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)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
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, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
The Semi-Annual Report to Stockholders is filed herewith.
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SMITH BARNEY
SECTOR SERIES INC.
SMITH BARNEY
TECHNOLOGY FUND
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RESEARCH SERIES | SEMI-ANNUAL REPORT | APRIL 30, 2004
[LOGO] 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.
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NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
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[Graphic] Research Series
Semi-Annual Report o April 30, 2004
SMITH BARNEY
TECHNOLOGY FUND
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WHAT'S INSIDE
LETTER FROM THE CHAIRMAN .................................................. 1
SCHEDULE OF INVESTMENTS ................................................... 4
STATEMENT OF ASSETS AND LIABILITIES ....................................... 6
STATEMENT OF OPERATIONS ................................................... 7
STATEMENTS OF CHANGES IN NET ASSETS ....................................... 8
NOTES TO FINANCIAL STATEMENTS ............................................. 9
FINANCIAL HIGHLIGHTS ...................................................... 14
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SMITH BARNEY FUND MANAGEMENT LLC
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Smith Barney Fund Management LLC is the investment manager to the fund.
Citigroup Asset Management Ltd. is the subadviser. The fund's management team
follows a systematic and rigorous approach designed to provide appropriate
exposure to the market sector.
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FUND OBJECTIVE*
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The fund seeks long-term capital appreciation by investing primarily in common
stocks. The fund invests at least 80% of its assets in securities of companies
principally engaged in offering, using or developing products, processes or
services that will provide or will benefit significantly from technological
advances and improvements.
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FUND FACTS
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FUND INCEPTION
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February 28, 2000
* Since the fund focuses its investments on companies involved in the technology
industries, an investment in the fund may involve a greater degree of risk
than an investment in other mutual funds with greater diversification.
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LETTER FROM THE CHAIRMAN
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[PHOTO]
R. JAY GERKEN, CFA
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
DEAR SHAREHOLDER,
Over the six month period ended April 30, 2004, most broad U.S. stock and bond
market indexes posted moderate gains. Stocks generally continued to outpace
bonds, with large-capitalization stocks typically outperforming small- and
mid-cap stocks and international stock markets generally outperforming the
domestic stock market. The economic environment was dominated by uncertainty
surrounding the sustainability of the domestic economic recovery, a continued
focus on new job growth and a geopolitical environment centering on news from
Iraq and new acts of terrorism.
Since the start of 2004, markets have been in a holding pattern -- volatility
declined and returns were relatively muted. Equity markets seem to have priced
in prospects of continued economic recovery and, in general, they were not
disappointed. Both bond market and stock market participants were a bit unnerved
by prospects for U.S. Federal Reserve Board ("Fed") tightening of key interest
rates at some unknown future date, the continuing turmoil in Iraq, and the March
2004 bombings in Spain. Each of these elements had a negative influence on the
stock market. Despite these concerns, however,
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PERFORMANCE SNAPSHOT
AS OF APRIL 30, 2004
(EXCLUDING SALES CHARGES)
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6 MONTHS
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Class A Shares -3.32%
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Russell 3000 Index 6.14%
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Goldman Sachs Technology Index -3.58%
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Lipper Science & Technology Funds Category Average -4.43%
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THE PERFORMANCE SHOWN REPRESENTS PAST PERFORMANCE. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS AND CURRENT PERFORMANCE MAY BE HIGHER OR LOWER THAN
THE PERFORMANCE SHOWN ABOVE. PERFORMANCE FIGURES MAY REFLECT FEE WAIVERS AND/OR
EXPENSE REIMBURSEMENTS, IF ANY. IN THE ABSENCE OF FEE WAIVERS AND/OR EXPENSE
REIMBURSEMENTS, IF ANY, THE TOTAL RETURN WOULD BE REDUCED. PRINCIPAL VALUE AND
INVESTMENT RETURNS WILL FLUCTUATE AND INVESTORS' SHARES, WHEN REDEEMED, MAY BE
WORTH MORE OR LESS THAN THEIR ORIGINAL COST. TO OBTAIN PERFORMANCE DATA CURRENT
TO THE MOST RECENT MONTH-END, PLEASE VISIT OUR WEBSITE AT
WWW.SMITHBARNEYMUTUALFUNDS.COM.
CLASS A SHARE RETURNS ASSUME THE REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL
GAINS DISTRIBUTIONS AT NET ASSET VALUE AND THE DEDUCTION OF ALL FUND EXPENSES.
RETURNS HAVE NOT BEEN ADJUSTED TO INCLUDE SALES CHARGES THAT MAY APPLY WHEN
SHARES ARE PURCHASED OR THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON
FUND DISTRIBUTIONS. EXCLUDING SALES CHARGES, CLASS B SHARES RETURNED -3.67% AND
CLASS C SHARES RETURNED -3.93% OVER THE SIX MONTHS ENDED APRIL 30, 2004.
