UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4757
SMITH BARNEY SECTOR SERIES INC.
(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
(Address of principal executive offices) (Zip code)
Christina T. Sydor, Esq.
300 First Stamford Place
Stamford, CT 06902
(Name and address of agent for service)
Registrant's telephone number, including area code:
(800) 451-2010
Date of fiscal year end: OCTOBER 31
Date of reporting period: APRIL 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The SEMI-ANNUAL Report to Stockholders is filed herewith.
SMITH BARNEY
SECTOR SERIES INC.
SMITH BARNEY
HEALTH SCIENCES FUND
Research Series | Semi-annual report | April 30, 2003
[LOGO OMITTED]
SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED(R)
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(R) is a registered service mark of
Citigroup Global Markets Inc.
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
[GRAPHIC OMITTED] Research Series
Semi-Annual Report o April 30, 2003
SMITH BARNEY HEALTH SCIENCES FUND
SMITH BARNEY FUND MANAGEMENT LLC
Smith Barney Fund Management LLC is the investment manager to the Fund. Citi
Fund Management Inc. is the subadviser. The Fund's management team follows a
systematic and rigorous approach designed to provide appropriate exposure to the
market sector.
FUND OBJECTIVE*
The Fund seeks long-term capital appreciation by investing primarily in common
stocks. The Fund normally invests at least 80% of its assets in securities of
companies principally engaged in the design, manufacture, or sale of products or
services used for or in connection with healthcare or medicine.
FUND FACTS
FUND INCEPTION
- ----------------------
February 28, 2000
WHAT'S INSIDE
Letter From the Chairman .................................................... 1
Schedule of Investments ..................................................... 2
Statement of Assets and Liabilities ......................................... 4
Statement of Operations ..................................................... 5
Statements of Changes in Net Assets ......................................... 6
Notes to Financial Statements ............................................... 7
Financial Highlights ........................................................ 11
- ----------
* Since the Fund focuses its investments on companies involved in the health
sciences, an investment in the Fund may involve a greater degree of risk
than an investment in other mutual funds with greater diversification.
[LOGO OMITTED]
SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED(R)
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(R) is a registered service mark of
Citigroup Global Markets Inc.
Investment Products: Not Fdic Insured o Not Bank Guaranteed o May Lose Value
LETTER FROM THE CHAIRMAN
[GRAPHIC OMITTED]
R. JAY GERKEN
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
DEAR SHAREHOLDER,
The philosopher Bertrand Russell famously remarked that, "Change is one thing,
progress is another." You will notice in the following pages that we have begun
to implement some changes to your shareholder report and we will be reflecting
other changes in future reports. Our aim is to make meaningful improvements in
reporting on the management of your Fund and its performance, not just to enact
change for change's sake. Please bear with us during this transition period.
We know that you have questions about fund managers' decisions and plans, and we
want to be sure that you have easy access to the information you need. Keeping
investors informed is, and always will be, one of my top priorities as Chairman
of your Fund. To that end, we encourage you to go to our website:
www.smithbarneymutualfunds.com(1) where you can find additional insight on your
Fund.
I invite you to read this report in full. Please take the opportunity to talk to
your financial adviser about this report or any other questions or concerns you
have about your Fund and your financial future. As always, thank you for
entrusting your assets to us. We look forward to helping you continue to meet
your financial goals.
Sincerely,
/s/R. JAY GERKEN
- -------------------
R. Jay Gerken
Chairman, President and Chief Executive Officer
MAY 23, 2003
- ----------
(1) MATTERS REFERENCED ARE NOT INCORPORATED BY REFERENCE UNLESS OTHERWISE
STATED.
