-conservatism and aggressive risk-taking, thereby
offering investors a comfortable way to invest that can help them meet their
long-term financial goals.
In our view, a flexible portfolio structure fits extremely well with the needs
and wants of a large portion of long term-investors given today's volatile and
dynamic market conditions. The structure of the Concert Social Awareness Fund is
diversified with a goal of owning 75% stocks and 25% bonds on average over a
full market cycle. (Yet, we have the latitude to operate within an interim range
of 10% plus or minus versus the benchmark based upon our analysis of current
investment opportunities.)
Some asset management firms adopt this flexible portfolio structure in theory,
but then they ask one investment professional to manage all of the assets that
are divided among various asset classes. This "jack-of-all-trades" investment
approach may work especially when one part of the portfolio is expected to
produce most of the investment return, while another is primarily viewed as
contributing to minimize risk. (In other words, one section of the portfolio is
more actively managed than the second which embodies more of a "buy and hold"
passive approach.)
In contrast, we manage the Concert Social Awareness Fund with a truly balanced
style incorporating a team of asset class specialists--Ellen Cammer manages the
bonds and Bob Brady manages the stocks. We combine our analyses of our
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 5
<PAGE>
- --------------------------------------------------------------------------------
[LOGO]
- --------------------------------------------------------------------------------
respective markets to determine the appropriate interim asset allocation among
bonds and stocks around the strategic benchmark. Then we actively manage each
segment of the Fund's portfolio for total investment return, as well as for
helping to minimize risk. The core of our philosophy is to balance the assets in
the portfolio as well as to strike a balance in the management responsibility.
Yet our commitment to balance in the Fund doesn't end there! Our investment
discipline attempts to analyze individual stock and bond investments by
incorporating balancing both the financial and non-financial aspects of the
underlying company under consideration. We believe there is a connection between
the two forms of management actions that can have a positive impact on
investors. Before we decide to purchase a security, it must satisfy our strict
financial disciplines by offering sound value in today's marketplace. But, in
tomorrow's economic world, we believe that long-term corporate strength (and
therefore enhanced shareholder values) has a higher probability of being
realized when companies understand the wider implications of their actions.
Companies that deal well with their operating impact on the natural environment,
provide employee-satisfying workplaces and are positively aware of their impact
on the communities can benefit by growing stronger or reducing potential
financial liabilities. Our investment discipline, therefore, is balanced between
two objectives: First and foremost, we want to own attractive investments. Yet,
as managers of the Concert Social Awareness Fund on the forefront of social
awareness, we want to avoid companies that are engaged in activities that could
have a negative social impact.
The Concert Social Awareness Fund offers the long-term investor balance in its
portfolio structure, its asset management and its investment discipline. And
because of that, we believe this well-diversified Fund will continue to be
successful in a highly competitive world.
- --------------------------------------------------------------------------------
6 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Historical Performance -- Class A Shares
- --------------------------------------------------------------------------------
Net Asset Value
-----------------
Beginning End Income Capital Gain Total
Year Ended of Year of Year Dividends Distributions Returns(1)
================================================================================
1/31/98 $19.36 $20.57 $0.55 $1.99 19.89%
- --------------------------------------------------------------------------------
1/31/97 19.00 19.36 0.60 1.32 12.41
- --------------------------------------------------------------------------------
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 $2.81 $6.80
================================================================================
- --------------------------------------------------------------------------------
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 $19.42 $20.63 $0.40 $1.99 18.95%
- --------------------------------------------------------------------------------
1/31/97 19.05 19.42 0.45 1.32 11.60
- --------------------------------------------------------------------------------
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
================================================================================
Total $4.71 $9.27
================================================================================
- --------------------------------------------------------------------------------
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 $19.46 $20.68 $0.40 $1.99 18.97%
- --------------------------------------------------------------------------------
1/31/97 19.08 19.46 0.45 1.32 11.65
- --------------------------------------------------------------------------------
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 $1.90 $5.95
================================================================================
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 7
<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 $19.39 $20.62 $0.61 $1.99 20.31%
- --------------------------------------------------------------------------------
Inception*-- 1/31/97 19.00 19.39 0.49 1.32 11.94+
================================================================================
Total $1.10 $3.31
================================================================================
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 19.89% 18.95% 18.97% 20.31%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/98 14.07 13.21 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/98 N/A 12.79 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/98 14.68 11.50 12.96 17.49
================================================================================
With Sales Charge(2)
---------------------------------------------
Class A Class B Class C Class Y
================================================================================
Year Ended 1/31/98 13.89% 13.95% 17.97% 20.31%
- --------------------------------------------------------------------------------
Five Years Ended 1/31/98 12.90 13.09 N/A N/A
- --------------------------------------------------------------------------------
Ten Years Ended 1/31/98 N/A 12.79 N/A N/A
- --------------------------------------------------------------------------------
Inception* through 1/31/98 13.57 11.50 12.96 17.49
================================================================================
- --------------------------------------------------------------------------------
Cumulative Total Return
- --------------------------------------------------------------------------------
Without Sales Charge(1)
================================================================================
Class A (Inception* through 1/31/98) 104.93%
- --------------------------------------------------------------------------------
Class B (1/31/88 through 1/31/98) 233.16
- --------------------------------------------------------------------------------
Class C (Inception* through 1/31/98) 78.31
- --------------------------------------------------------------------------------
Class Y (Inception* through 1/31/98) 34.68
================================================================================
(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%; Class B shares reflect the deduction
of a 5.00% CDSC, which applies if shares are redeemed less than 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.