Effective April 29, 2004, Smith Barney Class L shares were renamed Class C
shares. On February 2, 2004, initial sales charges on these shares were
eliminated.
All index performance reflects no deduction for fees, expenses or taxes. The
Russell 3000 Index measures the performance of the 3,000 largest U.S. companies
based on total market capitalization, which represent approximately 98% of U.S.
equity market. The Goldman Sachs Technology Index is a broad-based measure of
U.S.-traded technology stocks. The Index is comprised of six sub-indices --
hardware, computer software, services, semiconductors, Internet and multimedia
networking.
Lipper, Inc. is a major independent mutual-fund tracking organization. Returns
are based on the six-month period ending April 30, 2004, calculated among the
321 funds in the fund's Lipper category including the reinvestment of dividends
and capital gains, if any, and excluding sales charges.
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1 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
the underlying economic and financial fundamentals continued to improve through
the end of the period.
So far this year, the economy overall has appeared to be growing at a pace
similar to last year's rate. The ongoing recovery has been broad-based, with
strength in the consumer sector, exports and business investments. Soaring
corporate profit growth has led to vastly improved balance-sheet fundamentals in
general, while highly stimulative monetary and fiscal policy continued to
provide support, although the stimulative effects of fiscal policy could wane
after tax-refund season ends this spring. Following a period of mixed employment
news through the end of last year, job growth picked up substantially in the
first calendar quarter of 2004.
Signs of increasing inflation have begun to mount in recent weeks. Fiscal and
monetary policymakers have been stimulating the economy since 2000. The Fed has
more or less said it prefers inflation to deflation in the current environment.
However, we believe the recent pick-up in inflationary signals has increased the
possibility that the Fed may raise interest rates sooner than anticipated,
perhaps as early as this summer. Accordingly, the recent debate in the market
has focused on the timing and magnitude of prospective rate increases.
PERFORMANCE REVIEW
Within this environment, the fund performed as follows: For the six months ended
April 30, 2004, Class A shares of the Smith Barney Technology Fund, excluding
sales charges, returned -3.32%. In comparison, the fund's unmanaged benchmarks,
the Russell 3000 Index(i) returned 6.14%, and the Goldman Sachs Technology Index
("GSTechnology Index")(ii) returned -3.58% for the same period. The fund's
Lipper science & technology funds category average returned -4.43% for the same
period.(1)
The technology market moved upwards though November and December to end 2003 on
a high note. The positive momentum continued into January, before falling
through February, March, and April. The best performing sub-sectors were
wireless equipment, IT services and internet, while semiconductors lagged.
Telecom equipment stocks started 2004 well, as Ericsson and Andrew Corp. posted
positive earnings results, and Verizon made constructive comments on their
investment plans. However, it was not all positive news in the sector as NOKIA
OYJ issued a profits warning as a result of losing market share and Nortel fired
its CEO amid an accounting scandal. The semiconductor sub-sector also performed
poorly, despite continued strong fundamentals. Semiconductor industry revenue
was up more than 20% versus the previous year for each month of the period, but
investors were becoming concerned that the growth rate could soon decelerate and
have been cautious about high levels of inventory. Internet stalwarts Yahoo and
EBAY INC. continued to power upwards, based on strong operating performance, and
investor interest returned to the IT services sector, where data processing
companies such as AUTOMATIC DATA PROCESSING, INC. and FIRST DATA CORP. had
decent returns.
FUND PERFORMANCE
Although the fund's performance for the period was negative, it slightly
outperformed its secondary benchmark, the GSTechnology Index. Positive
performance was driven through positive stock selection within the software
sub-sector, as well as by an underweight in semiconductors. The fund maintained
a negative bias in semiconductors, which worked in our favor, and the holdings
the fund did own, such as NVIDIA CORPORATION held up well. In software, fund
holdings in AMDOCS LTD. and COMPUTER ASSOCIATES INTERNATIONAL, INC. performed
well, as they continued to demonstrate strong operational performance with
strong cash generation. Stock selection was mixed in computer hardware, where
the fund was negatively affected by its ownership of SANMINA-SCI CORPORATION and
SUN MICROSYSTEMS, INC. This was offset by fund holdings in APPLE COMPUTER, INC.,
which saw strong momentum from sales of its IPOD, and from LEXMARK, which was
gaining market share in printers. In communications equipment, the fund also
benefited from owning AVAYA INC. and MOTOROLA, INC., where restructuring efforts
are bearing fruit. On the negative side, the fund's holding in Nokia hurt
performance, which had poor results as it struggled with declining prices and
market share loss for handsets.
(1) Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the six-month period ended April 30, 2004, calculated
among the 321 funds in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any, and excluding sales
charges.