1 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2003
SHARES SECURITY VALUE
=============================================================================================
COMMON STOCK -- 99.6%
BIOTECHNOLOGY -- 15.0%
74,636 Amgen Inc.* $ 4,575,933
67,600 Enzon Pharmaceuticals, Inc.* 927,472
21,000 Genentech, Inc.* 797,790
8,810 Genzyme Corp.* 354,867
35,488 Gilead Sciences, Inc.* 1,637,416
9,700 IDEC Pharmaceuticals Corp.* 317,675
- ---------------------------------------------------------------------------------------------
8,611,153
- ---------------------------------------------------------------------------------------------
HOSPITAL NURSING MANAGEMENT -- 3.5%
52,200 HCA Inc. 1,675,620
24,100 Tenet Healthcare Corp.* 357,644
- ---------------------------------------------------------------------------------------------
2,033,264
- ---------------------------------------------------------------------------------------------
MAJOR PHARMACEUTICALS -- 50.0%
104,812 Abbott Laboratories 4,258,511
29,600 Biovail Corp.* 1,070,040
46,998 Bristol-Myers Squibb Co. 1,200,329
43,904 Eli Lilly & Co. 2,801,953
99,944 Johnson & Johnson 5,632,844
49,214 Merck & Co. Inc. 2,863,271
186,678 Pfizer Inc. 5,740,348
25,800 Teva Pharmaceutical Industries Ltd., Sponsored ADR 1,204,860
91,462 Wyeth 3,981,341
- ---------------------------------------------------------------------------------------------
28,753,497
- ---------------------------------------------------------------------------------------------
MANAGED HEALTHCARE -- 3.8%
8,300 Aetna Inc. 413,340
8,200 Anthem, Inc.* 562,848
7,854 UnitedHealth Group Inc. 723,589
6,188 WellPoint Health Networks, Inc.* 469,917
- ---------------------------------------------------------------------------------------------
2,169,694
- ---------------------------------------------------------------------------------------------
MEDICAL/DENTAL DISTRIBUTORS -- 2.5%
15,496 Cardinal Health, Inc. 856,619
20,454 McKesson, Inc. 567,394
- ---------------------------------------------------------------------------------------------
1,424,013
- ---------------------------------------------------------------------------------------------
MEDICAL ELECTRONICS -- 12.8%
26,100 Boston Scientific Corp.* 1,123,605
11,400 Guidant Corp.* 444,486
85,054 Medtronic, Inc. 4,060,478
32,700 St. Jude Medical, Inc. 1,715,442
- ---------------------------------------------------------------------------------------------
7,344,011
- ---------------------------------------------------------------------------------------------
MEDICAL SPECIALTIES -- 5.1%
21,634 Baxter International Inc. 497,582
14,027 Becton, Dickinson & Co. 496,556
5,849 C.R. Bard, Inc. 370,710
34,000 Zimmer Holdings, Inc.* 1,594,600
- ---------------------------------------------------------------------------------------------
2,959,448
- ---------------------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
2 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2003
SHARES SECURITY VALUE
=============================================================================================
OTHER PHARMACEUTICALS -- 4.9%
6,239 Allergan, Inc. $ 438,290
5,400 AmerisourceBergen Corp. 312,390
39,700 Forest Laboratories, Inc.* 2,053,284
- ---------------------------------------------------------------------------------------------
2,803,964
- ---------------------------------------------------------------------------------------------
SERVICES TO THE HEALTH INDUSTRY -- 2.0%
18,700 Alcon, Inc.* 823,735
20,153 IMS Health, Inc. 310,356
- ---------------------------------------------------------------------------------------------
1,134,091
- ---------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost-- $57,949,283) 57,233,135
=============================================================================================
FACE
AMOUNT SECURITY VALUE
=============================================================================================
REPURCHASE AGREEMENT -- 0.4%
$224,000 UBS PaineWebber Inc., 1.330% due 5/1/03; Proceeds at
maturity -- $224,008; (Fully collateralized by Fannie Mae
Bonds, 3.550% due 6/11/04; Market value-- $233,738)
(Cost-- $224,000) 224,000
=============================================================================================
TOTAL INVESTMENTS -- 100%
(Cost-- $58,173,283**) $57,457,135
=============================================================================================
* NON-INCOME PRODUCING SECURITY.
** AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS SUBSTANTIALLY THE SAME.
Abbreviation used in this schedule:
-----------------------------------
ADR -- American Depositary Receipt
SEE NOTES TO FINANCIAL STATEMENTS.
