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 811-3275
Smith Barney Investment Funds 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: September 30
Date of reporting period: September 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
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SMITH BARNEY
GROUP SPECTRUM FUND
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CLASSIC SERIES | ANNUAL REPORT | SEPTEMBER 30, 2003
[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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[PHOTO OMITTED] ALAN SHAW
LOUISE YAMADA
Technical Research
Team Leaders
[LOGO] Classic Series
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Annual Report o September 30, 2003
SMITH BARNEY
GROUP SPECTRUM FUND
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ALAN SHAW
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Beginning his career over 44 years ago, Alan became involved in technical
analysis around 1960 and served as Research Director at Harris Upham before its
merger with Smith Barney in 1976. Since then, he has played an integral role in
Smith Barney's Equity Research Department, as a Managing Director and Manager of
Technical Research, representing a 44-year commitment to the organization.
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LOUISE YAMADA
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Louise Yamada's over 21 year career with Smith Barney is equally illustrious.
She also plays an integral role in Smith Barney as a Managing Director and
Manager of the Technical Research team that has been ranked number one for two
straight years by Institutional Investor magazine, with Louise taking the number
one spot in 2001.
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FUND OBJECTIVE
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The Smith Barney Group Spectrum Fund seeks capital appreciation. The Fund seeks
to outperform the S&P 500 Index by investing in the common stocks that comprise
the sub-industries of the S&P 500 Index that have been determined by the Smith
Barney Group Spectrum Allocation Model as likely to outperform the entire S&P
500 Index.
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FUND FACTS
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FUND INCEPTION
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October 30, 2000
TECHNICAL RESEARCH
TEAM LEADERS' INVESTMENT
INDUSTRY EXPERIENCE
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Alan Shaw 44 years
Louise Yamada 21 years
What's Inside
Letter from the Chairman .................................................. 1
Manager Overview .......................................................... 2
Fund Performance .......................................................... 4
Historical Performance .................................................... 5
Schedule of Investments ................................................... 6
Statement of Assets and Liabilities ....................................... 13
Statement of Operations ................................................... 14
Statements of Changes in Net Assets ....................................... 15
Notes to Financial Statements ............................................. 16
Financial Highlights ...................................................... 21
Independent Auditors' Report .............................................. 23
Additional Information .................................................... 24
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LETTER FROM THE CHAIRMAN
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[PHOTO OMITTED]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
Dear Shareholder,
The philosopher Bertrand Russell famously remarked that, "Change is one thing,
progress is another." You will notice in the following pages that we have begun
to implement some changes to your shareholder report and we will be reflecting
other changes in future reports. Our aim is to make meaningful improvements in
reporting on the management of your fund and its performance, not just to enact
change for change's sake. Please bear with us during this transition period.
We know that you have questions about fund managers' decisions and plans, and we
want to be sure that you have easy access to the information you need. Keeping
investors informed is, and always will be, one of my top priorities as Chairman
of your fund. To that end, we encourage you to go to our website:
www.smithbarneymutualfunds.com where you can find additional insight on your
fund.
We invite you to read this report in full. Please take the opportunity to talk
to your financial adviser about this report or any other questions or concerns
you have about your fund and your financial future. As always, thank you for
entrusting your assets to us. We look forward to helping you continue to meet
your financial goals. Please read on to learn more about your fund's performance
and the Manager's strategy.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
October 10, 2003
1 Smith Barney Group Spectrum Fund | 2003 Annual Report
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MANAGER OVERVIEW
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Performance Review
For the 12 months ended September 30, 2003, Class A shares of the Smith Barney
Group Spectrum Fund, without sales charges, returned 3.50%. These shares
underperformed the fund's unmanaged benchmark, the S&P 500 Index,(i) which
returned 24.37% for the same period. These shares also underperformed the fund's
Lipper peer group of large cap core funds, which returned 20.86% on average for
the same period.(1)
Overview
At the outset, we wish to make it clear that we are well aware that over the
past year, the relative performance of the fund to the S&P 500 benchmark has
left something to be desired.
Performance judgment is very much determined by the period selected to judge.
The fund is now about to mark its third anniversary. In our past two annual
reports to shareholders, we noted that, "...our ongoing technical analysis is
still very suggestive of a quite challenging overall market trend ahead."
Indeed, a highly volatile trend did mark the past year, which played a major
role in the fund's underperformance in the period.
For a good part of the fund's three-year history, the fund held a fairly large
cash position based on the bottom-up(2) approach applied in the portfolio's
construction. In the weaker market periods, such a position obviously proved
wise, as we noted a rather positive relative performance to the fund's benchmark
in last year's annual report.
But when the market shifts quickly to the upside, as it did in the spring and
summer of 2003, being that our technical disciplines are more intermediate-term
in nature (weeks to months), some relative performance concession does occur,
until the disciplines allow the identification of groups to own. The fund's
large cash position in the face of this market shift is the main reason for the
past year's underperformance by the fund relative to the benchmark. At the time
of this writing, as the equity market continues in its uptrend, the fund's cash
position has been contracting, placing the portfolio in a more fully invested
position.
Perhaps it may be instructive to reiterate a paragraph included in our past two
annual reports to shareholders:
More than a word is in order to explain how cash positions in the fund
develop, if at all. First, it should be emphasized that the fund's goal is
to be as fully invested in the stocks that comprise the S&P 500 Index as
our ongoing technical analysis of the over 100 sub-industries that define
the 500 stocks allows. "Cash" is the reciprocal of the group analytical
exercise, which stresses relative strength. In other words, macro factors
are not the determinate of the cash level. We don't come into work one day
"feeling" bearish, and thus raise the portfolio's cash position. If, over
time, more groups are downgraded from "Buy" to "Hold," where a position is
decreased, or from "Hold" to "Avoid," where the position is sold, cash
will increase if there are no replacement groups at the time.
- ----------
(1) Lipper is a major independent mutual-fund tracking organization. Returns
are based on the 12-month period ended September 30, 2003, calculated
among 1,073 funds in the large cap core funds category with reinvestment
of dividends and capital gains, excluding sales charges.
(2) Bottom-up investing is a search for outstanding performance of individual
stocks before considering the impact of economic trends.
2 Smith Barney Group Spectrum Fund | 2003 Annual Report
As we have often noted, portfolio performance comes about not only based on what
a fund owns, but also to a great degree based on what a fund does not own. In
this regard we would like to point out that the fund, as of September 30th, was
almost devoid of Energy sector holdings, and severely underweighted in Consumer
Staples and Healthcare sectors. Given that companies in these sectors generally
underperformed the broad market for much of the period, this lack of exposure
positively impacted the fund's performance, especially relative to its peers. In
regard to the Healthcare sector, the Pharmaceuticals sub-sector, which
underperformed the broad market during the period, had been on our technical
"Sell" list for many weeks.