2 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
SPECIAL SHAREHOLDER NOTICE
Effective April 29, 2004, Smith Barney Sector Series on behalf of the Smith
Barney Technology Fund changed its primary performance benchmark from the
Goldman Sachs Technology Index to the Russell 3000 Index. The Goldman Sachs
Technology Index will continue as a secondary performance benchmark.
Effective April 29, 2004, Smith Barney Class L shares were renamed Class C
shares. On February 2, 2004, initial sales charges on these shares were
eliminated.
INFORMATION ABOUT YOUR FUND
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The fund's Adviser and some of its
affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The regulators appear to be
examining, among other things, the fund's response to market timing and
shareholder exchange activity, including compliance with prospectus disclosure
related to these subjects. The fund has been informed that the Adviser and its
affiliates are responding to those information requests, but are not in a
position to predict the outcome of these requests and investigations.
As always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
MAY 18, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of April 30, 2004 and are subject to
change and may not be representative of the portfolio manager's current or
future investments. The fund's top ten holdings as of this date were: Microsoft
Corp. (10.9%), Intel Corp. (10.7%), Cisco Systems Inc. (7.6%), Hewlett-Packard
Co. (5.2%), International Business Machines Corp. (5.0%), Computer Associates
International Inc. (3.8%), Oracle Corp. (3.4%), EMC Corp. (3.3%), Amdocs Ltd.
(3.2%) and Lexmark International Inc. (3.1%). Please refer to pages 4 through 5
for a list and percentage breakdown of the fund's holdings.
The mention of sector breakdowns is for informational purposes only and should
not be construed as a recommendation to purchase or sell any securities. The
information provided regarding such sectors is not a sufficient basis upon which
to make an investment decision. Investors seeking financial advice regarding the
appropriateness of investing in any securities or investment strategies
discussed should consult their financial professional. Portfolio holdings are
subject to change at any time and may not be representative of the portfolio
manager's current or future investments. The fund's top five sector holdings as
of April 30, 2004 were: Software (25.9%); Computer & Peripherals (24.9%);
Semiconductor Equipment & Products (17.1%); Communications Equipment (15.6%);
Internet Catalog Retail (4.9%). The fund's portfolio composition is subject to
change at any time.
RISKS: In addition to normal risks associated with equity investing, narrowly
focused investments typically exhibit higher volatility. The technology sector
may be subject to greater governmental regulation, competitive pressures and
rapid technological change and obsolescence, which may have a materially adverse
effect on the sector. Additionally, the fund's performance will be influenced by
political, social and economic factors affecting investments in companies in
foreign countries not associated with domestic investing These risks are
magnified in emerging markets. The securities of small- and mid-sized companies
tend to be more volatile than those of larger companies. The fund may use
derivatives, such as options and futures, which can be illiquid, may
disproportionately increase losses, and have a potentially large impact on fund
performance.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
(i) The Russell 3000 Index measures the performance of the 3,000 largest U.S.
companies based on total market capitalization, which represent
approximately 98% of U.S. equity market.
(ii) The Goldman Sachs Technology Index is a broad-based measure of U.S.-traded
technology stocks. The Index is comprised of six sub-indices -- hardware,
computer software, services, semiconductors, Internet and multimedia
networking.
3 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
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SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
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SHARES SECURITY VALUE
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COMMON STOCK -- 100.0%
CONSUMER DISCRETIONARY -- 7.1%
INTERNET & CATALOG RETAIL -- 4.8%
29,181 eBay Inc.* $ 2,329,227
62,090 InterActiveCorp* 1,978,808
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4,308,035
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SPECIALTY RETAIL -- 2.3%
32,185 CDW Corp. 2,011,241
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TOTAL CONSUMER DISCRETIONARY 6,319,276
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INDUSTRIALS -- 3.5%
COMMERCIAL SERVICES & SUPPLIES -- 3.5%
24,757 Automatic Data Processing, Inc. 1,084,604
21,512 DST Systems, Inc.* 949,755
23,088 First Data Corp. 1,047,964
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TOTAL INDUSTRIALS 3,082,323
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INFORMATION TECHNOLOGY -- 89.4%
COMMUNICATIONS EQUIPMENT -- 15.6%
322,048 Cisco Systems, Inc.* 6,721,142
115,380 Comverse Technology, Inc.* 1,887,617
109,466 Motorola, Inc. 1,997,755
141,222 Nokia Oyj, Sponsored ADR 1,978,520
20,146 QUALCOMM Inc. 1,258,319
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13,843,353
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COMPUTERS & PERIPHERALS -- 24.9%
106,821 Apple Computer, Inc.* 2,748,504
30,043 Dell Inc.* 1,042,793
261,258 EMC Corp.* 2,915,639
234,583 Hewlett-Packard Co. 4,621,285
50,331 International Business Machines Corp. 4,437,684
30,646 Lexmark International, Inc.* 2,772,237
99,379 NVIDIA Corp.* 2,041,245
388,881 Sun Microsystems, Inc.* 1,516,636
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22,096,023
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ELECTRONIC EQUIPMENT & INSTRUMENTS -- 3.7%
47,439 Molex Inc. 1,412,733
183,333 Sanmina-SCI Corp.* 1,836,997
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3,249,730
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IT CONSULTING & SERVICES -- 2.2%
82,675 Accenture Ltd., Class A Shares* 1,965,185
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SEMICONDUCTOR EQUIPMENT & PRODUCTS -- 17.1%
19,903 Analog Devices, Inc.* 847,868
85,319 Applied Materials, Inc.* 1,555,365
370,122 Intel Corp. 9,523,239
19,099 KLA-Tencor Corp.* 795,855
56,553 Linear Technology Corp. 2,014,983
9,292 Maxim Integrated Products, Inc. 427,339
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15,164,649
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SEE NOTES TO FINANCIAL STATEMENTS.