3 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2003
ASSETS:
Investments, at value (Cost-- $58,173,283) $57,457,135
Cash 412
Receivable for securities sold 1,425,409
Receivable for Fund shares sold 53,039
Dividends and interest receivable 41,161
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS 58,977,156
- ---------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares purchased 67,131
Distribution fees payable 37,555
Management fee payable 29,580
Accrued expenses 139,717
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES 273,983
- ---------------------------------------------------------------------------------------------
TOTAL NET ASSETS $58,703,173
=============================================================================================
NET ASSETS:
Par value of capital shares $ 5,860
Capital paid in excess of par value 73,239,149
Accumulated net investment loss (252,218)
Accumulated net realized loss from security transactions (13,573,470)
Net unrealized depreciation of investments (716,148)
- ---------------------------------------------------------------------------------------------
TOTAL NET ASSETS $58,703,173
=============================================================================================
SHARES OUTSTANDING:
Class A 1,584,340
----------------------------------------------------------------------------------------
Class B 2,660,189
----------------------------------------------------------------------------------------
Class L 1,615,374
----------------------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $10.19
----------------------------------------------------------------------------------------
Class B * $9.95
----------------------------------------------------------------------------------------
Class L ** $9.95
----------------------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $10.73
----------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $10.05
=============================================================================================
* REDEMPTION PRICE IS NAV OF CLASS B SHARES REDUCED BY A 5.00% CDSC IF SHARES ARE REDEEMED
WITHIN ONE YEAR FROM PURCHASE (SEE NOTE 2).
** REDEMPTION PRICE IS NAV OF CLASS L SHARES REDUCED BY A 1.00% CDSC IF SHARES ARE REDEEMED
WITHIN THE FIRST YEAR OF PURCHASE (SEE NOTE 2).
SEE NOTES TO FINANCIAL STATEMENTS.
4 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2003
INVESTMENT INCOME:
Dividends $ 336,129
Interest 2,408
- ---------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 338,537
- ---------------------------------------------------------------------------------------------
EXPENSES:
Management fee (Note 2) 230,387
Distribution fees (Note 7) 229,144
Shareholder servicing fees (Note 7) 47,603
Shareholder communications (Note 7) 24,616
Custody 17,856
Audit and legal 14,480
Registration fees 7,240
Directors' fees 5,837
Other 9,412
- ---------------------------------------------------------------------------------------------
TOTAL EXPENSES 586,575
- ---------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (248,038)
- ---------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From Security Transactions (excluding short-term securities):
Proceeds from sales 25,857,484
Cost of securities sold 33,343,670
- ---------------------------------------------------------------------------------------------
NET REALIZED LOSS (7,486,186)
- ---------------------------------------------------------------------------------------------
Change in Net Unrealized Depreciation of Investments:
Beginning of period (10,290,175)
End of period (716,148)
- ---------------------------------------------------------------------------------------------
DECREASE IN NET UNREALIZED DEPRECIATION 9,574,027
- ---------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 2,087,841
- ---------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $ 1,839,803
=============================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
5 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE SIX MONTHS ENDED APRIL 30, 2003 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 2002
2003 2002
=============================================================================================
OPERATIONS:
Net investment loss $ (248,038) $ (839,297)
Net realized loss (7,486,186) (5,535,227)
(Increase) decrease in net unrealized depreciation 9,574,027 (11,767,125)
- ---------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 1,839,803 (18,141,649)
- ---------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 6):
Net realized gains -- (1,075,678)
- ---------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM DISTRIBUTIONS TO SHAREHOLDERS -- (1,075,678)
- ---------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 4,159,098 16,062,165
Net asset value of shares issued for reinvestment of
dividends -- 1,025,003
Cost of shares reacquired (7,235,403) (18,814,714)
- ---------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS (3,076,305) (1,727,546)
- ---------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS (1,236,502) (20,944,873)
NET ASSETS:
Beginning of period 59,939,675 80,884,548
- ---------------------------------------------------------------------------------------------
END OF PERIOD* $58,703,173 $59,939,675
=============================================================================================
* Includes accumulated net investment loss of: $(252,218) $(4,180)
=============================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
6 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Health Sciences Fund ("Fund"), a separate investment fund of
the Smith Barney Sector Series Inc. ("Series"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified, open-end management investment company. The Series consists of
this Fund and two other separate investment funds: Smith Barney Financial
Services Fund and Smith Barney Technology Fund. The financial statements and
financial highlights for the other funds are presented in separate shareholder
reports.
