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
HEALTH SCIENCES FUND
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RESEARCH SERIES | SEMI-ANNUAL REPORT | APRIL 30, 2004
[SMITH BARNEY MUTUAL FUNDS LOGO OMITTED]
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 OMITTED] Research Series
Semi-Annual Report o April 30, 2004
SMITH BARNEY
HEALTH SCIENCES FUND
WHAT'S INSIDE
LETTER FROM THE CHAIRMAN ................................................... 1
SCHEDULE OF INVESTMENTS .................................................... 4
STATEMENT OF ASSETS AND LIABILITIES ........................................ 5
STATEMENT OF OPERATIONS .................................................... 6
STATEMENTS OF CHANGES IN NET ASSETS ........................................ 7
NOTES TO FINANCIAL STATEMENTS .............................................. 8
FINANCIAL HIGHLIGHTS ....................................................... 13
SMITH BARNEY FUND MANAGEMENT LLC
Smith Barney Fund Management LLC is the investment manager to the fund.
Citigroup Asset Management Limited is the sub-adviser. 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
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February 28, 2000
* 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.
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LETTER FROM THE CHAIRMAN
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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
[R. JAY GERKEN PHOTO OMITTED]
R. JAY GERKEN, CFA
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
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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 10.83%
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Russell 3000 Index 6.14%
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Goldman Sachs Healthcare Index 12.55%
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Lipper Health/Biotechnology Funds Category Average 13.78%
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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 10.57% AND
CLASS C SHARES RETURNED 10.47% 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 Healthcare Index is an unmanaged market-value
weighted index comprised of healthcare service companies including long-term
care and hospital facilities, healthcare management organizations and continuing
care services and pharmaceutical companies.
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 194
funds in the fund's Lipper category including the reinvestment of dividends and
capital gains, if any, and excluding sales charges.
1 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
negative influence on the stock market. Despite these concerns, however, 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 Health Sciences Fund,
excluding sales charges, returned 10.83%. In comparison the fund's unmanaged
benchmarks, the Russell 3000 Index(i), returned 6.14% and the Goldman Sachs
Healthcare Index(ii), returned 12.55% for the same period. The fund's Lipper
health/biotechnology funds category average returned 13.78% for the same
period.(1)
In the health care sector, the majority of the gains over the six-month period
came between November 2003 and February 2004. The strongest returns in the
sector came from biotechnology, medical device and managed care stocks. Biotech
stocks as a group moved higher as a result of positive developments on several
promising new products. GENENTECH, INC.'S novel anticancer therapy, AVASTIN, was
approved by the FDA, and the company disclosed positive data for TARCEVA, an
agent for treating lung cancer. BIOGEN IDEC INC. also disclosed positive results
for its pipeline drug ANTEGREN for treating multiple sclerosis. Managed care
companies continued to post strong results and consolidation activity was
ongoing. At the close of the period, ANTHEM INC. and WELLPOINT HEALTH NETWORKS,
INC. were on their way to completing their merger, and OXFORD HEALTH PLANS
agreed to be acquired by UNITEDHEALTH GROUP INC. during the period. Medical
device stocks continued to perform well, especially in the orthopaedic area,
where device manufacturers are benefiting from strong growth in procedures.
Large capitalization pharmaceutical stocks performed broadly in line with the
overall healthcare market. Concerns over political uncertainty, lack of new
products and legal challenges to intellectual property were offset by cheap
valuations, a currency tailwind and investor appetitive for defensive growth
stocks.
FUND PERFORMANCE
The fund's underperformance was primarily the result of poor returns from a
number of holdings in different sub-sectors. The fund was negatively impacted by
its holdings in WYETH, which performed poorly as a result of an adverse court
decision on their diet drug litigation. Also detracting from performance were
WATSON PHARMACEUTICALS, INC. and ABBOTT LABORATORIES. Watson's first quarter
results came in below analyst estimates, and Abbott suffered as it lowered
earnings guidance for the year based on increased operating costs.