4 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
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SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
================================================================================
SHARES SECURITY VALUE
================================================================================
SOFTWARE -- 25.9%
106,598 Amdocs Ltd.* $ 2,830,177
146,252 BMC Software, Inc.* 2,530,160
125,065 Computer Associates International, Inc. 3,352,993
372,104 Microsoft Corp. 9,663,541
270,421 Oracle Corp.* 3,034,124
148,332 Siebel Systems, Inc.* 1,524,853
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22,935,848
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TOTAL INFORMATION TECHNOLOGY 79,254,788
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TOTAL INVESTMENTS -- 100.0%
(Cost -- $87,876,878**) $88,656,387
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* 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.
5 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
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STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2004
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ASSETS:
Investments, at value (Cost -- $87,876,878) $ 88,656,387
Cash 64,278
Receivable for Fund shares sold 104,403
Dividends receivable 4,524
Prepaid expenses 21,998
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TOTAL ASSETS 88,851,590
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LIABILITIES:
Payable for Fund shares reacquired 71,913
Management fee payable 69,693
Distribution plan fees payable 30,183
Accrued expenses 97,859
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TOTAL LIABILITIES 269,648
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TOTAL NET ASSETS $ 88,581,942
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NET ASSETS:
Par value of capital shares $ 23,915
Capital paid in excess of par value 260,545,796
Accumulated net investment loss (819,662)
Accumulated net realized loss from
investment transactions (171,947,616)
Net unrealized appreciation of investments 779,509
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TOTAL NET ASSETS $ 88,581,942
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SHARES OUTSTANDING:
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Class A 6,839,453
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Class B 10,167,780
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Class C 6,907,710
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NET ASSET VALUE:
Class A (and redemption price) $3.79
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Class B * $3.67
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Class C * $3.67
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MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of
net asset value per share) $3.99
================================================================================
* REDEMPTION PRICE IS NAV OF CLASS B AND C SHARES REDUCED BY A 5.00% AND 1.00%
CONTINGENT DEFERRED SALES CHARGE, RESPECTIVELY, IF SHARES ARE REDEEMED WITHIN
ONE YEAR FROM PURCHASE PAYMENT (SEE NOTE 2).
SEE NOTES TO FINANCIAL STATEMENTS.
6 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
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STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2004
================================================================================
INVESTMENT INCOME:
Dividends $ 205,511
Interest 20,079
Less: Foreign withholding tax (7,686)
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TOTAL INVESTMENT INCOME 217,904
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EXPENSES:
Management fee (Note 2) 488,641
Distribution plan fees (Note 6) 409,101
Transfer agency services (Note 6) 69,865
Shareholder communications (Note 6) 34,034
Audit and legal 21,216
Registration fees 12,365
Custody 11,468
Directors' fees 11,320
Other 2,335
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TOTAL EXPENSES 1,060,345
Less: Management fee waiver (Note 2) (25,113)
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NET EXPENSES 1,035,232
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NET INVESTMENT LOSS (817,328)
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REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3):
Realized Loss From Investment Transactions
(excluding short-term securities):
Proceeds from sales 51,617,125
Cost of securities sold 51,971,668
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NET REALIZED LOSS (354,543)
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Change in Net Unrealized Appreciation of Investments:
Beginning of period 2,479,964
End of period 779,509
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DECREASE IN NET UNREALIZED APPRECIATION (1,700,455)
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NET LOSS ON INVESTMENTS (2,054,998)
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DECREASE IN NET ASSETS FROM OPERATIONS $(2,872,326)
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SEE NOTES TO FINANCIAL STATEMENTS.
7 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
=================================================================================================================
STATEMENTS OF CHANGES IN NET ASSETS
=================================================================================================================
FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 2003
2004 2003
=================================================================================================================
OPERATIONS:
Net investment loss $ (817,328) $ (1,318,046)
Net realized loss (354,543) (18,013,960)
Increase (decrease) in net unrealized appreciation (1,700,455) 47,191,032
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INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS (2,872,326) 27,859,026
- -----------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 15,813,760 18,564,129
Cost of shares reacquired (24,562,692) (15,440,011)
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (8,748,932) 3,124,118
- -----------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS (11,621,258) 30,983,144
NET ASSETS:
Beginning of period 100,203,200 69,220,056
- -----------------------------------------------------------------------------------------------------------------
END OF PERIOD* $88,581,942 $100,203,200
=================================================================================================================
* Includes accumulated net investment loss of: $(819,662) $(2,334)
=================================================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
8 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
================================================================================
1. Significant Accounting Policies
The Smith Barney Technology Fund ("Fund"), a separate investment fund of the
Smith Barney Sector Series Inc. ("Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
non-diversified open-end management investment company. The Company consists of
this Fund and two other separate investment funds: Smith Barney Financial
Services Fund and Smith Barney Health Sciences Fund. The financial statements
and financial highlights for the other funds are presented in separate
shareholder reports.
The following are significant accounting policies consistently followed by the
Fund and are in conformity with generally accepted accounting principles
("GAAP"): (a) security transactions are accounted for on trade date; (b)
securities traded on 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 the
securities for which no sale was reported on that date are valued at the mean
between the bid and asked prices; 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; 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 sale price; (c) securities for which
market quotations are not available will be valued in good faith at fair 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, at least annually; (i) gains or losses on the sale of securities
are calculated by using the specific identification method; (j) class specific
expenses are charged to each class; management fees and general fund expenses
are allocated on the basis of relative net assets of each class or on another
reasonable basis; (k) the character of income and gains to be distributed is
determined in accordance with income tax regulations which may differ from U.S.
generally accepted accounting principles; (l) the Fund intends to comply with
the applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (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 or offset by entering into another forward
exchange contract. The Fund may from time to time enter into options and/or
futures contracts typically to hedge market or currency risk.
9 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
================================================================================
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
Fund pays SBFM a management fee calculated at an annual rate of 0.95% of the
Fund's average daily net assets. This fee is calculated daily and paid monthly.
SBFM has entered into a sub-advisory agreement with Citigroup Asset Management
Ltd. ("CAM Ltd."), an affiliate of SBFM. Pursuant to the sub-advisory agreement,
CAM Ltd. is responsible for the day-to-day fund operations and investment
decisions of the Fund. For services provided to the Fund, SBFM pays CAM Ltd. a
sub-advisory fee calculated at an annual rate of 0.65% of the Fund's average
daily net assets.
During the six months ended April 30, 2004, the Fund's Class A, B and C shares
had voluntary expense limitations in place of 1.50%, 2.25% and 2.25%,
respectively, resulting in waived management fees totaling $25,113. These
expense limitations can be terminated at any time by SBFM.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Fund's transfer agent. PFPC Inc. ("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, 2004, the Fund paid transfer agent fees of
$51,452 to CTB.
Citigroup Global Markets Inc. ("CGM") and PFS Distributors, Inc., both of which
are subsidiaries of Citigroup, act as the Fund's distributors.
On April 29, 2004, Class L shares were renamed as Class C shares. On February 2,
2004, initial sales charges on these shares were eliminated.
There is a maximum initial sales charge of 5.00% for Class A shares. There is a
contingent deferred sales charge ("CDSC") of 5.00% on Class B shares, which
applies if redemption occurs within one year from purchase payment and declines
thereafter by 1.00% per year until no CDSC is incurred. Class C shares also have
a 1.00% CDSC, which applies if redemption occurs within one year from purchase
payment. In addition, Class A shares have a 1.00% CDSC, which applies if
redemption occurs within one year from purchase payment. This CDSConly 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, 2004, CGM and its affiliates received sales
charges of approximately $20,000 and $9,000 on sales of the Fund's Class A and C
shares, respectively. In addition, for the six months ended April 30, 2004,
CDSCs paid to CGM and its affiliates were approximately:
CLASS B CLASS C
================================================================================
CDSCs $50,000 $3,000
================================================================================
For the six months ended April 30, 2004, CGM and its affiliates received
brokerage commissions of $9,427.
All officers and one Director of the Company are employees of Citigroup or its
affiliates.