+ 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,
February 2, 1987, May 5, 1993 and March 28, 1996, respectively.
- --------------------------------------------------------------------------------
8 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Concert Social Awareness Fund at a Glance (unaudited)
- --------------------------------------------------------------------------------
Growth of $10,000 Invested in Class B Shares of the
Concert Social Awareness Fund vs. the Lehman Government/Corporate Bond Index,
Lehman Government/Corporate Long-Term Bond Index and Standard &Poor's 500 Index+
[LINE GRAPH OMITTED]
+ Hypothetical illustration of $10,000 invested in Class B shares on January
31, 1988, assuming reinvestment of dividends and capital gains, if any, at
net asset value through January 31, 1998. 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 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 values may be more or less than the original cost. No
adjustment has been made for shareholder tax liability on dividends or
capital gains.
Industry Diversification*
- --------------------------------------------------------------------------------
[THE FOLLOWING CHART WAS DEPICTED IN A BAR GRAPH IN THE PRINTED MATERIAL]
Basic Materials 5.4%
Communication Services 3.4%
Consumer Cyclicals 22.0%
Consumer Staples 8.7%
Financial Services 23.6%
Healthcare 9.6%
Technology 19.4%
Transportation 2.8%
Utilities 5.1%
* As a percentage of total common stock.
Investment Breakdown
- --------------------------------------------------------------------------------
[THE FOLLOWING CHART WAS DEPICTED IN A PIE GRAPH IN THE PRINTED MATERIAL]
1.7% Repurchase Agreement
5.1% Mortgage-Backed Securities
11.7% Corporate Bonds and Notes
1.8% Asset-Backed Securities
67.1% Common Stock
12.6% U.S. Government Obligations
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 9
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments January 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 67.1%
Basic Materials -- 3.7%
75,000 Aluminum Co. of America $ 5,728,125
200,000 Engelhard Corp. 3,350,000
115,000 Praxair, Inc. 4,765,312
- --------------------------------------------------------------------------------
13,843,437
- --------------------------------------------------------------------------------
Communication Services -- 2.3%
93,200 MCI Communications Corp. 4,327,975
125,000 WorldCom Inc.+ 4,476,563
- --------------------------------------------------------------------------------
8,804,538
- --------------------------------------------------------------------------------
Consumer Cyclicals -- 14.7%
30,000 Black & Decker Corp. 1,445,625
93,600 Dollar General Corp. 3,404,700
17,200 Fleetwood Enterprises, Inc. 715,950
80,000 Home Depot, Inc. 4,825,000
193,400 Kaufman & Broad Home Corp. 4,980,050
104,700 Liz Clairborne, Inc. 4,240,350
110,000 Lowes Cos. 5,561,875
90,500 May Department Stores Co. 4,756,906
14,352 Payless ShoeSource, Inc.+ 933,777
55,000 Pep Boys - Manny, Moe & Jack 1,203,125
51,800 Philips Electronics N.V.@ 3,451,175
60,000 Pitney Bowes, Inc. 2,752,500
50,000 Rite Aid Corp. 3,121,875
70,000 Staples, Inc.+@ 1,907,500
25,000 Sylvan Learning Systems, Inc.+ 987,500
55,100 Toys "R" Us, Inc.+ 1,477,369
67,000 VF Corp. 2,864,250
92,000 Wal-Mart Corp. 3,668,500
151,000 Wendy's International, Inc. 3,369,187
- --------------------------------------------------------------------------------
55,667,214
- --------------------------------------------------------------------------------
Consumer Staples -- 5.8%
194,000 American Stores Co. 4,219,500
97,400 Kroger Co.+ 3,810,775
65,000 Newell Co. 2,669,062
2,500 Stryker Corp. 92,344
124,000 Sysco Corp. 5,549,000
100,000 Unilever N.V. 5,706,250
- --------------------------------------------------------------------------------