The significant accounting policies 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; securities listed or traded on certain foreign exchanges
or other markets whose operations are similar to the U.S. over-the-counter
market (including securities listed on exchanges where the primary market is
believed to be over-the-counter) and securities for which no sale was reported
on that date are valued at the mean between the bid and asked prices; securities
listed on the NASDAQ National Market System for which market quotations are
available are valued at the official closing price or, if there is no official
closing price on that day, at the last sales price. Securities which are listed
or traded on more than one exchange or market are valued at the quotations on
the exchange or market determined to be the primary market for such securities;
(c) securities for which market quotations are not available will be valued in
good faith at fair market value by or under the direction of the Board of
Directors; (d) securities maturing within 60 days are valued at cost plus
accreted discount, or minus amortized premium, which approximates value; (e) the
accounting records of the Fund 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; (f)
interest income, adjusted for amortization of premium and accretion of discount,
is recorded on an accrual basis; (g) 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; (h) dividends and
distributions to shareholders are recorded on the ex-dividend date; the Fund
distributes dividends and capital gains, if any, annually; (i) gains or losses
on the sale of securities are calculated by using the specific identification
method; (j) direct expenses are charged to each class; management fees and
general Fund expenses are allocated on the basis of relative net assets; (k) 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; (l) the character of income and gains to be
distributed in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America; and
(m) 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, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked-to-market daily,
by recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled. The Fund from time to time may also enter
into options and/or futures contracts to hedge market risk.
7 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary
of Citigroup Inc. ("Citigroup"), acts as investment manager to the Fund. The
management fee is computed at an annual rate of 0.80% of the average daily net
assets. This fee is calculated daily and paid monthly. SBFM has delegated the
daily management of the Fund to Citi Fund Management Inc. ("CFM"), an affiliate
of SBFM. For services provided to the Fund, SBFM pays CFM a subadvisory fee
computed at an annual rate of 0.50% of the Fund's average daily net assets.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Fund's transfer agent. PFPC Global Fund Services ("PFPC") and Primerica
Shareholder Services ("PSS"), another subsidiary of Citigroup, act as the Fund's
sub-transfer agents. CTB receives account fees and asset-based fees that vary
according to the size and type of account. PFPC and PSS are responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and are paid by CTB. For the six months ended April 30, 2003, the Fund paid
transfer agent fees of $29,789 to CTB.
Citigroup Global Markets Inc. ("CGM"), formerly known as Salomon Smith Barney
Inc., and PFS Distributors, Inc., both of which are subsidiaries of Citigroup,
act as the Fund's distributors. In addition, CGM and certain other
broker-dealers continue to sell Fund shares to the public as members of the
selling group. For the six months ended April 30, 2003, CGM and its affiliates
did not receive any brokerage commissions.
There are maximum initial sales charges of 5.00% and 1.00% for Class A shares
and L shares, respectively. 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 L shares also have a 1.00% CDSC, which applies if redemption
occurs within the first year of purchase. In addition, Class A shares 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
$1,000,000 in the aggregate. These purchases do not incur an initial sales
charge.
For the six months ended April 30, 2003, CGM and its affiliates received sales
charges of approximately $40,000 and $2,000 on sales of the Fund's Class A and L
shares, respectively. In addition, for the six months ended April 30, 2003,
CDSCs paid to CGM and its affiliates were approximately $41,000 for Class B
shares.
All officers and one Director of the Series are employees of Citigroup or its
affiliates.