3. Investments
During the six months ended April 30, 2004, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
================================================================================
Purchases $45,175,671
================================================================================
Sales 51,617,125
================================================================================
10 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
At April 30, 2004, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 6,732,937
Gross unrealized depreciation (5,953,428)
================================================================================
Net unrealized appreciation $ 779,509
================================================================================
4. Repurchase Agreements
When entering into repurchase agreements, it is the Fund's policy that a
custodian takes possession of the underlying collateral securities, the value of
which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market to
ensure the adequacy of the collateral. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
5. Concentration of Risk
The Fund normally invests at least 80% of its assets in technology 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. Class Specific Expenses
Pursuant to a Rule 12b-1 Distribution Plan, the Fund pays a service fee with
respect to its Class A, B and C shares calculated at an annual rate of 0.25% of
the average daily net assets of each respective class. In addition, 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 of each class,
respectively. For the six months ended April 30, 2004, total Rule 12b-1
Distribution Plan fees, which are accrued daily and paid monthly, were as
follows:
CLASS A CLASS B CLASS C
================================================================================
Rule 12b-1 Distribution Plan Fees $35,086 $208,803 $165,212
================================================================================
For the six months ended April 30, 2004, total Transfer Agency Service expenses
were as follows:
CLASS A CLASS B CLASS C
================================================================================
Transfer Agency Service Expenses $18,970 $28,280 $22,615
================================================================================
For the six months ended April 30, 2004, total Shareholder Communication
expenses were as follows:
CLASS A CLASS B CLASS C
================================================================================
Shareholder Communication Expenses $9,306 $13,829 $10,899
================================================================================
7. Capital Shares
At April 30, 2004, the Fund had 800 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. Effective April 29,
2004, the Fund renamed Class L shares as Class C shares.
11 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
====================================================================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
====================================================================================================================================
Transactions in shares of each class were as follows:
SIX MONTHS ENDED YEAR ENDED
APRIL 30, 2004 OCTOBER 31, 2003
----------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
====================================================================================================================================
CLASS A
Shares sold 1,115,186 $ 4,600,835 1,873,768 $ 6,063,645
Shares reacquired (1,146,014) (4,659,478) (1,395,233) (4,488,352)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (30,828) $ (58,643) 478,535 $ 1,575,293
====================================================================================================================================
CLASS B
Shares sold 634,957 $ 2,502,242 2,010,147 $ 6,240,032
Shares reacquired (1,383,590) (5,484,205) (1,866,876) (5,798,567)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (748,633) $(2,981,963) 143,271 $ 441,465
====================================================================================================================================
CLASS C+
Shares sold 2,235,676 $ 8,710,683 1,813,427 $ 6,260,452
Shares reacquired (3,613,690) (14,419,009) (1,661,743) (5,153,092)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (1,378,014) $(5,708,326) 151,684 $ 1,107,360
====================================================================================================================================
+ ON APRIL 29, 2004, CLASS L SHARES WERE RENAMED AS CLASS C SHARES.
8. Additional Information
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue guarantee
agreement with this sub-contractor providing that the sub-contractor would
guarantee certain benefits to CAM or its affiliates (the "Revenue Guarantee
Agreement"). In connection with the subsequent purchase of the sub-contractor's
business by an affiliate of the current sub-transfer agent (PFPC Inc.) used by
CAM on many of the funds it manages, this Revenue Guarantee Agreement was
amended eliminating those benefits in exchange for arrangements that included a
one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
approximately $17 million (plus interest) that CAM and its affiliates received
from the Revenue Guarantee Agreement and its amendment. CAM also plans an
independent review to verify that the transfer agency fees charged by CAM were
fairly priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
12 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
================================================================================
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
================================================================================
9. Legal Matters
Class action lawsuits have been filed against Citigroup Global Markets Inc. (the
"Distributor") and a number of its affiliates, including Smith Barney Fund
Management LLC and Salomon Brothers Asset Management Inc (the "Advisers"),
substantially all of the mutual funds managed by the Advisers (the "Funds"), and
directors or trustees of the Funds. The complaints allege, among other things,
that the Distributor created various undisclosed incentives for its brokers to
sell Smith Barney and Salomon Brothers funds. In addition, according to the
complaints, the Advisers caused the Funds to pay excessive brokerage commissions
to the Distributor for steering clients towards proprietary funds. The
complaints also allege that the defendants breached their fiduciary duty to the
Funds by improperly charging Rule 12b-1 fees and by drawing on Fund assets to
make undisclosed payments of soft dollars and excessive brokerage commissions.
The complaints seek injunctive relief and compensatory and punitive damages,
rescission of the Funds' contracts with the Advisers, recovery of all fees paid
to the Advisers pursuant to such contracts and an award of attorneys' fees and
litigation expenses. Citigroup Asset Management believes that the suits are
without merit and intends to defend the cases vigorously.
Additional lawsuits arising out of these circumstances and presenting similar
allegations and requests for relief may be filed against the defendants in the
future. Neither Citigroup Asset Management nor the Funds believe that any of the
pending actions will have a material adverse effect on the Funds or the ability
of the Distributor or the Advisers to perform under their respective contracts
with the Funds.
13 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
====================================================================================================================================
FINANCIAL HIGHLIGHTS
====================================================================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED OCTOBER 31, UNLESS OTHERWISE NOTED:
CLASS A SHARES 2004(1)(2) 2003(2) 2002(2) 2001 2000(3)
====================================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 3.92 $ 2.78 $ 4.21 $ 9.14 $11.40
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4) (0.02) (0.04) (0.05) (0.08) (0.07)
Net realized and unrealized gain (loss) (0.11) 1.18 (1.38) (4.85) (2.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.13) 1.14 (1.43) (4.93) (2.26)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 3.79 $ 3.92 $ 2.78 $ 4.21 $ 9.14
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(5) (3.32)%++ 41.01% (33.97)% (53.94)% (19.82)%++
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000s) $25,907 $26,946 $17,754 $27,058 $46,363
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(6) 1.47%+ 1.50% 1.50% 1.50% 1.52%+
Net investment loss (1.04)+ (1.09) (1.29) (1.31) (1.31)+
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 45% 54% 76% 62% 24%
====================================================================================================================================
(1) FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED).
(2) PER SHARE AMOUNTS HAVE BEEN CALCULATED USING THE MONTHLY AVERAGE SHARES
METHOD.
(3) FOR THE PERIOD FEBRUARY 28, 2000 (INCEPTION DATE) TO OCTOBER 31, 2000.
(4) THE MANAGER WAIVED A PORTION OF ITS FEES FOR THE SIX MONTHS ENDED APRIL 30,
2004, THE YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001, AND 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
---------------------- -------------------
2004 $0.00* 1.51%+
2003 0.00* 1.60
2002 0.01 1.64
2001 0.00* 1.58
2000 0.00* 1.60+
(5) PERFORMANCE FIGURES MAY REFLECT FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. IN THE ABSENCE OF FEE
WAIVERS AND/OR EXPENSE REIMBURSEMENTS, THE TOTAL RETURN WOULD BE REDUCED.
(6) AS A RESULT OF VOLUNTARY EXPENSE LIMITATIONS, THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WILL NOT EXCEED 1.50%.
* 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.
14 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
====================================================================================================================================
FINANCIAL HIGHLIGHTS (CONTINUED)
====================================================================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED OCTOBER 31, UNLESS OTHERWISE NOTED:
CLASS B SHARES 2004(1)(2) 2003(2) 2002(2) 2001 2000(3)
====================================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 3.81 $ 2.72 $ 4.16 $ 9.09 $11.40
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4) (0.04) (0.06) (0.08) (0.12) (0.12)
Net realized and unrealized gain (loss) (0.10) 1.15 (1.36) (4.81) (2.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.14) 1.09 (1.44) (4.93) (2.31)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 3.67 $ 3.81 $ 2.72 $ 4.16 $ 9.09
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(5) (3.67)%++ 40.07% (34.62)% (54.24)% (20.26)%++
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000s) $37,320 $41,645 $29,324 $45,266 $74,227
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(6) 2.22%+ 2.25% 2.24% 2.25% 2.27%+
Net investment loss (1.79)+ (1.85) (2.04) (2.06) (2.06)+
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 45% 54% 76% 62% 24%
====================================================================================================================================
(1) FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED).
(2) PER SHARE AMOUNTS HAVE BEEN CALCULATED USING THE MONTHLY AVERAGE SHARES
METHOD.
(3) FOR THE PERIOD FEBRUARY 28, 2000 (INCEPTION DATE) TO OCTOBER 31, 2000.
(4) THE MANAGER WAIVED A PORTION OF ITS FEES FOR THE SIX MONTHS ENDED APRIL 30,
2004, THE YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001, AND 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
---------------------- -------------------
2004 $0.00* 2.26%+
2003 0.00* 2.35
2002 0.01 2.39
2001 0.00* 2.33
2000 0.00* 2.35+
(5) PERFORMANCE FIGURES MAY REFLECT FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. IN THE ABSENCE OF FEE
WAIVERS AND/OR EXPENSE REIMBURSEMENTS, THE TOTAL RETURN WOULD BE REDUCED.
(6) AS A RESULT OF VOLUNTARY EXPENSE LIMITATIONS, THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WILL NOT EXCEED 2.25%.
* 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.
15 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
====================================================================================================================================
FINANCIAL HIGHLIGHTS (CONTINUED)
====================================================================================================================================
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK OUTSTANDING THROUGHOUT EACH YEAR ENDED OCTOBER 31, UNLESS OTHERWISE NOTED:
CLASS C SHARES(1) 2004(2)(3) 2003(3) 2002(3) 2001 2000(4)
====================================================================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 3.82 $ 2.72 $ 4.16 $ 9.09 $11.40
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(5) (0.04) (0.06) (0.08) (0.12) (0.12)
Net realized and unrealized gain (loss) (0.11) 1.16 (1.36) (4.81) (2.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations (0.15) 1.10 (1.44) (4.93) (2.31)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 3.67 $ 3.82 $ 2.72 $ 4.16 $ 9.09
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(6) (3.93)%++ 40.44% (34.62)% (54.24)% (20.26)%++
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000s) $25,355 $31,612 $22,142 $39,127 $67,815
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(5)(7) 2.22%+ 2.25% 2.24% 2.25% 2.27%+
Net investment loss (1.80)+ (1.84) (2.04) (2.06) (2.06)+
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 45% 54% 76% 62% 24%
====================================================================================================================================
(1) ON APRIL 29, 2004, CLASS L SHARES WERE RENAMED AS CLASS C SHARES.
(2) FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED).
(3) PER SHARE AMOUNTS HAVE BEEN CALCULATED USING THE MONTHLY AVERAGE SHARES
METHOD.
(4) FOR THE PERIOD FEBRUARY 28, 2000 (INCEPTION DATE) TO OCTOBER 31, 2000.
(5) THE MANAGER WAIVED A PORTION OF ITS FEES FOR THE SIX MONTHS ENDED APRIL 30,
2004, THE YEARS ENDED OCTOBER 31, 2003, 2002 AND 2001, AND 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
---------------------- -------------------
2004 $0.00* 2.26%+
2003 0.00* 2.35
2002 0.01 2.39
2001 0.00* 2.33
2000 0.00* 2.35+
(6) PERFORMANCE FIGURES MAY REFLECT FEE WAIVERS AND/OR EXPENSE REIMBURSEMENTS.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. IN THE ABSENCE OF FEE
WAIVERS AND/OR EXPENSE REIMBURSEMENTS, THE TOTAL RETURN WOULD BE REDUCED.
(7) AS A RESULT OF VOLUNTARY EXPENSE LIMITATIONS, THE RATIO OF EXPENSES TO
AVERAGE NET ASSETS WILL NOT EXCEED 2.25%.
* 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.
16 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
- --------------------------------------------------------------------------------
SMITH BARNEY
TECHNOLOGY FUND#
- --------------------------------------------------------------------------------
DIRECTORS
Dwight B. Crane
Burt N. Dorsett
R. Jay Gerken, CFA
CHAIRMAN
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Cornelius C. Rose, Jr.
OFFICERS
R. Jay Gerken, CFA
President and Chief
Executive Officer
Andrew B. Shoup
Senior Vice President and
Chief Administrative Officer
Andrew Beagley
Chief Anti-Money Laundering
Compliance Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel
Secretary and
Chief Legal Officer
INVESTMENT MANAGER
Smith Barney Fund Management LLC
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
PFPCInc. P.O. Box 9699
Providence, Rhode Island
02940-9699
Primerica Shareholder Services
P.O. Box 9662
Providence, Rhode Island
02940-9662
SMITH BARNEY SECTOR SERIES INC.
================================================================================
SMITH BARNEY TECHNOLOGY FUND
The Fund is a separate investment fund of the Smith Barney Sector Series Inc., a
Maryland corporation.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by telephoning the Fund (toll-free) at 1-800-451-2010 and by
visiting the SEC's web site at www.sec.gov.
This report is submitted for the general information of the shareholders of
Smith Barney Sector Series Inc. -- Smith Barney Technology Fund, but it may also
be used as sales literature when preceded or accompanied by the current
Prospectus.
SMITH BARNEY TECHNOLOGY FUND
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
THIS DOCUMENT MUST BE PRECEDED OR ACCOMPANIED BY A FREE PROSPECTUS. INVESTORS
SHOULD CONSIDER THE FUND'S INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES
CAREFULLY BEFORE INVESTING. THE PROSPECTUS CONTAINS THIS AND OTHER IMPORTANT
INFORMATION ABOUT THE FUND. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE YOU
INVEST OR SEND MONEY.
www.smithbarneymutualfunds.com
(C)2004 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02551 6/04 04-6776
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- 3(c) under the
Investment Company Act of 1940, as amended (the "1940 Act")) are
effective as of a date within 90 days of the filing date of this
report that includes the disclosure required by this paragraph,
based on their evaluation of the disclosure controls and
procedures required by Rule 30a-3(b) under the 1940 Act and
15d-15(b) under the Securities Exchange Act of 1934.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the 1940
Act) that occurred during the registrant's last fiscal half-year
(the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are likely to materially
affect the registrant's internal control over financial reporting.
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: July 7, 2004
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: July 7, 2004
By: /s/ Andrew B. Shoup
------------------------------------------
Andrew B. Shoup
Chief Administrative Officer of
Smith Barney Sector Series Inc.
Date: July 7, 2004