The fund has been close to market-weighted in the Consumer Discretionary sector,
which contributed positively to performance. Among the sectors that contributed
positively to fund performance, the most evident overweight has been in the
Information Technology sector, while positions have increased in the
Industrials, Materials and Financials sectors.
Thank you for your investment in the Smith Barney Group Spectrum Fund. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ Kevin Kopczynski
Kevin Kopczynski
Vice President and Investment Officer
October 10, 2003
The information provided in this letter by the Investment Adviser 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 September 30, 2003 and are subject
to change. Please refer to pages 6 through 12 for a list and percentage
breakdown of the fund's holdings.
(i) The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks. Please note that an investor cannot invest directly in
an index.
3 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Average Annual Total Returns+ (unaudited)
================================================================================
Without Sales Charges(1)
---------------------------------------
Class A Class B Class L
================================================================================
Twelve Months Ended 9/30/03 3.50% 2.63% 2.63%
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Inception* through 9/30/03 (11.42) (12.11) (12.11)
================================================================================
With Sales Charges(2)
---------------------------------------
Class A Class B Class L
================================================================================
Twelve Months Ended 9/30/03 (1.72)% (2.37)% 0.57%
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Inception* through 9/30/03 (12.97) (13.02) (12.43)
================================================================================
================================================================================
Cumulative Total Returns+ (unaudited)
================================================================================
Without Sales Charges(1)
================================================================================
Class A (Inception* through 9/30/03) (29.81)%
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Class B (Inception* through 9/30/03) (31.39)
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Class L (Inception* through 9/30/03) (31.39)
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to
Class B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase payment.
Thereafter, the CDSC declines by 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of a 1.00% CDSC, which applies
if shares are redeemed within one year from purchase payment.
+ The returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
* Inception date for Class A, B and L shares is October 30, 2000.
4 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Historical Performance (unaudited)
================================================================================
Value of $10,000 Invested in Class A, B and L Shares of the
Smith Barney Group Spectrum Fund vs. S&P 500 Index+
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October 2000 -- September 2003
[The following table was depicted as a line chart in the printed material.]
Smith Smith Smith
Barney Barney Barney
Group Group Group
Spectrum Spectrum Spectrum
Fund Fund Fund
Class A Class B Class L S&P
Shares Shares Shares 500 Index
------- ------- ------- ---------
Oct 30, 2000 9500 10000 9896 10000
Mar 2001 8507 8926 8833 8160
Sep 2001 7654 8003 7920 7370
Mar 2002 7554 7871 7789 8180
Sep 2002 6443 6685 6616 5862
Mar 2003 6042 6237 6181 6156
Sep 30, 2003 6668 6656 6790 7291
+ Hypothetical illustration of $10,000 invested in Class A, B and L shares
on October 30, 2000 (inception date), assuming deduction of the maximum
5.00% and 1.00% sales charge at the time of investment for Class A and L
shares, respectively; and the deduction of the maximum 5.00% and 1.00%
CDSC for Class B and L shares, respectively. It also assumes reinvestment
of dividends and capital gains, if any, through September 30, 2003. The
S&P 500 Index is composed of 500 widely held common stocks. Figures for
the Index include reinvestment of dividends. The Index is unmanaged and is
not subject to the same management and trading expenses as a mutual fund.
Please note that an investor cannot invest directly in an index. The
returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
All figures represent past performance and are not a guarantee of future
results. The performance data represents past performance including the
investment return and principal value of an investment, which will
fluctuate so that an investor's shares, when redeemed, may be worth more
or less than their original cost.
5 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Schedule of Investments September 30, 2003
================================================================================
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 72.5%
Airlines -- 0.3%
2,856 Delta Air Lines, Inc.* $ 37,985
18,130 Southwest Airlines Co. 320,901
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358,886
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Auto Components -- 0.3%
3,978 Dana Corp. 61,381
15,000 Delphi Corp. 135,750
2,416 Johnson Controls, Inc. 228,554
3,500 Visteon Corp. 23,100
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448,785
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Automobiles -- 0.7%
43,758 Ford Motor Co. 471,274
13,393 General Motors Corp. 548,175
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1,019,449
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Banks -- 0.9%
21,136 The Bank of New York Co., Inc. 615,269
11,815 Mellon Financial Corp. 356,104
6,058 Northern Trust Corp. 257,102
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1,228,475
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Biotechnology -- 2.0%
30,164 Amgen Inc.* 1,947,689
3,492 Biogen, Inc.* 133,499
4,358 Chiron Corp.* 225,265
5,193 Genzyme Corp.-- General Division* 240,176
5,838 MedImmune, Inc.* 192,712
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2,739,341
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Building Products -- 0.4%
1,810 American Standard Cos. Inc.* 152,492
2,436 Crane Co. 57,027
11,766 Masco Corp. 288,032
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497,551
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Chemicals -- 0.1%
6,652 Monsanto Co. 159,249
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Commercial Services and Supplies -- 1.8%
4,755 Allied Waste Industries, Inc.* 51,354
14,354 Automatic Data Processing Inc. 514,591
11,683 Concord EFS, Inc.* 159,707
3,426 Convergys Corp.* 62,833
17,767 First Data Corp. 709,969
4,646 Fiserv, Inc.* 168,325
2,633 Monster Worldwide Inc.* 66,299
9,042 Paychex, Inc. 306,795
3,995 Robert Half International Inc.* 77,902
3,462 Sabre Holdings Corp. 74,398
13,450 Waste Management, Inc. 351,986
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2,544,159
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See Notes to Financial Statements.