3. Investments
During the six months ended April 30, 2003, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
securities, but excluding short-term securities) were as follows:
================================================================================
Purchases $21,117,221
- --------------------------------------------------------------------------------
Sales 25,857,484
================================================================================
8 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At April 30, 2003, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 4,561,784
Gross unrealized depreciation (5,277,932)
- --------------------------------------------------------------------------------
Net unrealized depreciation $ (716,148)
================================================================================
4. Repurchase Agreements
The Fund purchases (and its custodian takes possession of) U.S. government
securities from 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 (plus accrued interest) of the collateral in amounts at
least equal to the repurchase price.
5. Concentration of Risk
The Fund normally invests at least 80% of its assets in health related
investments. As a result of this concentration policy, the Fund's investments
may be subject to greater risk and market fluctuation than a fund that invests
in securities representing a broader range of investment alternatives.
6. Distributions Paid to Shareholders by Class
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
================================================================================
NET REALIZED GAINS
Class A -- $ 261,497
Class B -- 461,311
Class L -- 352,870
- --------------------------------------------------------------------------------
Total -- $1,075,678
================================================================================
7. Class Specific Expenses
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to its
Class A, B and L shares calculated at the annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B and L shares calculated at the annual rate of 0.75% of
the average daily net assets of each class, respectively. For the six months
ended April 30, 2003, total Distribution Plan fees incurred, which are accrued
daily and paid monthly, were as follows:
CLASS A CLASS B CLASS L
================================================================================
Distribution Plan Fees $19,613 $127,821 $81,710
================================================================================
For the six months ended April 30, 2003, total Shareholder Servicing fees were
as follows:
CLASS A CLASS B CLASS L
================================================================================
Shareholder Servicing Fees $12,976 $21,135 $13,492
================================================================================
For the six months ended April 30, 2003, total Shareholder Communication
expenses were as follows:
CLASS A CLASS B CLASS L
================================================================================
Shareholder Communication Expenses $6,844 $11,019 $6,753
================================================================================
9 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. CAPITAL SHARES
At April 30, 2003, the Fund had 750 million shares of capital stock 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 in the
Fund and has the same rights, except that each class bears certain expenses
specifically related to the distribution of its shares.
Transactions in shares of each class were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2003 OCTOBER 31, 2002
-------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
============================================================================================================
CLASS A
Shares sold 200,422 $ 1,977,085 507,533 $ 5,868,322
Shares issued on reinvestment -- -- 19,429 253,154
Shares reacquired (267,161) (2,635,530) (433,256) (4,948,112)
- ------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (66,739) $ (658,445) 93,706 $ 1,173,364
============================================================================================================
CLASS B
Shares sold 180,974 $ 1,747,079 643,297 $ 7,469,050
Shares issued on reinvestment -- -- 33,569 431,364
Shares reacquired (243,343) (2,331,621) (673,410) (7,315,315)
- ------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (62,369) $ (584,542) 3,456 $ 585,099
============================================================================================================
CLASS L
Shares sold 44,993 $ 434,934 231,847 $ 2,724,793
Shares issued on reinvestment -- -- 26,497 340,485
Shares reacquired (237,030) (2,268,252) (595,558) (6,551,287)
- ------------------------------------------------------------------------------------------------------------
Net Decrease (192,037) $ (1,833,318) (337,214) $(3,486,009)
============================================================================================================
9. SUBSEQUENT EVENT
On January 29, 2003, the Board of Directors of the Series, on behalf of the
Smith Barney Biotechnology Fund ("Biotechnology Fund"), a separate investment
fund of the Series, approved a proposed reorganization pursuant to which the
Fund would acquire the assets and assume the stated liabilities of the
Biotechnology Fund in exchange for shares of the Fund. This reorganization will
allow Biotechnology Fund shareholders to maintain an investment in a fund with
the same investment objective and substantially similar investment policies. On
May 7, 2003, the shareholders of the Biotechnology Fund approved the
reorganization of the Biotechnology Fund into the Fund. The effective date of
the reorganization was May 9, 2003.