22,046,931
- --------------------------------------------------------------------------------
Financial Services -- 15.9%
45,000 Ace Ltd. 4,187,813
70,547 Allstate Corp. 6,243,410
50,000 American Express Co. 4,184,375
60,000 Associates First Capital Corp., Class A shares 4,080,000
50,622 BankAmerica Corp. 3,597,326
35,000 Bank of Boston Corp. 3,132,500
49,000 Bay Apartment Communities, Inc. 1,858,938
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
10 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) January 31, 1998
- --------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
Financial Services -- 15.9% (continued)
62,088 Chase Manhattan Corp. $ 6,655,058
105,200 Federal Home Loan Mortgage Corp. 4,681,400
64,800 H. F. Ahmanson & Co.@ 3,778,650
25,000 Hartford Financial Services, Inc. 2,250,000
30,900 J.P. Morgan & Co. 3,126,694
42,200 Lincoln National Corp. 3,194,012
30,000 Provident Cos., Inc. 1,091,250
50,400 St. Paul Cos., Inc. 4,384,800
32,000 Transamerica Corp. 3,288,000
- --------------------------------------------------------------------------------
59,734,226
- --------------------------------------------------------------------------------
Healthcare -- 6.4%
50,000 Amgen, Inc. 2,500,000
150,000 DENTSPLY International Inc. 4,462,500
55,000 Johnson & Johnson 3,681,563
98,000 Schering-Plough Corp. 7,092,750
190,500 Tenet Healthcare Corp.+ 6,572,250
- --------------------------------------------------------------------------------
24,309,063
- --------------------------------------------------------------------------------
Technology -- 13.0%
60,000 Automatic Data Processing, Inc. 3,588,750
97,500 Cisco Systems, Inc.+ 6,148,594
200,000 Compaq Computer Corp. 6,012,500
97,500 Computer Associates International, Inc. 5,185,781
170,000 EMC Corp.+@ 5,535,625
20,000 Intel Corp. 1,620,000
54,800 International Business Machines Corp. 5,408,075
72,963 Lucent Technologies, Inc. 6,457,225
45,000 Motorola, Inc. 2,674,687
80,000 Xerox Corp. 6,430,000
- --------------------------------------------------------------------------------
49,061,237
- --------------------------------------------------------------------------------
Transportation -- 1.9%
75,000 Mesaba Holdings, Inc.+ 2,175,000
60,000 Norfolk Southern Corp. 1,893,750
112,500 Southwest Airlines Co. 2,932,031
- --------------------------------------------------------------------------------
7,000,781
- --------------------------------------------------------------------------------
Utilities -- 3.4%
121,100 Enron Corp. 5,018,081
28,000 US Filter Corp.@ 910,000
25,000 Western Atlas Inc.+ 1,557,812
190,000 Williams Cos., Inc.@ 5,415,000
- --------------------------------------------------------------------------------
12,900,893
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost-- $162,980,702) 253,368,320
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 11
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) January 31, 1998
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
U.S. GOVERNMENT OBLIGATIONS -- 12.6%
$ 1,450,000 U.S. Treasury Notes, 5.375% due 5/31/98 $ 1,450,217
9,400,000 U.S. Treasury Notes, 6.375% due 1/15/99 9,487,044
2,000,000 U.S. Treasury Notes, 5.625% due 10/31/99 2,009,180
750,000 U.S. Treasury Notes, 7.125% due 2/29/00 775,913
4,400,000 U.S. Treasury Notes, 6.250% due 8/31/00 4,493,984
2,000,000 U.S. Treasury Notes, 6.250% due 10/31/01 2,056,060
3,000,000 U.S. Treasury Notes, 5.875% due 11/30/01 3,047,340
2,978,000 U.S. Treasury Notes, 6.375% due 8/15/02 3,092,117
3,000,000 U.S. Treasury Notes, 6.500% due 10/15/06 3,190,020
1,000,000 U.S. Treasury Bonds, 7.125% due 2/15/23 1,159,150
16,300,000 U.S. Treasury Bonds, 6.000% due 2/15/26 16,566,342
================================================================================
TOTAL U. S. GOVERNMENT OBLIGATIONS
(Cost-- $44,807,113) 47,327,367
================================================================================
CORPORATE BONDS AND NOTES -- 11.7%
Financial Services -- 6.9%
2,000,000 American Express, Sr. Notes,
6.750% due 6/23/04 2,077,500
2,500,000 Associates Corp. North American, Notes,
7.250% due 9/1/99 2,552,900
2,000,000 Bankers Trust Capital Trust B, 7.750%
due 12/1/26++ 2,035,000
2,000,000 Chase Manhattan Corp., Sr. Notes,
5.875% due 8/4/99 2,005,000
2,000,000 Countrywide Home Loan, Medium Term Notes,
6.380% due 10/8/02 2,025,000
2,000,000 Dean Witter Discover & Co., Notes,
6.000% due 3/1/98 2,000,680
1,000,000 First USA Bank, Notes, 6.375% due 10/23/00 1,015,000
3,000,000 Household Finance Corp., Sr. Notes,
7.510% due 3/10/98 3,005,820
2,000,000 John Deere Capital Corp., Medium Term Notes,
5.300% due 4/15/98 1,999,660
1,000,000 Merrill Lynch & Co., Inc., Notes, 6.000%
due 1/15/01 1,006,250
2,000,000 Pitney Bowes Credit Corp., Notes, 5.650%
due 1/15/03 1,987,500
2,000,000 Swiss Bank Corp., 7.375% 6/15/17 2,175,000
2,000,000 Xerox Capital Trust, 8.000% due 2/1/27 2,170,000
- --------------------------------------------------------------------------------
26,055,310
- --------------------------------------------------------------------------------
Industrial -- 3.6%
1,500,000 Case Corp., Notes, 7.250% due 8/1/05 1,578,750
2,000,000 Kroger Co., Sr. Notes, 7.650% due 4/15/07 2,175,000
1,500,000 Lucent Technologies, Inc., Notes, 7.250%
due 7/15/06 1,614,375
2,000,000 Service Corp. International, Senior Notes,
7.000% due 6/1/15 2,082,500
340,424 Southwest Airlines Co., Series 1994-A3,
8.700% due 7/1/11 387,131
1,450,000 Staples Inc., Sr. Notes, 7.125% due 8/15/07 1,511,625
2,000,000 Tenet Healthcare Corp., Sr. Notes, 8.625%
due 12/1/03 2,102,500
2,000,000 Time Warner Inc., 6.100% due 12/30/01++ 1,992,500
- --------------------------------------------------------------------------------
13,444,381
- --------------------------------------------------------------------------------
Utilities -- 1.2%
2,000,000 HNG Internorth, Inc., Notes, 9.625%
due 3/15/06 2,432,500
2,000,000 Norfolk Southern Corp., Debentures, 7.800%
due 5/15/27 2,275,000
- --------------------------------------------------------------------------------
4,707,500
- --------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES
(Cost-- $42,882,733) 44,207,191
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
12 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Schedule of Investments (continued) January 31, 1998
- --------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
================================================================================
ASSET-BACKED SECURITIES -- 1.8%
$ 464,470 Equity Credit Corp., Home Equity Loan Trust,
Series 1993-3, 5.150% due 9/15/08 $ 455,273
174,393 Fannie Mae Remic Pass Thru Certificates,
Series 1993-104, 5.500% due 3/25/98 173,722
1,106,250 Sears Credit Account Master Trust, Series
1994-2A, 7.250% due 1/15/02 1,107,577
2,000,000 Sears Credit Account Master Trust, Series
1995-2A, 8.100% due 6/15/04 2,089,740
3,000,000 Standard Credit Card, Series 1995,
5.900% due 2/7/01 3,005,370
================================================================================
TOTAL ASSET-BACKED SECURITIES
(Cost-- $6,740,101) 6,831,682
- --------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 5.1%
8,729 Federal Home Loan Mortgage Corp., 6.250%
due 7/1/02 8,775
28,259 Federal Home Loan Mortgage Corp., 8.500%
due 12/1/02 29,707
35,798 Federal National Mortgage Association,
5.500% due 3/1/99 34,735
2,910,956 Federal National Mortgage Association,
7.500% due 10/1/09 2,999,187
1,784,579 Federal National Mortgage Association,
6.000% due 2/1/11 1,769,517
112,063 Federal National Mortgage Association,
8.000% due 7/1/24 116,370
4,991,075 Federal National Mortgage Association,
6.500% due 11/1/27 4,969,214
4,995,865 Federal National Mortgage Association,
6.500% due 1/1/28 4,973,983
4,521,535 Government National Mortgage Association,
6.500% due 4/15/26 4,507,382
- --------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost-- $18,865,262) 19,408,870
================================================================================
REPURCHASE AGREEMENT -- 1.7%
6,591,000 Goldman, Sachs & Co., 5.54% due 2/2/98;
Proceeds at maturity -- $6,594,042; (Fully
collateralized by U.S. Treasury Notes,
5.750% due 11/15/00; Market value--
$6,725,974) ( Cost-- $6,591,000) 6,591,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $282,866,911*) $377,734,430
================================================================================
+ Non-income producing security.
++ Security is exempt from registration under Rule 144A of the Securities act
of 1933 . This security may be resold in transactions that are exempt from
registration, normally to qualified institutional buyers.
# Variable rate note - interest rate resets quarterly.
@ A portion of this security is on loan (Note 7).
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 13
<PAGE>
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities January 31, 1998
- --------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost-- $282,866,911) $377,734,430
Cash 554
Collateral for securities loaned (Note 7) 21,934,000
Interest receivable 1,831,402
Receivable for securities sold 9,602,012
Receivable for Fund shares sold 523,665
Dividends receivable 134,135
- --------------------------------------------------------------------------------
Total Assets 411,760,198
- --------------------------------------------------------------------------------
LIABILITIES:
Payable for securities loaned (Note 7) 21,934,000
Payable for securities purchased 7,625,269
Payable for Fund shares purchased 279,572
Investment advisory fees payable 168,638
Administration fees payable 61,323
Distribution fees payable 35,618
Accrued expenses 121,318
- --------------------------------------------------------------------------------
Total Liabilities 30,225,738
- --------------------------------------------------------------------------------
Total Net Assets $381,534,460
================================================================================
NET ASSETS:
Par value of shares of beneficial interest $ 18,523
Capital paid in excess of par value 283,351,466
Undistributed net investment income 21,900
Accumulated net realized gain from security transactions,
options and futures contracts 3,275,052
Net unrealized appreciation of investments 94,867,519
- --------------------------------------------------------------------------------
Total Net Assets $381,534,460
================================================================================
Shares Outstanding:
Class A 9,822,231
-----------------------------------------------------------------------------
Class B 8,343,093
-----------------------------------------------------------------------------
Class C 346,895
-----------------------------------------------------------------------------
Class Y 10,688
-----------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $20.57
-----------------------------------------------------------------------------
Class B* $20.63
-----------------------------------------------------------------------------
Class C** $20.68
-----------------------------------------------------------------------------
Class Y (and redemption price) $20.62
-----------------------------------------------------------------------------
Class A Maximum Public Offering Price Per Share
(net asset value plus 5.26% of net asset value) $21.65
================================================================================
* 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.
- --------------------------------------------------------------------------------
14 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations For the Year Ended January 31, 1998
- --------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $10,303,048
Dividends 2,874,806
- --------------------------------------------------------------------------------
Total Investment Income 13,177,854
- --------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 2,299,818
Investment advisory fees (Note 2) 2,036,365
Administration fees (Note 2) 740,496
Shareholder and system servicing fees 412,916
Shareholder communications 136,260
Registration fees 99,723
Audit and legal 49,779
Trustees' fees 19,942
Custody 17,948
Other 5,150
- --------------------------------------------------------------------------------
Total Expenses 5,818,397
- --------------------------------------------------------------------------------
Net Investment Income 7,359,457
- --------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS,
OPTIONS AND FUTURES CONTRACTS (NOTES 3, 5 AND 6):
Realized Gain From:
Security transactions (excluding short-term securities) 27,765,877
Options written 132,250
Futures contracts 14,135
- --------------------------------------------------------------------------------
Net Realized Gain 27,912,262
- --------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of year 64,480,761
End of year 94,867,519
- --------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 30,386,758
- --------------------------------------------------------------------------------
Net Gain on Investments, Options and Futures Contracts 58,299,020
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations $65,658,477
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 15
<PAGE>
- --------------------------------------------------------------------------------
Statements of Changes in Net Assets For the Years Ended January 31,
- --------------------------------------------------------------------------------
1998 1997
================================================================================
OPERATIONS:
Net investment income $ 7,359,457 $ 10,009,777
Net realized gain 27,912,262 29,798,572
Increase in net unrealized appreciation 30,386,758 4,059,203
- --------------------------------------------------------------------------------
Increase in Net Assets From Operations 65,658,477 43,867,552
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (8,605,756) (10,549,573)
Net realized gains (34,146,580) (25,686,983)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Distributions To Shareholders (42,752,336) (36,236,556)
- --------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 59,780,975 31,606,383
Net asset value of shares issued for
reinvestment of dividends 40,529,174 34,034,031
Cost of shares reacquired (126,493,481) (93,222,755)
- --------------------------------------------------------------------------------
Decrease in Net Assets From
Fund Share Transactions (26,183,332) (27,582,341)
- --------------------------------------------------------------------------------
Decrease in Net Assets (3,277,191) (19,951,345)
NET ASSETS:
Beginning of year 384,811,651 404,762,996
- --------------------------------------------------------------------------------
End of year* $381,534,460 $384,811,651
================================================================================
* Includes undistributed net investment
income of: $21,900 $1,049,534
================================================================================
See Notes to Financial Statements.
- --------------------------------------------------------------------------------
16 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
The Concert Social Awareness Fund ("Fund"), a separate investment fund of 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 Growth and Income 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 in
national securities markets are valued at the closing prices in the primary
exchange on which they are traded 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
agency and obligations are valued at the mean between the bid and asked prices;
(c) securities maturing within 60 days are valued at cost plus accreted
discount, or minus amortized premium, which approximates value; (d) dividend
income is recorded on the ex-dividend date; foreign dividends are recorded on
the ex-dividend date or as soon as practical after the Fund determines the
existence of a dividend declaration after exercising reasonable due diligence;
(e) interest income is recorded on an accrual basis including the amortization
of premium and the accretion of discount, where applicable; (f) gains and 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
distribution 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.
2. Investment Advisory Agreement, Administration Agreement and Other
Transactions
Smith Barney Strategy Advisors Inc. ("SBSA"), a subsidiary of Mutual Management
Corp. ("MMC"), for-
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 17
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
merly known as Smith Barney Mutual Funds Management Inc. which, in turn, is a
subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"), 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.
MMC also acts 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 SSBH, acts as distributor of
Trust shares and primary broker for its portfolio agency transactions. For the
year ended January 31, 1998, SB received sales charges of $241,000 on sales of
the Fund's Class A shares and brokerage commissions of $7,578.
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 year ended January 31, 1998, CDSCs paid to SB for Class B
shares were approximately $281,000.
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and C shares calculated at an 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 an annual rate of 0.75% of
the average daily net assets for each class, respectively. For the year ended
January 31, 1998, total Distribution Plan fees incurred were:
Class A Class B Class C
================================================================================
Distribution Plan Fees $467,786 $1,779,212 $52,820
================================================================================
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 $218,835,331
- --------------------------------------------------------------------------------
Sales 234,827,498
================================================================================
At January 31, 1998, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were substantially
as follows:
================================================================================
Gross unrealized appreciation $96,923,466
Gross unrealized depreciation (2,055,947)
- --------------------------------------------------------------------------------
Net unrealized appreciation $94,867,519
================================================================================
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. 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
- --------------------------------------------------------------------------------
18 1998 Annual Report to Shareholders
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
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.
6. Options Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily. When a purchased 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 sales 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
originally paid.
At January 31, 1998, the Fund had no open purchased call or put options.
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 written 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 a written index option
is 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.
The following written call option transactions occurred during the year ended
January 31, 1998:
Number of
Contracts Premium
================================================================================
Options written, outstanding at January 31, 1997 -- --
Options written during the year ended January 31, 1998 1,000 $ 1,290,875
Options cancelled in closing purchase transactions (1,000) (1,290,875)
- --------------------------------------------------------------------------------
Options written, outstanding at January 31, 1998 -- --
================================================================================
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 19
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
7. 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, and receives a lenders fee. Fees earned by the Fund on securities
lending are recorded in 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
$20,998,067 and holds the following collateral for loaned securities:
Security Description Value
================================================================================
Mercantile Bank Time Deposit, 5.656% due 2/2/98 $ 1,837,373
Svenska Handelsbanken, 5.594% due 2/2/98 1,469,747
Goldman, Sachs & Co. Repurchase Agreement, 5.650% due 2/2/98 15,411,478
Morgan Stanley Repurchase Agreement, 5.640% due 2/2/98 3,215,402
- --------------------------------------------------------------------------------
Total $21,934,000
================================================================================
8. 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 $162,646,101 $113,952,450 $6,560,748 $210,690
================================================================================
- --------------------------------------------------------------------------------
20 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 1,563,683 $ 31,928,326 765,757 $ 14,636,058
Shares issued on reinvestment 1,069,265 21,700,037 853,742 16,284,236
Shares redeemed (2,007,566) (40,819,586) (1,633,537) (31,295,560)
- ----------------------------------------------------------------------------------------
Net Increase (Decrease) 625,382 $(12,808,777 (14,038) $ (375,266)
========================================================================================
Class B
Shares sold 1,152,327 $ 23,614,622 794,793 $ 15,242,197
Shares issued on reinvestment 891,901 18,139,669 908,864 17,375,708
Shares redeemed (4,134,755) (83,754,507) (3,153,244) (60,500,586)
- ----------------------------------------------------------------------------------------
Net Decrease (2,090,527) $(42,000,216) (1,449,587) $(27,882,681)
========================================================================================
Class C
Shares sold 203,584 $ 4,187,186 78,020 $ 1,597,496
Shares issued on reinvestment 32,848 670,182 24,149 364,156
Shares redeemed (95,115) (1,919,388) (74,564) (1,426,609)
- ----------------------------------------------------------------------------------------
Net Increase 141,317 $ 2,937,980 27,605 $ 535,043
========================================================================================
Class Y
Shares sold 2,360 $ 50,841 6,860 $ 130,632
Shares issued on reinvestment 948 19,286 520 9,931
Shares redeemed -- -- -- --
- ----------------------------------------------------------------------------------------
Net Increase 3,308 $ 70,127 7,380 $ 140,563
========================================================================================
</TABLE>
* For Class Y shares, transactions are for the period from March 28, 1996
(inception date) to January 31, 1997.
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 21
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
For a share of each class of beneficial interest outstanding throughout each
year:
<TABLE>
<CAPTION>
Class A Shares 1998 1997 1996 1995 1994(1)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $19.36 $19.00 $15.91 $17.72 $16.85
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.48 0.57 0.61 0.57 0.52
Net realized and unrealized gain (loss) 3.27 1.71 3.52 (1.25) 2.37
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.75 2.28 4.13 (0.68) 2.89
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.55) (0.60) (0.52) (0.47) (0.56)
Net realized gains (1.99) (1.32) (0.52) (0.66) (1.46)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions (2.54) (1.92) (1.04) (1.13) (2.02)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.57 $19.36 $19.00 $15.91 $17.72
- ---------------------------------------------------------------------------------------------------------------
Total Return 19.89% 12.41% 26.47% (3.82)% 17.80%
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $202,026 $178,072 $175,007 $159,247 $6,216
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.19% 1.28% 1.21% 1.33% 1.25%
Net investment income 2.34 2.98 3.10 2.89 2.85
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 68% 81% 103% 131%
- ---------------------------------------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
22 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 1995 1994(1)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $19.42 $19.05 $15.97 $17.79 $16.84
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.33 0.43 0.49 0.39 0.38
Net realized and unrealized gain (loss) 3.27 1.71 3.53 (1.20) 2.37
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.60 2.14 4.02 (0.81) 2.75
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.40) (0.45) (0.42) (0.35) (0.34)
Net realized gains (1.99) (1.32) (0.52) (0.66) (1.46)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions (2.39) (1.77) (0.94) (1.01) (1.80)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.63 $19.42 $19.05 $15.97 $17.79
- ---------------------------------------------------------------------------------------------------------------
Total Return 18.95% 11.60% 25.58% (4.54)% 16.88%
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $172,115 $202,597 $226,360 $216,035 $334,408
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.95% 2.03% 1.94% 2.00% 1.98%
Net investment income 1.62 2.23 2.37 2.21 2.11
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 68% 81% 103% 131%
- ---------------------------------------------------------------------------------------------------------------
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.