6 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Schedule of Investments (continued) September 30, 2003
================================================================================
SHARES SECURITY VALUE
================================================================================
Communications Equipment -- 4.6%
20,948 ADC Telecommunications, Inc.* $ 48,809
4,000 Andrew Corp.* 49,160
10,855 Avaya Inc.* 118,319
12,271 CIENA Corp.* 72,522
182,847 Cisco Systems, Inc.* 3,572,830
4,905 Comverse Technology, Inc.* 73,379
34,680 Corning, Inc.* 326,686
37,258 JDS Uniphase Corp.* 134,129
108,388 Lucent Technologies, Inc.* 234,118
60,627 Motorola, Inc. 725,705
20,677 QUALCOMM, Inc. 860,990
3,881 Scientific-Atlanta, Inc. 120,893
10,756 Tellabs, Inc.* 73,033
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6,410,573
- --------------------------------------------------------------------------------
Computers and Peripherals -- 0.8%
55,334 EMC Corp.* 698,868
3,230 Lexmark International, Inc., Class A Shares* 203,522
8,623 Network Appliance, Inc.* 177,030
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1,079,420
- --------------------------------------------------------------------------------
Construction and Engineering -- 0.0%
1,904 Fluor Corp. 71,076
- --------------------------------------------------------------------------------
Containers and Packaging -- 0.2%
1,459 Bemis, Inc. 64,634
2,350 Sealed Air Corp.* 110,990
1,488 Temple-Inland Inc. 72,242
- --------------------------------------------------------------------------------
247,866
- --------------------------------------------------------------------------------
Diversified Financials -- 8.6%
37,070 American Express Co. 1,670,374
3,944 The Bear Stearns Cos. Inc. 295,011
6,545 Capital One Financial Corp. 373,327
53,583 The Charles Schwab Corp. 638,174
2,980 Federated Investors, Inc., Class B Shares 82,546
6,886 Franklin Resources, Inc. 304,430
18,755 The Goldman Sachs Group, Inc. 1,573,544
6,565 Janus Capital Group Inc. 91,713
9,570 Lehman Brothers Holdings Inc. 661,096
36,800 MBNA Corp. 839,040
36,994 Merrill Lynch & Co., Inc. 1,980,289
43,033 Morgan Stanley 2,171,445
5,742 Principal Financial Group, Inc. 177,945
8,357 Providian Financial Corp.* 98,529
12,986 SLM Corp. 505,935
9,133 State Street Corp. 410,985
3,388 T. Rowe Price Group Inc. 139,789
- --------------------------------------------------------------------------------
12,014,172
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
7 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Schedule of Investments (continued) September 30, 2003
================================================================================
SHARES SECURITY VALUE
================================================================================
Electrical Equipment -- 1.1%
7,704 American Power Conversion Corp. $ 132,046
3,594 Cooper Industries, Inc., Class A Shares 172,620
16,443 Emerson Electric Co. 865,724
5,279 Molex, Inc. 150,927
3,259 Power-One, Inc.* 33,535
7,217 Rockwell Automation, Inc. 189,446
2,302 Thomas & Betts Corp.* 36,487
- --------------------------------------------------------------------------------
1,580,785
- --------------------------------------------------------------------------------
Electronic Equipment and Instruments -- 1.0%
18,847 Agilent Technologies, Inc.* 416,707
5,493 Jabil Circuit, Inc.* 143,093
1,689 Millipore Corp. 77,795
5,068 PerkinElmer, Inc. 77,591
14,092 Sanmina-SCI Corp.* 136,692
22,922 Solectron Corp.* 134,094
9,220 Symbol Technologies, Inc. 110,179
3,393 Tektronix, Inc. 83,977
6,489 Thermo Electron Corp.* 140,811
4,914 Waters Corp.* 134,791
- --------------------------------------------------------------------------------
1,455,730
- --------------------------------------------------------------------------------
Food and Drug Retailing -- 1.8%
8,811 Albertson's, Inc. 181,242
9,718 CVS Corp. 301,841
18,045 Kroger Co.* 322,464
10,600 Safeway Inc.* 243,164
3,374 SUPERVALU Inc. 80,504
16,374 SYSCO Corp. 535,594
25,235 Walgreen Co. 773,200
3,381 Winn-Dixie Stores Inc. 32,627
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2,470,636
- --------------------------------------------------------------------------------
Food Products -- 0.1%
12,072 Archer-Daniels-Midland Co. 158,264
- --------------------------------------------------------------------------------
Healthcare Equipment and Supplies -- 3.6%
5,838 Applera Corp.-- Applied Biosystems Group 130,246
1,848 Bausch & Lomb, Inc. 81,589
17,011 Baxter International, Inc. 494,340
7,094 Becton Dickinson & Co. 256,235
7,163 Biomet, Inc. 240,748
11,500 Boston Scientific Corp.* 733,700
1,447 C.R. Bard, Inc. 102,737
8,599 Guidant Corp. 402,863
33,993 Medtronic, Inc. 1,594,952
4,798 St. Jude Medical, Inc.* 257,988
5,563 Stryker Corp. 418,950
6,340 Zimmer Holdings, Inc.* 349,334
- --------------------------------------------------------------------------------
5,063,682
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
8 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Schedule of Investments (continued) September 30, 2003
================================================================================
SHARES SECURITY VALUE
================================================================================
Healthcare Providers and Services -- 0.4%
8,655 HCA Inc. $ 319,023
4,155 Health Management Associates, Inc.,
Class A Shares 90,621
1,543 Manor Care, Inc. 46,290
8,037 Tenet Healthcare Corp.* 116,376
- --------------------------------------------------------------------------------
572,310
- --------------------------------------------------------------------------------
Hotels, Restaurants and Leisure -- 2.1%
15,718 Carnival Corp. 516,965
4,061 Darden Restaurants, Inc. 77,159
3,098 Harrah's Entertainment, Inc. 130,457
9,428 Hilton Hotels Corp. 152,922
9,715 International Game Technology 273,477
5,815 Marriott International Inc., Class A Shares 250,219
31,451 McDonald's Corp. 740,357
9,666 Starbucks Corp.* 278,381
5,023 Starwood Hotels & Resorts Worldwide, Inc. 174,800
2,804 Wendy's International, Inc. 90,569
7,254 Yum! Brands, Inc.* 214,863
- --------------------------------------------------------------------------------
2,900,169
- --------------------------------------------------------------------------------
Household Durables -- 0.3%
1,884 Black & Decker Corp. 76,396
4,886 Leggett & Platt, Inc. 105,684
1,904 Maytag Corp. 47,543
1,415 Snap-On Inc. 39,125
2,063 The Stanley Works 60,900
1,669 Whirlpool Corp. 113,108
- --------------------------------------------------------------------------------
442,756
- --------------------------------------------------------------------------------
Industrial Conglomerates -- 6.8%
18,604 3M Co. 1,284,978
238,064 General Electric Co. 7,096,688
3,220 Textron, Inc. 127,029
47,461 Tyco International Ltd. 969,628
- --------------------------------------------------------------------------------
9,478,323
- --------------------------------------------------------------------------------
Information Technology Consulting and Services -- 0.5%
4,491 Computer Sciences Corp.* 168,727
11,511 Electronic Data Systems Corp. 232,522
6,849 SunGard Data Systems Inc.* 180,197
9,515 Unisys Corp.* 128,738
- --------------------------------------------------------------------------------
710,184
- --------------------------------------------------------------------------------
Internet Software and Services -- 0.4%
14,212 Yahoo! Inc.* 502,821
- --------------------------------------------------------------------------------
Machinery -- 3.4%
13,788 Caterpillar Inc. 949,166
1,658 Cummins Inc. 73,665
6,292 Danaher Corp. 464,727
9,565 Deere & Co. 509,910
8,324 Dover Corp. 294,420
3,085 Eaton Corp. 273,393
12,649 Illinois Tool Works, Inc. 838,123
See Notes to Financial Statements.
9 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Schedule of Investments (continued) September 30, 2003
================================================================================
SHARES SECURITY VALUE
================================================================================
Machinery -- 3.4% (continued)
7,053 Ingersoll-Rand Co., Class A Shares $ 376,912
3,794 ITT Industries, Inc. 227,033
2,730 Navistar International Corp.* 101,774
4,658 PACCAR Inc. 347,906
5,099 Pall Corp. 114,422
4,855 Parker-Hannifin Corp. 217,018
- --------------------------------------------------------------------------------
4,788,469
- --------------------------------------------------------------------------------
Media -- 0.4%
10,310 The Interpublic Group Cos., Inc. 145,577
5,005 Omnicom Group, Inc. 359,609
- --------------------------------------------------------------------------------
505,186
- --------------------------------------------------------------------------------
Metals and Mining -- 1.1%
19,371 Alcoa Inc. 506,745
7,035 Freeport-McMoRan Copper & Gold, Inc.,
Class B Shares 232,858
16,443 Newmont Mining Corp. 642,757
3,720 Phelps Dodge Corp.* 174,096
- --------------------------------------------------------------------------------
1,556,456
- --------------------------------------------------------------------------------
Multiline Retail -- 2.1%
3,261 Big Lots, Inc.* 51,556
2,220 Dillard's, Inc., Class A Shares 31,036
9,319 Dollar General Corp. 186,380
4,804 Family Dollar Stores, Inc. 191,632
4,923 Federated Department Stores, Inc. 206,274
7,214 J.C. Penney Co., Inc. 154,163
9,016 Kohl's Corp.* 482,356
7,661 May Department Stores Co. 188,690
3,607 Nordstrom, Inc. 89,490
7,516 Sears Roebuck & Co. 328,675
25,444 Target Corp. 957,458
- --------------------------------------------------------------------------------
2,867,710
- --------------------------------------------------------------------------------
Oil and Gas -- 0.1%
1,161 Ashland Inc. 38,139
1,309 Sunoco, Inc. 52,648
- --------------------------------------------------------------------------------
90,787
- --------------------------------------------------------------------------------
Paper and Forest Products -- 0.8%
1,415 Boise Cascade Corp. 39,054
6,144 Georgia Pacific Corp. 148,931
11,616 International Paper Co. 453,256
2,847 Louisiana Pacific Corp.* 39,232
4,854 MeadWestvaco Corp. 123,777
5,966 Weyerhaeuser Co. 348,713
- --------------------------------------------------------------------------------
1,152,963
- --------------------------------------------------------------------------------
Semiconductor Equipment and Products -- 10.1%
13,491 Advanced Micro Devices, Inc.* 149,885
14,870 Altera Corp.* 281,043
14,205 Analog Devices, Inc.* 540,074
66,541 Applied Materials, Inc.* 1,207,054
11,846 Applied Micro Circuits Corp.* 57,690
See Notes to Financial Statements.
10 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Schedule of Investments (continued) September 30, 2003
================================================================================
SHARES SECURITY VALUE
================================================================================
Semiconductor Equipment and Products -- 10.1% (continued)
11,532 Broadcom Corp., Class A Shares* $ 306,982
253,145 Intel Corp. 6,964,019
7,640 KLA-Tencor Corp.* 392,696
12,170 Linear Technology Corp. 435,808
14,723 LSI Logic Corp.* 132,360
12,625 Maxim Integrated Products, Inc. 498,688
23,715 Micron Technology, Inc.* 318,255
7,159 National Semiconductor Corp.* 231,164
6,093 Novellus Systems, Inc.* 205,639
6,185 NVIDIA Corp.* 98,410
6,629 PMC-Sierra, Inc.* 87,443
3,664 QLogic Corp.* 172,245
7,575 Teradyne, Inc.* 140,895
67,320 Texas Instruments Inc. 1,534,896
13,239 Xilinx, Inc.* 377,444
- --------------------------------------------------------------------------------
14,132,690
- --------------------------------------------------------------------------------
Software -- 8.8%
6,154 Adobe Systems, Inc. 241,606
3,216 Autodesk, Inc. 54,736
6,006 BMC Software, Inc.* 83,664
4,734 Citrix Systems, Inc.* 104,527
15,272 Computer Associates International, Inc. 398,752
11,008 Compuware Corp.* 59,003
4,124 Electronic Arts Inc.* 380,357
5,903 Intuit Inc.* 284,761
2,481 Mercury Interactive Corp.* 112,662
285,316 Microsoft Corp. 7,928,932
9,797 Novell, Inc.* 52,218
138,088 Oracle Corp.* 1,549,347
7,659 Parametric Technology, Inc.* 23,896
10,472 PeopleSoft, Inc.* 190,486
14,212 Siebel Systems, Inc.* 138,141
4,004 Symantec Corp.* 252,332
11,231 VERITAS Software Corp.* 352,653
- --------------------------------------------------------------------------------
12,208,073
- --------------------------------------------------------------------------------
Specialty Retail -- 4.1%
11,064 AutoNation, Inc.* 194,063
3,599 AutoZone, Inc.* 322,218
11,892 Bed Bath and Beyond Inc.* 454,037
11,535 Best Buy Co., Inc.* 548,143
7,469 Circuit City Stores, Inc. 71,180
59,158 The Home Depot, Inc. 1,884,182
20,167 Lowe's Cos., Inc. 1,046,667
12,464 Office Depot, Inc.* 175,119
5,924 RadioShack Corp. 168,301
3,757 The Sherwin-Williams Co. 110,493
19,720 Staples, Inc.* 468,350
5,840 Tiffany & Co. 218,007
8,583 Toys "R" Us, Inc.* 103,253
- --------------------------------------------------------------------------------
5,764,013
- --------------------------------------------------------------------------------
See Notes to Financial Statements.
11 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Schedule of Investments (continued) September 30, 2003
================================================================================
SHARES SECURITY VALUE
================================================================================
Tobacco -- 1.7%
49,743 Altria Group, Inc. $ 2,178,743
2,066 R.J. Reynolds Tobacco Holdings, Inc. 81,690
4,080 UST Inc. 143,534
- --------------------------------------------------------------------------------
2,403,967
- --------------------------------------------------------------------------------
Trading Companies and Distributors -- 0.1%
2,337 W.W. Grainger, Inc. 111,124
- --------------------------------------------------------------------------------
Wireless Telecommunication Services -- 1.0%
74,297 AT&T Wireless Services Inc.* 607,749
28,356 Nextel Communications, Inc., Class A Shares* 558,330
28,327 Sprint Corp. (PCS Group)* 162,314
- --------------------------------------------------------------------------------
1,328,393
- --------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $91,695,228) 101,064,493
================================================================================
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS -- 27.5%
$ 4,905,000 Goldman Sachs & Co., 0.950% due 10/1/03;
Proceeds at maturity -- $4,905,129; (Fully
collateralized by U.S. Treasury Notes and
Bonds, 1.625% to 12.375% due 5/15/04 to
4/15/28; Market value -- $5,003,102) 4,905,000
33,449,000 Merrill Lynch & Co., Inc., 0.950% due 10/1/03;
Proceeds at maturity -- $33,449,883; (Fully
collateralized by U.S. Treasury Bills, Notes
and Bonds, 0.000% to 7.500% due 10/2/03 to
11/15/16; Market value -- $34,118,030) 33,449,000
- --------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $38,354,000) 38,354,000
================================================================================
TOTAL INVESTMENTS -- 100.0%
(Cost -- $130,049,228**) $139,418,493
================================================================================
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is $131,403,018.
See Notes to Financial Statements.
12 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Statement of Assets and Liabilities September 30, 2003
================================================================================
ASSETS:
Investments, at value (Cost -- $91,695,228) $ 101,064,493
Repurchase agreements, at value (Cost -- $38,354,000) 38,354,000
Cash 703
Receivable for securities sold 4,204,166
Dividends and interest receivable 122,421
Receivable for Fund shares sold 15,942
- ------------------------------------------------------------------------------------------------------------------
Total Assets 143,761,725
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares reacquired 160,257
Payable for open equity swap contracts (Note 5) 94,427
Management fee payable 80,175
Distribution plan fees payable 44,664
Accrued expenses 96,252
- ------------------------------------------------------------------------------------------------------------------
Total Liabilities 475,775
- ------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 143,285,950
==================================================================================================================
NET ASSETS:
Par value of capital shares $ 18,295
Capital paid in excess of par value 257,310,081
Accumulated net realized loss from investment transactions and equity swap contracts (123,317,264)
Net unrealized appreciation of investments and equity swap contracts 9,274,838
- ------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 143,285,950
==================================================================================================================
Shares Outstanding:
Class A 2,025,978
-------------------------------------------------------------------------------------------------------------
Class B 3,629,006
-------------------------------------------------------------------------------------------------------------
Class L 12,639,841
-------------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 7.98
-------------------------------------------------------------------------------------------------------------
Class B * $ 7.81
-------------------------------------------------------------------------------------------------------------
Class L * $ 7.81
-------------------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $ 8.40
-------------------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 7.89
==================================================================================================================
* Redemption price is NAV of Class B and L shares reduced by a 5.00% and
1.00% CDSC, respectively, if shares are redeemed within one year from
purchase payment (See Note 2).
See Notes to Financial Statements.
13 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Statement of Operations For the Year Ended September 30, 2003
================================================================================
INVESTMENT INCOME:
Dividends $ 1,500,570
Interest 547,404
- ----------------------------------------------------------------------------------------------------
Total Investment Income 2,047,974
- ----------------------------------------------------------------------------------------------------
EXPENSES:
Distribution plan fees (Note 7) 1,465,075
Management fee (Note 2) 1,036,555
Shareholder servicing fees (Note 7) 139,233
Custody 75,380
Shareholder communications (Note 7) 53,928
Audit and legal 35,694
Directors' fees 13,992
License fees 10,175
Other 8,260
- ----------------------------------------------------------------------------------------------------
Total Expenses 2,838,292
- ----------------------------------------------------------------------------------------------------
Net Investment Loss (790,318)
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND EQUITY SWAP CONTRACTS (NOTES 3 AND 5):
Realized Loss From:
Investment transactions (10,105,462)
Equity swap contracts (120,678)
- ----------------------------------------------------------------------------------------------------
Net Realized Loss (10,226,140)
- ----------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments and Equity Swap Contracts:
Beginning of year (5,490,416)
End of year 9,274,838
- ----------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 14,765,254
- ----------------------------------------------------------------------------------------------------
Net Gain on Investments and Equity Swap Contracts 4,539,114
- ----------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 3,748,796
====================================================================================================
See Notes to Financial Statements.
14 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Statements of Changes in Net Assets For the Years Ended September 30,
================================================================================
2003 2002
==============================================================================================
OPERATIONS:
Net investment loss $ (790,318) $ (451,921)
Net realized loss (10,226,140) (36,369,531)
Increase (decrease) in unrealized appreciation 14,765,254 (2,214,241)
- ----------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Operations 3,748,796 (39,035,693)
- ----------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sales 7,675,731 5,829,618
Cost of shares reacquired (46,939,493) (106,274,507)
- ----------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (39,263,762) (100,444,889)
- ----------------------------------------------------------------------------------------------
Decrease in Net Assets (35,514,966) (139,480,582)
NET ASSETS:
Beginning of year 178,800,916 318,281,498
- ----------------------------------------------------------------------------------------------
End of year $ 143,285,950 $ 178,800,916
==============================================================================================
See Notes to Financial Statements.
15 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Notes to Financial Statements
================================================================================
1. Significant Accounting Policies
The Smith Barney Group Spectrum Fund ("Fund"), a separate investment fund of the
Smith Barney Investment Funds Inc. ("Company"), a Maryland corporation, is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. The Company consists of
this Fund and eight other separate investment funds: Smith Barney Investment
Grade Bond Fund, Smith Barney Government Securities Fund, Smith Barney
Hansberger Global Value Fund, Smith Barney Premier Selections Large Cap Fund,
Smith Barney Premier Selections All Cap Growth Fund, Smith Barney Premier
Selections Global Growth Fund, Smith Barney Small Cap Growth Fund and Smith
Barney Small Cap Value Fund. The financial statements and financial highlights
for the other funds are presented in separate shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing price on such markets;
securities traded in the over-the-counter market and listed securities for which
no sales prices were reported are valued at the mean between the bid and asked
price; 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) dividend income is recorded on
ex-dividend date and interest income is recorded on an accrual basis; (f)
dividends and distributions to shareholders are recorded on the ex-dividend
date; the Fund distributes dividends and capital gains, if any, at least
annually; (g) gains or losses on the sale of securities are calculated using the
specific identification method; (h) the accounting records are maintained in
U.S. dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars on the date of valuation. Purchases and sales of
securities and income and expenses are translated at the rate of exchange quoted
on the respective date that such transactions are recorded. Differences between
income or expense amounts recorded and collected or paid are adjusted when
reported by the custodian bank; (i) class specific expenses are charged to each
class; management fees and general portfolio expenses are allocated on the basis
of relative net assets of each class or on another reasonable basis; (j) the
Fund intends to comply with the applicable provisions of the Internal Revenue
Code of 1986, as amended, pertaining to regulated investment companies and to
make distributions of taxable income sufficient to relieve it from substantially
all Federal income and excise taxes; (k) the character of income and gains to be
distributed is determined in accordance with income tax regulations which may
differ from accounting principles generally accepted in the United States of
America. At September 30, 2003, reclassifications were made to the capital
accounts of the Fund to reflect permanent book/tax differences and income and
gains available for distributions under income tax regulations. Accordingly, a
portion of net investment loss of $504,217 was reclassified to paid-in capital.
Net investment income, net realized gains and net assets were not affected by
this change; and (l) estimates and assumptions are required to be made regarding
assets, liabilities and changes in net assets resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these estimates
could cause actual results to differ.
2. 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 0.65% of the
Fund's average daily net assets. This fee is calculated daily and paid monthly.
16 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Notes to Financial Statements (continued)
================================================================================
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Fund's transfer agent. PFPC Inc. ("PFPC") acts as the Fund's sub-transfer agent.
CTB receives account fees and asset-based fees that vary according to the size
and type of account. PFPC is responsible for shareholder recordkeeping and
financial processing for all shareholder accounts and is paid by CTB. For the
year ended September 30, 2003, the Fund paid transfer agent fees of $157,824 to
CTB.
Citigroup Global Markets Inc. ("CGM"), formerly known as Salomon Smith Barney
Inc., another indirect wholly-owned subsidiary of Citigroup, acts as the Fund's
distributor. For the year ended September 30, 2003, CGM and its affiliates did
not receive any brokerage commissions.
There are maximum initial sales charges of 5.00% and 1.00% for Class A and L
shares, respectively. There is a contingent deferred sales charge ("CDSC") of
5.00% on Class B shares, which applies if redemption occurs within one year from
purchase payment and declines thereafter by 1.00% per year until no CDSC is
incurred. Class L shares also have a 1.00% CDSC, which applies if redemption
occurs within one year from purchase payment. In certain cases, 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 year ended September 30, 2003, CGM received sales charges of
approximately $15,000 and $30,000 on sales of the Fund's Class A and L shares,
respectively. In addition, for the year ended September 30, 2003, CDSCs paid to
CGM were approximately $148,000 for the Fund's Class B shares.
All officers and one Director of the Company are employees of Citigroup or its
affiliates.
3. Investments
During the year ended September 30, 2003, 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 $433,976,570
- --------------------------------------------------------------------------------
Sales 441,329,024
================================================================================
At September 30, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
================================================================================
Gross unrealized appreciation $10,906,148
Gross unrealized depreciation (2,890,673)
- --------------------------------------------------------------------------------
Net unrealized appreciation $ 8,015,475
================================================================================
4. Repurchase Agreements
The Fund purchases (and the custodian takes possession of) U.S. government
securities from securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value (plus accrued interest) of the collateral in
amounts at least equal to the repurchase price.
17 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Notes to Financial Statements (continued)
================================================================================
5. Equity Swap Contracts
The Fund has the ability to enter into equity index swap contracts. The Fund
enters into these contracts to gain exposure to certain equity market sectors.
The Fund will record the difference between the initial value of the index
underlying the swap contract and the closing value of such index. These
differences are netted out in a cash settlement periodically, with the Fund
receiving or paying, as the case may be, only the net amount of the two
differences.
At September 30, 2003, the Fund had the following equity swap agreement
outstanding:
Swap Counterparty: Morgan Stanley
Effective Date: 9/22/03
Notional Amount (Resets Weekly): $4,437,021
Payments Made/Received: Floating rate (Based on the market
value of the S&P 500 Diversified
Financials Index)
Termination Date: 4/15/04
Unrealized Depreciation as of 9/30/03: $(94,427)
=========
6. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations. Fees earned by the Fund on securities lending are recorded as
interest income. Loans of securities by the Fund are collateralized by cash,
U.S. government securities or high quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the loaned securities, plus a margin which may vary depending on the type of
securities loaned. The custodian establishes and maintains the collateral in a
segregated account. The Fund maintains exposure for the risk of any losses in
the investment of amounts received as collateral.
Income earned by the Fund from securities lending for the year ended September
30, 2003 was $1,058.
At September 30, 2003, the Fund did not have any securities on loan.
18 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Notes to Financial Statements (continued)
================================================================================
7. Class Specific Expenses
Pursuant to a Rule 12b-1 Distribution Plan, the Fund pays a service fee with
respect to Class A, B, and L shares, calculated at an annual rate of 0.25% of
the average daily net assets of each respective class. In addition, the Fund
pays a distribution fee with respect to its Class B and L shares calculated at
the annual rate of 0.75% of the average daily net assets of each class,
respectively. For the year ended September 30, 2003, total Rule 12b-1
Distribution Plan fees, which are accrued daily and paid monthly, were as
follows:
Class A Class B Class L
================================================================================
Rule 12b-1 Distribution Plan Fees $43,208 $304,557 $1,117,310
================================================================================
For the year ended September 30, 2003, total Shareholder Servicing fees were as
follows:
Class A Class B Class L
================================================================================
Shareholder Servicing Fees $14,154 $33,075 $92,004
================================================================================
For the year ended September 30, 2003, total Shareholder Communication expenses
were as follows:
Class A Class B Class L
================================================================================
Shareholder Communication Expenses $6,331 $8,233 $39,364
================================================================================
8. Capital Loss Carryforward
At September 30, 2003, the Fund had, for Federal income tax purposes,
approximately $119,139,000 of unused capital loss carryforwards available to
offset future capital gains. To the extent that these carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed.
The amount and year of expiration for each carryforward loss is indicated below.
Expiration occurs on September 30 of the year indicated:
2010 2011
================================================================================
Carryforward Amounts $82,275,000 $36,864,000
================================================================================
In addition, the Fund had $2,824,154 of capital losses realized after October
31, 2002, which were deferred for tax purposes to the first day of the following
fiscal year.
9. Income Tax Information
At September 30, 2003, the tax basis components of distributable earnings were:
================================================================================
Accumulated capital loss $(119,139,320)
- --------------------------------------------------------------------------------
Unrealized appreciation 7,921,048
================================================================================
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to wash sale loss deferrals.
At September 30, 2003, the Fund did not make any distributions.
19 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Notes to Financial Statements (continued)
================================================================================
10. Capital Shares
At September 30, 2003, the Company had ten billion 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 and has the same rights, except that each class bears certain direct
expenses, including those specifically related to the distribution of its
shares.
Transactions in shares of each class were as follows:
Year Ended Year Ended
September 30, 2003 September 30, 2002
--------------------------------- ---------------------------------
Shares Amount Shares Amount
=====================================================================================================
Class A
Shares sold 194,728 $ 1,514,166 135,389 $ 1,167,326
Shares reacquired (589,261) (4,546,653) (1,343,189) (11,966,532)
- -----------------------------------------------------------------------------------------------------
Net Decrease (394,533) $ (3,032,487) (1,207,800) $ (10,799,206)
=====================================================================================================
Class B
Shares sold 315,358 $ 2,395,572 176,713 $ 1,545,124
Shares reacquired (1,043,754) (7,948,376) (1,956,371) (17,003,424)
- -----------------------------------------------------------------------------------------------------
Net Decrease (728,396) $ (5,552,804) (1,779,658) $ (15,458,300)
=====================================================================================================
Class L
Shares sold 495,412 $ 3,765,993 355,733 $ 3,117,168
Shares reacquired (4,537,804) (34,444,464) (8,810,786) (77,304,551)
- -----------------------------------------------------------------------------------------------------
Net Decrease (4,042,392) $ (30,678,471) (8,455,053) $ (74,187,383)
=====================================================================================================
11. Subsequent Event
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
$16 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.
20 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout the year ended
September 30, unless otherwise noted:
Class A Shares 2003(1) 2002(1) 2001(1)(2)
==========================================================================================
Net Asset Value, Beginning of Year $ 7.71 $ 9.16 $ 11.40
- ------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.01 0.04 0.10
Net realized and unrealized gain (loss) 0.26 (1.49) (2.31)
- ------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.27 (1.45) (2.21)
- ------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.03)
- ------------------------------------------------------------------------------------------
Total Distributions -- -- (0.03)
- ------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 7.98 $ 7.71 $ 9.16
- ------------------------------------------------------------------------------------------
Total Return 3.50% (15.83)% (19.43)%++
- ------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 16,161 $ 18,665 $ 33,253
Ratios to Average Net Assets:
Expenses 1.11% 1.23% 1.18%+
Net investment income 0.17 0.49 1.05+
- ------------------------------------------------------------------------------------------
Portfolio Turnover Rate 371% 375% 265%
==========================================================================================
Class B Shares 2003(1) 2002(1) 2001(1)(2)
============================================================================================
Net Asset Value, Beginning of Year $ 7.61 $ 9.11 $ 11.40
- --------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.05) (0.02) 0.03
Net realized and unrealized gain (loss) 0.25 (1.48) (2.30)
- --------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.20 (1.50) (2.27)
- --------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.02)
- --------------------------------------------------------------------------------------------
Total Distributions -- -- (0.02)
- --------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 7.81 $ 7.61 $ 9.11
- --------------------------------------------------------------------------------------------
Total Return 2.63% (16.47)% (19.97)%++
- --------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 28,348 $ 33,160 $ 55,932
- --------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.88% 1.98% 1.93%+
Net investment income (loss) (0.59) (0.27) 0.29+
- --------------------------------------------------------------------------------------------
Portfolio Turnover Rate 371% 375% 265%
============================================================================================
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period October 30, 2000 (inception date) to September 30, 2001.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
21 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout the year ended
September 30, unless otherwise noted:
Class L Shares 2003(1) 2002(1) 2001(1)(2)
=========================================================================================
Net Asset Value, Beginning of Year $ 7.61 $ 9.11 $ 11.40
- -----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.04) (0.02) 0.03
Net realized and unrealized gain (loss) 0.24 (1.48) (2.30)
- -----------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.20 (1.50) (2.27)
- -----------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.02)
- -----------------------------------------------------------------------------------------
Total Distributions -- -- (0.02)
- -----------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 7.81 $ 7.61 $ 9.11
- -----------------------------------------------------------------------------------------
Total Return 2.63% (16.47)% (19.97)%++
- -----------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 98,777 $ 126,976 $ 229,096
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.86% 1.97% 1.92%+
Net investment income (loss) (0.57) (0.25) 0.31+
- -----------------------------------------------------------------------------------------
Portfolio Turnover Rate 371% 375% 265%
=========================================================================================
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period October 30, 2000 (inception date) to September 30, 2001.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
22 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Independent Auditors' Report
================================================================================
The Shareholders and Board of Directors of
Smith Barney Investment Funds Inc.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Group Spectrum Fund of Smith Barney
Investment Funds Inc. ("Fund") as of September 30, 2003, and the related
statement of operations for the year then ended, the statements of changes in
net assets for each of the years in the two-year period then ended and the
financial highlights for each of the years in the two-year period then ended and
for the period from October 30, 2000 (inception date) to September 30, 2001.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of September 30, 2003, by correspondence with the custodian
and broker. As to securities sold but not yet delivered, we performed other
appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of September 30, 2003, and the results of its operations for the year
then ended, the changes in its net assets for each of the years in the two-year
period then ended and the financial highlights for each of the years in the
two-year period then ended and for the period from October 30, 2000 to September
30, 2001, in conformity with accounting principles generally accepted in the
United States of America.
/s/ KPMG LLP
New York, New York
November 11, 2003, except for Note 11
Subsequent Event which is dated November 28, 2003.
23 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Additional Information (unaudited)
================================================================================
Information about Directors and Officers
The business and affairs of the Smith Barney Group Spectrum Fund ("Fund") are
managed under the direction of the Board of Directors of Smith Barney Investment
Funds Inc. ("Company"). Information pertaining to the Directors and certain
officers of the Company is set forth below. The Statement of Additional
Information includes additional information about the Company's Directors and is
available, without charge, upon request by calling the Fund's transfer agent
(Citicorp Trust Bank, fsb. at 1-800-451-2010).
Number of
Term of Portfolios
Office* and Principal in the Fund Other
Position(s) Length of Occupation(s) Complex Directorships
Held with Time During Past Overseen Held by
Name, Address and Age Fund Served Five Years by Director Director
====================================================================================================================================
Non-Interested Directors:
Paul R. Ades Director Since Law Firm of Paul R. Ades PLLC; 15 None
Paul R. Ades, PLLC 1994 Partner in Law Firm of Murov &
181 West Main Street, Suite C Ades, Esq.
Babylon, NY 11702
Age 63
Herbert Barg Director Since Retired 42 None
1460 Drayton lane 1994
Wynewood, PA 19096
Age 80
Dwight B. Crane Director Since Professor, Harvard Business School 49 None
Harvard Business School 1981
Soldiers Field
Morgan Hall #375
Boston, MA 02163
Age 66
Frank G. Hubbard Director Since President of Avatar International, Inc. 15 None
Avatar International, Inc. 1993 (business development ) (since 1998);
87 Whittredge Road Vice President of S&S Industries
Summit, NJ07901 (chemical distribution) (1995-1998)
Age 66
Jerome H. Miller Director Since Retired 15 None
c/o R. Jay Gerken 1998
Citigroup Asset Management
("CAM")
399 Park Avenue, 4th Floor
New York, NY 10022
Age 65
Ken Miller Director Since President of Young Stuff 15 None
Young Stuff Apparel Group, Inc. 1994 Apparel Group, Inc. (Since 1963)
930 Fifth Avenue
Suite 610
New York, NY 10021
Age 62
24 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Additional Information (unaudited) (continued)
================================================================================
Number of
Term of Portfolios
Office* and Principal in the Fund Other
Position(s) Length of Occupation(s) Complex Directorships
Held with Time During Past Overseen Held by
Name, Address and Age Fund Served Five Years by Director Director
====================================================================================================================================
Interested Directors:
R. Jay Gerken, CFA** Chairman, Since Managing Director of Citigroup Global 219 None
CAM President and 2002 Markets Inc. ("CGM"); Chairman,
399 Park Avenue, 4th Floor Chief Executive President and Chief Executive Officer
New York, NY 10022 Officer of Smith Barney Fund Management LLC
Age 52 ("SBFM"), Travelers Investment Adviser,
Inc. ("TIA") and Citi Fund Management,
Inc. ("CFM"); President and Chief
Executive Officer of certain mutual
funds associated with Citigroup Inc.
("Citigroup"); formerly, Portfolio
Manager of Smith Barney Allocation
Series Inc. (from 1996-2001) and Smith
Barney Growth and Income Fund (from
1996-2000)
Officers:
Andrew B. Shoup*** Senior Vice Since Director of CAM; Senior Vice President N/A N/A
CAM President and 2003 and Chief Administrative Officer of
125 Broad Street, 10th Floor Chief mutual funds associated with Citigroup
New York, NY 10004 Officer Inc.; Head of International Funds
Age 47 Administrative Administration of CAM from 2001 to 2003;
Director of Global Funds Administration
of CAM from 2000 to 2001; Head of U.S.
Citibank Funds Administration of CAM
from 1998 to 2000
Richard L. Peteka Chief Since Director of CGM; Chief Financial Officer N/A N/A
CAM Financial 2002 and Treasurer of certain mutual funds
125 Broad Street, 11th Floor Officer and associated with Citigroup; Director and
New York, NY 10004 Treasurer Head of Internal Control for Citigroup
Age 42 Asset Management U.S. Mutual Fund
Administration (from 1999-2002); Vice
President, Head of Mutual Fund
Administration and Treasurer at
Oppenheimer Capital (from 1996-1999)
Kevin Kopczynski Vice President Since Director of CGM N/A N/A
CAM and Investment 2000
300 First Stamford Place Officer
4th Floor
Stamford, CT 06902
Age 38
Kaprel Ozsolak Controller Since Vice President of CGM; Controller N/A N/A
CAM 2002 of certain mutual funds associated
125 Broad Street, 11th Floor with Citigroup
New York, NY 10004
Age 38
25 Smith Barney Group Spectrum Fund | 2003 Annual Report
================================================================================
Additional Information (unaudited) (continued)
================================================================================
Number of
Term of Portfolios
Office* and Principal in the Fund Other
Position(s) Length of Occupation(s) Complex Directorships
Held with Time During Past Overseen Held by
Name, Address and Age Fund Served Five Years by Director Director
====================================================================================================================================
Robert I. Frenkel*** Secretary Since Managing Director and General Counsel N/A N/A
CAM and Chief 2003 of Global Mutual Funds for CAM and its
300 First Stamford Place Legal Officer predecessor (since 1994); Secretary
4th Floor of CFM; Secretary and Chief Legal
Stamford, CT 06902 Officer of mutual funds associated with
Age 48 Citigroup Inc.
- ------------
* Each Director and Officer serves until his or her successor has been duly
elected and qualified.
** Mr. Gerken is an "interested person" of the Fund as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is an
officer of SBFM and of certain of its affiliates.
*** As of November 25, 2003.
26 Smith Barney Group Spectrum Fund | 2003 Annual Report
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(This page intentionally left blank.)
- --------------------------------------------------------------------------------
SMITH BARNEY
GROUP SPECTRUM FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIRECTORS
Paul R. Ades
Herbert Barg
Dwight B. Crane
R. Jay Gerken, CFA
Chairman
Frank G. Hubbard
Jerome H. Miller
Ken Miller
OFFICERS
R. Jay Gerken, CFA
President and Chief
Executive Officer
Andrew B. Shoup*
Senior Vice President and
Chief Administrative Officer
Richard L. Peteka
Chief Financial Officer
and Treasurer
Kevin Kopczynski
Vice President and
Investment Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel*
Secretary and
Chief Legal Officer
INVESTMENT MANAGER
Smith Barney Fund
Management LLC
DISTRIBUTOR
Citigroup Global Markets 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 AGENT
PFPC Inc.
P.O. Box 9699
Providence, Rhode Island
02940-9699
* As of November 25, 2003.
Smith Barney Group Spectrum Fund
================================================================================
Smith Barney Group Spectrum Fund
The Fund is a separate investment fund of the Smith Barney Investment Funds
Inc., a Maryland corporation.
This report is submitted for the general information of the shareholders of
Smith Barney Investment Funds Inc. - Smith Barney Group Spectrum Fund, but it
may also be used as sales literature when preceded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after December 31,
2003, this report must be accompanied by performance information for the most
recently completed calendar quarter.
SMITH BARNEY GROUP SPECTRUM FUND
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
For complete information on any Smith Barney Mutual Funds, including management
fees and expenses, call or write your financial professional for a free
prospectus. Read it carefully before you invest or send money.
www.smithbarneymutualfunds.com
(C)2003 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02395 11/03 03-5675
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer,
principal accounting officer or controller.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Board of Directors of the registrant has determined that Dwight
Crane, a member of the Board's Audit Committee, possesses the technical
attributes identified in Instruction 2(b) of Item 3 to Form N-CSR to
qualify as an "audit committee financial expert," and has designated
Mr. Crane as the Audit Committee's financial expert. Mr. Crane is an
"independent" Director pursuant to paragraph (a)(2) of Item 3 to Form
N-CSR.
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) Code of Ethics attached hereto.
Exhibit 99.CODE ETH
(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 Investment Funds Inc.
By: /s/ R. Jay Gerken
R. Jay Gerken
Chief Executive Officer of
Smith Barney Investment Funds Inc.
Date: December 12, 2003
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 Investment Funds Inc.
Date: December 12, 2003
By: /s/ Richard L. Peteka
Richard L. Peteka
Chief Financial Officer of
Smith Barney Investment Funds Inc.
Date: December 12, 2003