10 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
FINANCIAL HIGHLIGHTS
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31, UNLESS OTHERWISE NOTED:
CLASS A SHARES 2003(1)(2) 2002(2) 2001 2000(3)
==========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.84 $12.72 $14.49 $11.40
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4) (0.02) (0.07) (0.08) (0.04)
Net realized and unrealized gain (loss) 0.37 (2.64) (1.29) 3.13
- --------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.35 (2.71) (1.37) 3.09
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.17) (0.40) --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.17) (0.40) --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 10.19 $ 9.84 $ 12.72 $ 14.49
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.56%++ (21.65)% (9.83)% 27.11%++
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $16,152 $16,251 $19,806 $16,980
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5) 1.49%+ 1.49% 1.50% 1.52%+
Net investment loss (0.32)+ (0.58) (0.63) (0.67)+
- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 37% 26% 34% 26%
==========================================================================================================================
CLASS B SHARES 2003(1)(2) 2002(2) 2001 2000(3)
==========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.64 $ 12.56 $ 14.42 $ 11.40
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4) (0.05) (0.15) (0.18) (0.09)
Net realized and unrealized gain (loss) 0.36 (2.60) (1.28) 3.11
- --------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.31 (2.75) (1.46) 3.02
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.17) (0.40) --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.17) (0.40) --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 9.95 $ 9.64 $ 12.56 $ 14.42
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.22%++ (22.25)% (10.51)% 26.49%++
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $26,475 $26,258 $34,146 $28,694
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(6) 2.24%+ 2.24% 2.25% 2.26%+
Net investment loss (1.07)+ (1.33) (1.38) (1.41)+
- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 37% 26% 34% 26%
==========================================================================================================================
(1) FOR THE SIX MONTHS ENDED APRIL 30, 2003 (UNAUDITED).
(2) PER SHARE AMOUNTS HAVE BEEN CALCULATED USING THE MONTHLY AVERAGE SHARES
METHOD.
(3) FOR THE PERIOD FROM FEBRUARY 28, 2000 (INCEPTION DATE) TO OCTOBER 31, 2000.
(4) THE MANAGER WAIVED A PORTION OF ITS FEES FOR THE YEAR ENDED OCTOBER 31,
2001 AND FOR THE PERIOD ENDED OCTOBER 31, 2000. IF SUCH FEES WERE NOT
WAIVED, THE PER SHARE INCREASES TO NET INVESTMENT LOSS AND THE ACTUAL
EXPENSE RATIOS WOULD HAVE BEEN AS FOLLOWS:
Per Share Increases to Expense Ratios
Net Investment Loss Without Fee Waivers
------------------------ -----------------------
2001 2000 2001 2000
------ ------ ------ ------
Class A Shares $0.01 $0.00* 1.53% 1.94%+
Class B Shares 0.00* 0.01 2.28 2.68+
(5) AS A RESULT OF VOLUNTARY EXPENSE LIMITATIONS, THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WILL NOT EXCEED 1.50% FOR CLASS A SHARES.
(6) AS A RESULT OF VOLUNTARY EXPENSE LIMITATIONS, THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WILL NOT EXCEED 2.25% FOR CLASS B SHARES.
* AMOUNT REPRESENTS LESS THAN $0.01 PER SHARE.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.
+ ANNUALIZED.
11 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR
ENDED OCTOBER 31, UNLESS OTHERWISE NOTED:
CLASS L SHARES 2003(1)(2) 2002(2) 2001 2000(3)
==========================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $9.64 $12.56 $14.42 $11.40
- --------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4) (0.05) (0.15) (0.18) (0.09)
Net realized and unrealized gain (loss) 0.36 (2.60) (1.28) 3.11
- --------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.31 (2.75) (1.46) 3.02
- --------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net realized gains -- (0.17) (0.40) --
- --------------------------------------------------------------------------------------------------------------------------
Total Distributions -- (0.17) (0.40) --
- --------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.95 $ 9.64 $12.56 $14.42
- --------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 3.22%++ (22.25)% (10.51)% 26.49%++
- --------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $16,076 $17,431 $26,932 $26,273
- --------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(5) 2.24%+ 2.24% 2.25% 2.27%+
Net investment loss (1.06)+ (1.33) (1.37) (1.42)+
- --------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 37% 26% 34% 26%
==========================================================================================================================
(1) FOR THE SIX MONTHS ENDED APRIL 30, 2003 (UNAUDITED).