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 23
<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 1995(1) 1994(2)(3)
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $19.46 $19.08 $15.97 $17.79 $17.54
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.34 0.44 0.45 0.38 0.32
Net realized and unrealized gain (loss) 3.27 1.71 3.60 (1.19) 1.67
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 3.61 2.15 4.05 (0.81) 1.99
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.40) (0.45) (0.42) (0.35) (0.28)
Net realized gains (1.99) (1.32) (0.52) (0.66) (1.46)
- ---------------------------------------------------------------------------------------------------------------
Total Distributions (2.39) (1.77) (0.94) (1.01) (1.74)
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $20.68 $19.46 $19.08 $15.97 $17.79
- ---------------------------------------------------------------------------------------------------------------
Total Return 18.97% 11.65% 25.77% (4.54)% 11.83%++
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $7,173 $4,000 $3,396 $1,972 $399
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.93% 2.01% 1.94% 1.98% 1.93%+
Net investment income 1.54 2.25 2.31 2.24 2.16+
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 68% 81% 103% 131%
- ---------------------------------------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions(4) $0.06 $0.06 $0.06 -- --
===============================================================================================================
</TABLE>
(1) On November 7, 1994, the former Class D shares were renamed Class C shares.
(2) 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.
(3) For the period from May 5, 1993 (inception date) to January 31, 1994.
(4) 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.
- --------------------------------------------------------------------------------
24 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(1)
================================================================================
Net Asset Value, Beginning of Year $19.39 $19.00
- --------------------------------------------------------------------------------
Income From Operations:
Net investment income 0.56 0.51
Net realized and unrealized gain 3.27 1.69
- --------------------------------------------------------------------------------
Total Income From Operations 3.83 2.20
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.61) (0.49)
Net realized gains (1.99) (1.32)
- --------------------------------------------------------------------------------
Total Distributions (2.60) (1.81)
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $20.62 $19.39
- --------------------------------------------------------------------------------
Total Return 20.31% 11.94%++
- --------------------------------------------------------------------------------
Net Assets, End of Year (000s) $220 $143
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.84% 0.90%+
Net investment income 2.64 3.31+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 68%
- --------------------------------------------------------------------------------
Average commissions per share
paid on equity transactions $0.06 $0.06
================================================================================
(1) For the period from March 28, 1996 (inception date) to January 31, 1997.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 25
<PAGE>
- --------------------------------------------------------------------------------
Independent Auditors' Report
- --------------------------------------------------------------------------------
The Shareholders and Board of Trustees of
Smith Barney Equity Funds:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Concert Social Awareness 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
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 or sold but not yet received or delivered, 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
Concert Social Awareness 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
- --------------------------------------------------------------------------------
26 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 31.67% 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 $34,146,580:
$16,241,579 are considered "28 percent rate gains".
$17,905,001 are considered "20 percent rate gains".
A total of 29.85% of the ordinary dividends paid by the Fund from net investment
income are derived from Federal obligations and may be exempt from taxation at
the state level.
- --------------------------------------------------------------------------------
Concert Social Awareness Fund 27
<PAGE>
Concert Social
Awareness 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
Robert J. Brady, CFA
Investment Officer
Ellen S. Cammer
Investment Officer
Thomas M. Reynolds
Controller
Christina T. Sydor
Secretary
[LOGO]
[RECYCLE LOGO] Because we care about the environment, this annual report has
been printed with soy-based inks on 30% post-consumer recycled
paper, deinked using a non-chlorine bleach process.
Investment Adviser
Smith Barney Strategy Advisers Inc.
Administrator
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 Concert
Social Awareness 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
- ------------
A Member of TravelersGroup [LOGO]
Concert Social Awareness Fund
Smith Barney Mutual Funds
388 Greenwich Street
New York, New York 10013
www.smithbarney.com
FD0912 3/98