Positive performance in the fund was driven by stock selection across most
sub-sectors. Fund holdings in biotechnology company Biogen Idec boosted
performance. Also positively affecting performance was the fund's underweight
position in BRISTOL-MYERS SQUIBB CO. (which the fund no longer holds securities
in) and fund holdings in managed care companies Anthem and WellPoint.
(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 194 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 Health Sciences Fund changed its primary performance benchmark from the
Goldman Sachs Healthcare Index to the Russell 3000 Index. The Goldman Sachs
Healthcare Index will continue as a secondary performance benchmark.
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,
[R. JAY GERKEN SIGNATURE OMITTED]
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: Johnson &
Johnson (10.6%), Pfizer Inc. (10.4%), Amgen Inc. (6.3%), Eli Lilly & Co. (5.6%),
UnitedHealth Group (4.7%), Abbott Laboratories (4.6%), Genentech, Inc. (4.3%),
Medtronic, Inc. (3.6%), Biogen Idec Inc. (3.6%) and Merck & Co. Inc. (3.5%).
Please refer to page 4 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 four sector holdings as
of April 30, 2004 were: Pharmaceuticals (48.6%); Healthcare Providers and
Services (17.8%); Biotechnology (17.7%); Healthcare Equipment and Supplies
(15.9%). 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 health care 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. Investing in foreign securities is subject to certain risks
not associated with domestic investing, such as currency fluctuations, and
changes in political and economic conditions. 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 the U.S. equity market.
(ii) The Goldman Sachs Healthcare Index is an unmanaged market-value weighted
index comprised of healthcare service companies including long-term care
and hospital facilities, healthcare management organizations and continuing
care services and pharmaceutical companies.
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%
BIOTECHNOLOGY -- 17.7%
85,161 Amgen Inc.* $ 4,792,009
46,390 Biogen Idec Inc.* 2,737,010
8,443 Chiron Corp.* 391,755
26,516 Genentech, Inc.* 3,256,165
41,735 Genzyme Corp.* 1,817,977
21,840 MedImmune, Inc.* 529,402
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13,524,318
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HEALTHCARE EQUIPMENT AND SUPPLIES -- 15.9%
10,256 Baxter International, Inc. 324,602
14,727 Becton Dickinson & Co. 744,450
53,541 Biomet, Inc. 2,114,869
42,449 Boston Scientific Corp.* 1,748,474
19,491 C.R. Bard, Inc. 2,071,308
38,234 Guidant Corp. 2,409,124
55,158 Medtronic, Inc. 2,783,273
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12,196,100
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HEALTHCARE PROVIDERS AND SERVICES -- 17.8%
5,700 AmerisourceBergen Corp. 329,973
29,186 Anthem, Inc.* 2,585,296
24,052 Cardinal Health, Inc. 1,761,809
13,325 CIGNA Corp. 859,596
7,381 HCA Inc. 299,890
35,246 Henry Schein, Inc.* 2,483,786
1,980 Patterson Dental Co.* 145,926
24,700 Tenet Healthcare Corp.* 290,472
58,070 UnitedHealth Group Inc. 3,570,144
11,656 WellPoint Health Networks, Inc.* 1,301,859
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13,628,751
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PHARMACEUTICALS -- 48.6%
80,009 Abbott Laboratories 3,521,996
58,424 Eli Lilly & Co. 4,312,275
7,179 Forest Laboratories, Inc.* 462,902
149,520 Johnson & Johnson 8,078,566
62,079 Medicis Pharmaceutical Corp., Class A Shares 2,664,431
56,714 Merck & Co. Inc. 2,665,558
221,648 Pfizer Inc. 7,926,132
56,204 Schering-Plough Corp. 940,293
41,203 Teva Pharmaceutical Industries Ltd., Sponsored ADR 2,536,457
39,889 Watson Pharmaceuticals, Inc.* 1,420,447
68,502 Wyeth 2,607,871
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37,136,928
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TOTAL INVESTMENTS -- 100.0%
(Cost -- $69,427,123**) $76,486,097
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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.
4 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 -- $69,427,123) $76,486,097
Receivable for Fund shares sold 107,463
Dividends receivable 27,073
Prepaid expenses 26,002
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TOTAL ASSETS 76,646,635
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LIABILITIES:
Bank overdraft 94,839
Payable for Fund shares reacquired 63,612
Management fee payable 50,674
Distribution plan fees payable 25,275
Accrued expenses 99,279
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TOTAL LIABILITIES 333,679
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TOTAL NET ASSETS $76,312,956
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NET ASSETS:
Par value of capital shares $ 6,575
Capital paid in excess of par value 87,709,705
Accumulated net investment loss (368,619)
Accumulated net realized loss from investment transactions and foreign currency transactions (18,093,828)
Net unrealized appreciation of investments and foreign currencies 7,059,123
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TOTAL NET ASSETS $76,312,956
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SHARES OUTSTANDING:
Class A 1,809,262
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Class B 2,860,709
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Class C 1,904,852
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NET ASSET VALUE:
Class A (and redemption price) $11.87
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Class B * $11.51
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Class C * $11.50
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MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $12.49
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* 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.
5 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
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INVESTMENT INCOME:
Dividends $ 371,249
Interest 1,270
Less: Foreign withholding tax (1,369)
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TOTAL INVESTMENT INCOME 371,150
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EXPENSES:
Management fee (Note 2) 302,748
Distribution plan fees (Note 6) 299,016
Transfer agency services (Note 6) 53,926
Shareholder communications (Note 6) 24,738
Audit and legal 20,808
Registration fees 15,498
Custody 10,545
Directors' fees 4,438
Other 6,249
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TOTAL EXPENSES 737,966
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NET INVESTMENT LOSS (366,816)
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REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain From:
Investment transactions 3,723,537
Foreign currency transactions 529
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NET REALIZED GAIN 3,724,066
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Change in Net Unrealized Appreciation (Depreciation) From:
Investments 4,220,476
Foreign currencies (374)
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INCREASE IN NET UNREALIZED APPRECIATION 4,220,102
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NET GAIN ON INVESTMENTS AND FOREIGN CURRENCIES 7,944,168
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INCREASE IN NET ASSETS FROM OPERATIONS $7,577,352
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SEE NOTES TO FINANCIAL STATEMENTS.
6 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
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STATEMENTS OF CHANGES IN NET ASSETS
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FOR THE SIX MONTHS ENDED APRIL 30, 2004 (UNAUDITED)
AND THE YEAR ENDED OCTOBER 31, 2003
2004 2003
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OPERATIONS:
Net investment loss $ (366,816) $ (569,042)
Net realized gain (loss) 3,724,066 (8,863,347)
Increase in net unrealized appreciation 4,220,102 13,129,196
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INCREASE IN NET ASSETS FROM OPERATIONS 7,577,352 3,696,807
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FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 5,716,390 8,315,118
Net asset value of shares issued in connection with the transfer of the
Smith Barney Sector Series Inc. - Biotechnology Fund's net assets (Note 7) -- 17,667,510
Cost of shares reacquired (10,478,339) (16,121,557)
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INCREASE (DECREASE) IN NET ASSETS FROM FUND SHARE TRANSACTIONS (4,761,949) 9,861,071
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INCREASE IN NET ASSETS 2,815,403 13,557,878
NET ASSETS:
Beginning of period 73,497,553 59,939,675
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END OF PERIOD* $76,312,956 $73,497,553
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* Includes accumulated net investment loss of: $(368,619) $(2,332)
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SEE NOTES TO FINANCIAL STATEMENTS.
7 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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1. Significant Accounting Policies
The Smith Barney Health Sciences Fund ("Fund"), a separate diversified
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 an 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 Technology 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
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
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 from time to time may also enter into options and/or
futures contracts typically to hedge market or currency risk.
8 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
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NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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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 0.80% 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 portfolio operations and investment
decisions and is compensated by SBFM for such services 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 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
$37,869 to CTB.
Citigroup Global Markets Inc. ("CGM") and PFS Distributors, Inc., both of which
are subsidiaries of Citigroup, act as the Fund's distributors.
For the six months ended April 30, 2004, CGM and its affiliates received
brokerage commissions of $5,289.
On April 29, 2004, the Fund's 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 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, 2004, CGM and its affiliates received sales
charges of approximately $53,000 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 $44,000 for Class B
shares.
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 $31,183,101
- --------------------------------------------------------------------------------
Sales 35,661,204
- --------------------------------------------------------------------------------
9 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 $ 9,435,541
Gross unrealized depreciation (2,376,567)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 7,058,974
- --------------------------------------------------------------------------------
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 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. 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 the annual rate of 0.25% of
the average daily net assets of each respective class. The Fund also pays a
distribution fee with respect to Class B and C shares calculated at the annual
rate of 0.75% of the average daily net assets 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 $26,473 $162,374 $110,169
- --------------------------------------------------------------------------------
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 $15,090 $23,149 $15,687
- --------------------------------------------------------------------------------
For the six months ended April 30, 2004, total Shareholder Communication
expenses were as follows:
CLASS A CLASS B CLASS C
- --------------------------------------------------------------------------------
Shareholder Communication Expenses $6,921 $10,615 $7,202
- --------------------------------------------------------------------------------
7. Transfer of Net Assets
On May 9, 2003, the Fund acquired the assets and certain liabilities of the
Smith Barney Sector Series Inc. - Biotechnology Fund pursuant to a plan of
reorganization approved by Smith Barney Sector Series Inc. - Biotechnology Fund
shareholders
10 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
on May 7, 2003. Total shares issued by the Fund, the total net assets of the
Smith Barney Sector Series Inc. - Biotechnology Fund and total net assets of the
Fund on the date of the transfer were as follows:
TOTAL NET ASSETS OF THE SMITH TOTAL NET
SHARES ISSUED BY BARNEY SECTOR SERIES INC. - ASSETS OF THE
ACQUIRED FUND THE FUND BIOTECHNOLOGY FUND FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Smith Barney Sector Series Inc. - Biotechnology Fund 1,588,578 $16,177,147 $59,712,675
- ------------------------------------------------------------------------------------------------------------------------------------
The total net assets of the Smith Barney Sector Series Inc. - Biotechnology Fund
before acquisition included unrealized depreciation of $1,490,363 and
accumulated net realized loss of $22,301,542. Total net assets of the Fund
immediately after the transfer were $75,889,822. The transaction was structured
to qualify as a tax-free reorganization under the Internal Revenue Code of 1986,
as amended.
8. Capital Shares
At April 30, 2004, 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. Effective April 29,
2004, the Fund renamed Class L shares as Class C shares.
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 203,466 $2,335,221 369,574 $3,805,312
Net asset value of shares issued in connection with the
transfer of the Smith Barney Sector Series Inc. -
Biotechnology Fund's net assets (Note 7) -- -- 441,379 4,707,530
Shares reacquired (321,475) (3,666,059) (534,761) (5,533,776)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (118,009) $(1,330,838) 276,192 $2,979,066
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B
Shares sold 172,943 $1,936,586 338,709 $3,402,113
Net asset value of shares issued in connection with the
transfer of the Smith Barney Sector Series Inc. -
Biotechnology Fund's net assets (Note 7) -- -- 485,123 5,592,990
Shares reacquired (325,670) (3,609,041) (532,954) (5,379,753)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (152,727) $(1,672,455) 290,878 $3,615,350
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS C+
Shares sold 130,631 $1,444,583 108,563 $1,107,693
Net asset value of shares issued in connection with the
transfer of the Smith Barney Sector Series Inc. -
Biotechnology Fund's net assets (Note 7) -- -- 662,076 7,366,990
Shares reacquired (288,889) (3,203,239) (514,940) (5,208,028)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) (158,258) $(1,758,656) 255,699 $3,266,655
- ------------------------------------------------------------------------------------------------------------------------------------
+ ON APRIL 29, 2004, CLASS L SHARES WERE RENAMED AS CLASS C SHARES.
11 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
9. 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.
10. 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.
12 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 $10.71 $ 9.84 $12.72 $14.49 $11.40
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4) (0.02) (0.03) (0.07) (0.08) (0.04)
Net realized and unrealized gain (loss) 1.18 0.90 (2.64) (1.29) 3.13
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.16 0.87 (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 $11.87 $10.71 $ 9.84 $12.72 $14.49
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(5) 10.83%++ 8.84% (21.65)% (9.83)% 27.11%++
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000s) $21,484 $20,636 $16,251 $19,806 $16,980
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(6) 1.41%+ 1.35% 1.49% 1.50% 1.52%+
Net investment loss (0.42)+ (0.30) (0.58) (0.63) (0.67)+
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 41% 68% 26% 34% 26%
- ------------------------------------------------------------------------------------------------------------------------------------
CLASS B SHARES 2004(1)(2) 2003(2) 2002(2) 2001 2000(3)
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $10.41 $ 9.64 $12.56 $14.42 $11.40
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(4) (0.07) (0.11) (0.15) (0.18) (0.09)
Net realized and unrealized gain (loss) 1.17 0.88 (2.60) (1.28) 3.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.10 0.77 (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 $11.51 $10.41 $ 9.64 $12.56 $14.42
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(5) 10.57%++ 7.99% (22.25)% (10.51)% 26.49%++
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000s) $32,914 $31,380 $26,258 $34,146 $28,694
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(4)(7) 2.16%+ 2.11% 2.24% 2.25% 2.26%+
Net investment loss (1.18)+ (1.05) (1.33) (1.38) (1.41)+
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 41% 68% 26% 34% 26%
- ------------------------------------------------------------------------------------------------------------------------------------
(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 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) 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% FOR CLASS A SHARES.
(7) 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.
13 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 $10.41 $ 9.64 $12.56 $14.42 $11.40
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss(5) (0.07) (0.11) (0.15) (0.18) (0.09)
Net realized and unrealized gain (loss) 1.16 0.88 (2.60) (1.28) 3.11
- ------------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.09 0.77 (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 $11.50 $10.41 $ 9.64 $12.56 $14.42
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN(6) 10.47%++ 7.99% (22.25)% (10.51)% 26.49%++
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000s) $21,915 $21,482 $17,431 $26,932 $26,273
- ------------------------------------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses(5)(7) 2.16%+ 2.10% 2.24% 2.25% 2.27%+
Net investment loss (1.18)+ (1.05) (1.33) (1.37) (1.42)+
- ------------------------------------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 41% 68% 26% 34% 26%
- ------------------------------------------------------------------------------------------------------------------------------------
(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 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 Waiver
----------------------- -----------------------
2001 2000 2001 2000
----- ----- ----- -----
Class C Shares $0.00* $0.01 2.28% 2.68%+
(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% FOR CLASS C 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.
14 SMITH BARNEY SECTOR SERIES INC. | 2004 Semi-Annual Report
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SMITH BARNEY
HEALTH SCIENCES FUND
DIRECTORS INVESTMENT MANAGER
Dwight B. Crane Smith Barney Fund Management LLC
Burt N. Dorsett
R. Jay Gerken, CFA DISTRIBUTORS
CHAIRMAN Citigroup Global Markets Inc.
Elliot S. Jaffe PFS Distributors, Inc.
Stephen E. Kaufman
Joseph J. McCann CUSTODIAN
Cornelius C. Rose, Jr. State Street Bank and
Trust Company
OFFICERS
R. Jay Gerken, CFA TRANSFER AGENT
President and Chief Citicorp Trust Bank, fsb.
Executive Officer 125 Broad Street, 11th Floor
New York, New York 10004
Andrew B. Shoup
Senior Vice President and SUB-TRANSFER AGENTS
Chief Administrative Officer PFPC Inc.
P.O. Box 9699
Andrew Beagley Providence, Rhode Island
Chief Anti-Money 02940-9699
Laundering Compliance
Officer
Primerica Shareholder Services
Kaprel Ozsolak P.O. Box 9662
Controller Providence, Rhode Island
02940-9662
Robert I. Frenkel
Secretary and
Chief Legal Officer
SMITH BARNEY SECTOR SERIES INC.
- --------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES 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 Health Sciences Fund, but it may
also be used as sales literature when preceded or accompanied by the current
Prospectus.
SMITH BARNEY HEALTH SCIENCES 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. THIS 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
FD02553 6/04 04-6750
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