(2) PER SHARE AMOUNTS HAVE BEEN CALCULATED USING THE MONTHLY AVERAGE SHARES
METHOD.
(3) FOR THE PERIOD FROM FEBRUARY 28, 2000 (INCEPTION DATE) TO OCTOBER 31, 2000.
(4) THE MANAGER WAIVED A PORTION OF ITS FEES FOR THE YEAR ENDED OCTOBER 31,
2001 AND FOR THE PERIOD ENDED OCTOBER 31, 2000. IF SUCH FEES WERE NOT
WAIVED, THE PER SHARE INCREASES TO NET INVESTMENT LOSS AND THE ACTUAL
EXPENSE RATIOS WOULD HAVE BEEN AS FOLLOWS:
Per Share Increases to Expense Ratios
Net Investment Loss Without Fee Waivers
------------------------ -----------------------
2001 2000 2001 2000
------ ------ ------ ------
Class L Shares $0.00* $0.01 2.28% 2.68%+
(5) AS A RESULT OF VOLUNTARY EXPENSE LIMITATIONS, THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WILL NOT EXCEED 2.25% FOR CLASS L SHARES.
* AMOUNT REPRESENTS LESS THAN $0.01 PER SHARE.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR. + ANNUALIZED.
12 SMITH BARNEY SECTOR SERIES INC. | 2003 Semi-Annual Report to Shareholders
SMITH BARNEY
HEALTH SCIENCES FUND
DIRECTORS
Herbert Barg
Dwight B. Crane
Burt N. Dorsett
R. Jay Gerken, Chairman
Elliot S. Jaffe
Stephen E. Kaufman Joseph J. McCann
Cornelius C. Rose, Jr.
OFFICERS
R. Jay Gerken
President and Chief
Executive Officer
Lewis E. Daidone
Senior Vice President and
Chief Administrative Officer
Richard L. Peteka
Chief Financial Officer
and Treasurer
Kaprel Ozsolak
Controller
Christina T. Sydor
Secretary
INVESTMENT MANAGER
Smith Barney Fund Management LLC
INVESTMENT SUB-ADVISER
Citi Fund Management Inc.
DISTRIBUTORS
Citigroup Global Markets Inc.
PFS Distributors, Inc.
CUSTODIAN
State Street Bank and
Trust Company
TRANSFER AGENT
Citicorp Trust Bank, fsb.
125 Broad Street, 11th Floor
New York, New York 10004
SUB-TRANSFER AGENTS
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island
02940-9699
Primerica Shareholder Services
P.O. Box 9662
Providence, Rhode Island
02940-9662
SMITH BARNEY HEALTH SCIENCES FUND
- --------------------------------------------------------------------------------
This report is submitted for the general information of the shareholders of
Smith Barney Sector Series Inc. -- Smith Barney Health Sciences Fund, but it may
also be used as sales literature when preceded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after July 31,
2003, this report must be accompanied by performance information for the most
recently completed calendar quarter.
SMITH BARNEY HEALTH SCIENCES FUND
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
For complete information on any Smith Barney Mutual Funds, including management
fees and expenses, call or write your financial professional for a free
prospectus. Read it carefully before you invest or send money.
WWW.SMITHBARNEYMUTUALFUNDS.COM
(C)2003 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02553 6/03 03-4964
ITEM 2. CODE OF ETHICS.
Not applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-2(c) under the Investment Company
Act of 1940, as amended) are effective based on their evaluation of
the disclosure controls and procedures as of a date within 90 days
of the filing date of this document.
(b) In the last 90 days, there have been no significant changes in the
Registrant's internal controls or in other factors that could
significantly affect these controls.
ITEM 10. EXHIBITS.
(a) Not applicable.
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302 of the
Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this Report to be
signed on its behalf by the undersigned, there unto duly authorized.
SMITH BARNEY SECTOR SERIES INC.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Smith Barney Sector Series Inc.
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
(R. Jay Gerken)
Chief Executive Officer of
Smith Barney Sector Series Inc.
Date:
By: /s/ RICHARD PETEKA
Chief Financial Officer of
Smith Barney Sector Series Inc.
Date: