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 811-5018
Smith Barney Investment Series
(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: October 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
The Annual Report to Stockholders is filed herewith.
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SMITH BARNEY
INVESTMENT SERIES
- --------------------------------------------------------------------------------
ANNUAL REPORT | OCTOBER 31, 2003
Smith Barney Premier Selections
All Cap Growth Portfolio
Smith Barney Large Cap Core Portfolio
Smith Barney Growth and Income Portfolio
SB Government Portfolio
[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 . NOT BANK GUARANTEED . MAY LOSE VALUE
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WHAT'S INSIDE
Letter from the Chairman...................................... 1
Smith Barney Investment Series
Smith Barney Premier Selections All Cap Growth Portfolio.. 3
Smith Barney Large Cap Core Portfolio..................... 6
Smith Barney Growth and Income Portfolio.................. 9
SB Government Portfolio................................... 12
Schedules of Investments...................................... 15
Statements of Assets and Liabilities.......................... 30
Statements of Operations...................................... 31
Statements of Changes in Net Assets........................... 32
Notes to Financial Statements................................. 34
Financial Highlights.......................................... 40
Independent Auditors' Report.................................. 44
Additional Information........................................ 45
Tax Information............................................... 50
Management of the Series...................................... IBC
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
R. JAY GERKEN, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
The funds' fiscal year was a time of heightened market volatility. At the
beginning of the period in November 2002, the economic environment was
dominated by geopolitical tension, corporate scandals, declining consumer
confidence and concerns regarding the general strength of the global economy.
The months leading up to the war in Iraq were times of apprehension and
caution. Businesses and consumers alike chose to slow their spending due to
war-related uncertainty. Consequently, the U.S. economy and the stock market in
general remained weak through the first quarter of 2003.
However, when the U.S.-led coalition entered Iraq in late March and investors
turned their attention to a pending stabilization in the outlook for corporate
earnings, the U.S. stock market rebounded. Unlike previous rallies over the
past three years, this one proved sustainable, and stock prices generally rose
through the end of the funds' fiscal year in October 2003.
If you have any questions about recent economic events or investing in a
recovering economy, we urge you to talk with your financial adviser. Please
read on to learn more about your funds' performance and the Manager's strategy.
As always, thank you for entrusting your assets to us. We look forward to
helping you continue to meet your financial goals.
Sincerely,
/s/ R Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
November 12, 2003
1 Smith Barney Investment Series | 2003 Annual Report
PERFORMANCE OF THE SMITH BARNEY INVESTMENT SERIES
AS OF OCTOBER 31, 2003/1/
6 Months 12 Months
Smith Barney Premier Selections All Cap Growth Portfolio 23.78% 27.79%
Russell 1000 Growth Index/2/ 16.81% 21.81%
Russell 2000 Growth Index/3/ 36.11% 46.56%
S&P MidCap 400 Index/4/ 25.61% 30.61%
Average of Lipper variable multi-cap growth funds/5/ 21.85% 27.50%
Smith Barney Large Cap Core Portfolio 12.26% 15.47%
S&P 500 Index/6/ 15.62% 20.79%
Average of Lipper variable large-cap core funds/7/ 14.57% 18.38%
Smith Barney Growth and Income Portfolio 16.41% 22.09%
S&P 500 Index/6/ 15.62% 20.79%
Average of Lipper variable large-cap core funds/7/ 14.57% 18.38%
SB Government Portfolio -1.35% 0.87%
Lehman Brothers Government Bond Index/8/ -0.19% 2.90%
Average of Lipper variable general U.S. government funds/9/ -0.16% 2.95%
/1/ The performance returns set forth above do not reflect the reduction of
initial charges and expenses imposed in connection with investing in
variable annuity contracts such as administrative fees, account charges and
surrender charges, which if reflected, would reduce the performance of the
funds. Past performance is not indicative of future results.
/2/ The Russell 1000 Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values. Please note that an investor cannot invest directly in an
index.
/3/ The Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values. Please note that an investor cannot invest directly in an
index.
/4/ The S&P MidCap 400 Index is a market-value weighted index consisting of 400
domestic stocks chosen for market size, liquidity, and industry group
representation. Please note that an investor cannot invest directly in an
index.
/5/ Lipper Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended October 31, 2003, calculated among
105 funds for the six-month period and 104 funds for the 12-month period in
the fund's Lipper peer group including the reinvestment of dividends and
capital gains.
/6/ 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.
/7/ Returns are based on the period ended October 31, 2003, calculated among
234 funds for the six-month period and 230 funds for the 12-month period in
the fund's Lipper peer group including the reinvestment of dividends and
capital gains.
/8/ The Lehman Brothers Government Bond Index is a broad-based index of all
public debt obligations of the U.S. government and its agencies that have
an average maturity of roughly nine years. Please note that an investor
cannot invest directly in an index.
/9/ Returns are based on the period ended October 31, 2003, calculated among 52
funds for the six-month period and 50 funds for the 12-month period in the
fund's Lipper peer group including the reinvestment of dividends and
capital gains.
Additional Information About Your Fund
The Funds' Adviser and some of its affiliates have received requests for
information from various government regulations regarding market timing, late
trading, fees and other mutual fund issues in connection with various
investigations. 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.
2 Smith Barney Investment Series | 2003 Annual Report
SMITH BARNEY PREMIER SELECTIONS ALL CAP GROWTH PORTFOLIO
Performance Update
For the 12 months ended October 31, 2003, the fund returned 27.79%. In
comparison, the fund outperformed its large-cap growth benchmark, the unmanaged
Russell 1000 Growth Index,/i/ which returned 21.81% for the same period, but
underperformed its small-cap growth and mid-cap benchmarks, the unmanaged
Russell 2000 Growth Index/ii/ and the unmanaged S&P MidCap 400 Index,/iii/
which returned 46.56% and 30.61%, respectively, for the same period. The fund
also outperformed its Lipper peer group of variable multi-cap growth funds,
which had an average return of 27.50% for the same period./1/ Past performance
is no guarantee of future results.
Waning Uncertainties Buoyed Equity Market
When the period began, rising tensions and the eventual armed conflict between
U.S.-led coalition forces and Iraq, the sudden and rapid spread of Severe Acute
Respiratory Syndrome ("SARS"), as well as ongoing revelations of misdeeds by a
number of corporations and their officers had a profoundly negative impact on
business, consumer and investor confidence and on an already fragile global
economy. The end of major hostilities in Iraq removed some of the uncertainties
that had slowed economic recovery in the U.S.
Throughout the period, the Fed continued its highly accommodative monetary
policy, maintaining key interest rates at four-decade lows as additional tax
relief measures worked their way through the U.S. Congress. Toward the end of
the period, this accommodative policy and improving investor confidence buoyed
the equity markets, offering some measure of relief for equity investors. By
the end of the third calendar quarter of 2003, for the first time since 1999,
many of the major U.S. stock indexes had posted back-to-back quarterly gains.
The third quarter also saw economic indicators, including Gross Domestic
Product/iv/ and employment figures, show signs of improvement.
Contributors to Fund Performance/2/
Amidst this environment, the fund experienced positive returns, driven largely
by holdings in the Consumer Discretionary and Information Technology sectors.
The top contributors to performance for the period included Amazon.com, Inc.,
an Internet retailer in the Consumer Discretionary sector and in the
Industrials sector, Career Education Corp., an owner and operator of private,
career-oriented schools. Other stocks that helped performance included holdings
in the Information Technology sector, namely Texas Instruments Inc. and Intel
Corp., both manufacturers of semiconductors and related devices for use in
computers and electronic equipment. Shares of retailer Coach, Inc., in the
Consumer Discretionary sector, a producer of luxury leather goods and
accessories, were another major contributor to performance for the period.
While fund performance for the period was positive overall, some stocks in the
fund's portfolio lost value during the period, primarily those in the
Healthcare sector. Specific stocks that hurt performance include CACI
International Inc. in the Information
/1/ Lipper Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended October 31, 2003, calculated among
104 funds for the 12-month period in the fund's Lipper peer group including
the reinvestment of dividends and capital gains.
/2/ Portfolio holdings and breakdowns are as of October 31, 2003 and are
subject to change. The fund's top ten holdings as of this date were:
Amazon.com, Inc. (4.74%); Texas Instruments Inc. (3.56%); Berkshire
Hathaway Inc. (3.23%); The Coca Cola Co. (2.78%); The Gillette Co. (2.38%);
Career Education Corp. (2.30%); Microsoft Corp. (2.21%); Amgen Inc.
(2.12%); Merck & Co. Inc. (2.02%); The Home Depot, Inc. (1.98%).
3 Smith Barney Investment Series | 2003 Annual Report
Technology sector and PETCO Animal Supplies Inc. in the Consumer Discretionary
sector. Shares of both PacifiCare Health Systems Inc. and diversified
healthcare product maker Johnson & Johnson, in the Healthcare sector, lost
value over the period, as did stock of Commerce Bancorp Inc. in the Financials
sector.
At the end of the 12-month period, the fund's most heavily weighted holding was
in Amazon.com, Inc. followed by the fund's position in Texas Instruments Inc.
Shares of Berkshire Hathaway Inc., a holding company for billionaire Warren
Buffett's investments, primarily in the insurance industry accounted for the
third biggest weight in the portfolio, with holdings in soft-drink giant The
Coca-Cola Co. and The Gillette Co., a maker of shaving supplies and other
consumer products, as the fourth and fifth biggest, respectively.
Thank you for your investment in the Smith Barney Premier Selections All Cap
Growth Portfolio. We appreciate that you have entrusted us to manage your money
and value our relationship with you.
Sincerely,
/s/ Alan Blake /s/ Lawrence Weissman
Alan J. Blake Lawrence B. Weissmann, CFA
Portfolio Manager Portfolio Manager
/s/ Timothy Woods
Timothy Woods, CFA
Portfolio Manager
November 12, 2003
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 October 31, 2003 and are subject to
change. Please refer to pages 15 through 19 for a list and percentage breakdown
of the fund's holdings.
/i/ The Russell 1000 Growth Index measures the performance of those Russell
1000 companies with higher price-to-book ratios and higher forecasted
growth values. Please note that an investor cannot invest directly in an
index.
/ii/ The Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values. Please note that an investor cannot invest directly in an
index.
/iii/ The S&P MidCap 400 Index is a market-value weighted index consisting of
400 domestic stocks chosen for market size, liquidity, and industry group
representation. Please note that an investor cannot invest directly in an
index.
/iv/ Gross Domestic Product is a market value of goods and services produced by
labor and property in a given country.
4 Smith Barney Investment Series | 2003 Annual Report
Smith Barney Premier Selections All Cap Growth Portfolio* at a Glance
(unaudited)
Value of $10,000 Invested in the Smith Barney Premier Selections All Cap Growth
Portfolio vs. S&P MidCap 400 Index, Russell 1000 Growth Index and Russell 2000
Growth Index+
- --------------------------------------------------------------------------------
September 1999 -- October 2003
[CHART]
Smith Barney Premier
Selections All Cap Russell 1000 Russell 2000 S&P MidCap
Growth Portfolio Growth Index Growth Index 400 Index
------------------- ------------ ------------ ----------
9/15/1999 $10,000 $10,000 $10,000 $10,000
10/99 10,110 10,755 10,256 9,975
10/00 14,501 11,758 11,914 13,132
10/01 10,810 7,062 8,160 11,496
10/02 9,032 5,676 6,401 10,949
10/31/2003 11,542 6,914 9,381 14,301
+ Hypothetical illustration of $10,000 invested on September 15, 1999
(commencement of operations), assuming the reinvestment of dividends and
capital gains, if any, at net asset value through October 31, 2003. Before May
1, 2001, the Portfolio was known as the Select Mid Cap Portfolio and had a
different investment style. The S&P MidCap 400 Index is a widely recognized
index of 400 medium-capitalization stocks. Figures for the S&P MidCap 400
Index include reinvestment of dividends. The Russell 1000 Growth Index
("Russell 1000 Growth") measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values. (A price-to-book ratio is the price of a stock compared to the
difference between a company's assets and liabilities. The Russell 2000 Growth
Index ("Russell 2000 Growth") measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values. (A price-to-book ratio is the price of a stock compared to the
difference between a company's assets and liabilities.) The Indices are
unmanaged and are not subject to the same management and trading expenses of a
mutual fund. Please note that an investor cannot invest directly in an index.
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.
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. The graph does not reflect expenses associated with the
separate account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns for all periods
shown.
Average Annual Total Returns++ (unaudited)
Twelve Months Ended 10/31/03 27.79%
- -----------------------------------------
9/15/99** through 10/31/03 3.54
- -----------------------------------------
Cumulative Total Return++ (unaudited)
9/15/99** through 10/31/03 15.42%
- --------------------------------------------------
* Before May 1, 2001, the Portfolio was known as Select Mid Cap Portfolio and
had a different investment style.
** Commencement of operations.
++ Assumes reinvestment of all dividends and capital gain distributions.
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.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown.
5 Smith Barney Investment Series | 2003 Annual Report
Smith Barney Large Cap Core Portfolio
Performance Update
For the 12 months ended October 31, 2003, the fund returned 15.47%. In
comparison, the fund underperformed its benchmark, the unmanaged S&P 500
Index,/i/ which returned 20.79% for the same period. The fund also
underperformed its Lipper peer group of variable large-cap core funds, which
had an average return of 18.38% for the same period./1/ Past performance is no
guarantee of future results.
Improving Environment for Stocks
The U.S. equity market rallied sharply during the six months ended October 31,
as investors responded to a number of positive developments. The end of major
combat in Iraq, a rebound in consumer confidence, and improved corporate
profits all helped buoy stocks. Accommodative monetary and fiscal policy also
contributed to the market's advance as the Fed lowered the federal funds
rate/ii/ in June another quarter of a percent to 1.0%, a four-decade low. On
the fiscal front, Congress passed a tax reduction package that included rate
reductions on capital gains and dividends.
From August through October, the economy grew at its fastest pace since 1984.
The recent performance of the U.S. economy has supported an improvement in
investor sentiment and corporate earnings. This economic environment proved to
be a favorable one for the fund, as evidenced by its returns for the period.
Drivers of Fund Performance/2/
In this market environment, the fund experienced positive returns, with
performance fueled largely by holdings in the Information Technology sector.
Shares of semiconductor maker Intel Corp., computer networking firm Cisco
Systems, Inc. and data management specialist VERITAS Software Corp., all in the
Information Technology sector, were the leading contributors to the fund's
positive performance for the period. Other major contributors to performance
included stock of General Electric Co., a producer of a wide range of
commercial technologies and equipment in the Industrials sector, along with
shares of banking and financial services giant J.P. Morgan Chase & Co. in the
Financials sector.
While fund performance for the period was positive overall, some stocks in the
fund's portfolio lost value during the period, several of which were in the
Healthcare sector including hospital operator HCA Inc., pharmaceutical firm
Merck & Co. Inc. and diversified health care product supplier Johnson &
Johnson. Other stocks that detracted from performance for the period include
insurance company American International Group, Inc. in the Financials sector
and packaged-foods giant Kraft Foods Inc.
At the end of the 12-month period, the fund's most heavily weighted holding was
in oil company Exxon Mobil Corp., followed by shares of pharmaceutical firm
Pfizer Inc., Intel Corp., General Electric Co. and software titan Microsoft
Corp.
/1/ Lipper Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended October 31, 2003, calculated among
230 funds for the 12-month period in the fund's Lipper peer group including
the reinvestment of dividends and capital gains and excluding sales
charges.
/2/ Portfolio holdings and breakdowns are as of October 31, 2003 and are
subject to change. The fund's top ten holdings as of this date were: Exxon
Mobil Corp. (3.38%); Pfizer Inc. (3.22%); Intel Corp. (3.02%); General
Electric Co. (3.01%); Microsoft Corp. (2.94%); Wal-Mart Stores, Inc.
(2.20%); Merrill Lynch & Co., Inc. (2.14%); American Express Co. (2.12%);
Teva Pharmaceutical Industries Ltd. (1.96%); VERITAS Software Corp.
(1.93%).
6 Smith Barney Investment Series | 2003 Annual Report
Thank you for your investment in the Smith Barney Large Cap Core Portfolio. We
appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ Lawrence Weissman
Lawrence B. Weissman, CFA
Portfolio Manager
November 20, 2003
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 October 31, 2003 and are subject to
change. Please refer to pages 20 through 23 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.
/ii/ The federal funds rate is the interest rate that banks with excess reserves
at a Federal Reserve district bank charge other banks that need overnight
loans.
7 Smith Barney Investment Series | 2003 Annual Report
Smith Barney Large Cap Core Portfolio at a Glance (unaudited)
Value of $10,000 Invested in the Smith Barney Large Cap Core Portfolio vs. S&P
500 Index+
- --------------------------------------------------------------------------------
September 1999 -- October 2003
[CHART]
Smith Barney S&P
Large Cap Core 500
Portfolio Index
-------------- -------
9/15/1999 $10,000 $10,000
10/99 10,510 10,633
10/00 12,150 11,278
10/01 8,988 8,471
10/02 7,285 7,193
10/31/2003 8,412 8,688
+ Hypothetical illustration of $10,000 invested on September 15, 1999
(commencement of operations), assuming the reinvestment of dividends and
capital gains, if any, at net asset value through October 31, 2003. The S&P
500 Index is an index of widely held common stocks listed on the New York and
American Stock Exchanges and the over-the-counter markets. Figures for the S&P
500 Index include reinvestment of dividends. The Index is unmanaged and is not
subject to the same management and trading expenses of a mutual fund. Please
note that an investor cannot invest directly in an index. 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.
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. The graph does not reflect expenses associated with the
separate account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns for all periods
shown.
Average Annual Total Returns++ (unaudited)
Twelve Months Ended 10/31/03 15.47%
- -----------------------------------------
9/15/99* through 10/31/03 (4.10)
- -----------------------------------------
Cumulative Total Return++ (unaudited)
9/15/99* through 10/31/03 (15.88)%
- ----------------------------------------------------
++ Assumes reinvestment of all dividends and capital distributions. 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. Total
returns do not reflect expenses associated with the separate account such as
administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown.
* Commencement of operations.
8 Smith Barney Investment Series | 2003 Annual Report
Smith Barney Growth and Income Portfolio
Special Shareholder Notice
Effective November 10, 2003, Kevin Caliendo is co-portfolio manager of the
fund, along with Michael Kagan.
Performance Update
For the 12 months ended October 31, 2003, the fund returned 22.09%. In
comparison, the fund outperformed its benchmark, the unmanaged S&P 500
Index,/i/ which returned 20.79% for the same period. The fund also outperformed
its Lipper peer group of variable large-cap core funds, which had an average
return of 18.38% for the same period./1/ Past performance is no guarantee of
future results.
Equity Market Rally
The U.S. equity market rallied sharply during the six months ended October 31,
as investors responded to a number of positive developments. The end of major
combat in Iraq, a rebound in consumer confidence and improved corporate profits
all helped buoy stocks. Accommodative monetary and fiscal policy also
contributed to the market's advance. On the monetary front, in June the Fed
lowered the federal funds rate/ii/ another quarter of a percent to 1.0%, a
four-decade low. On the fiscal front, Congress passed a tax reduction package
that included rate reductions on capital gains and dividends.
From August through October, the economy grew at its fastest pace since 1984.
The issue facing the market now, is will the economy accelerate so much that
the Fed has to slam on the brakes by raising rates -- and if so, how soon will
they act?
Contributors to Fund Performance/2/
This economic environment proved to be a favorable one for the fund, as
evidenced by its returns for the period. The leading individual contributor to
the fund's performance for the period was its position in electronics retailer
Best Buy Co., Inc. in the Consumer Discretionary sector. Sales of large screen
and high definition TVs enabled Best Buy to show positive sales and earnings
surprises the past three calendar quarters. Teva Pharmaceutical Industries
Ltd., a generic pharmaceutical specialist in the Healthcare sector was the
second biggest contributor to performance for the period. Other holdings that
contributed positively to performance included shares of semiconductor maker
Intel Corp., data management specialist VERITAS Software Corp. and computer
networking firm Cisco Systems, Inc., all in the Information Technology sector.
While performance for the fund was positive during the period, some stocks in
the portfolio lost value over the period, including shares of software industry
leader Microsoft Corp., packaged-foods giant Kraft Foods Inc. in the Consumer
Staples sector and wireless phone maker Nokia Corp. Other major detractors from
performance include home mortgage lender Freddie Mac in the Financials sector
and pharmaceuticals firm Merck & Co. Inc.
At the close of the period, the portfolio's largest weights were in
pharmaceutical company Pfizer Inc., General Electric Co., a producer of a wide
range of commercial technologies and equipment in the Industrials sector,
Microsoft Corp., oil company Exxon Mobil Corp. and Best Buy Co., Inc.
/1/ Lipper Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended October 31, 2003, calculated among
230 funds for the 12-month period in the fund's Lipper peer group including
the reinvestment of dividends and capital gains and excluding sales
charges.
/2/ Portfolio holdings and breakdowns are as of October 31, 2003 and are
subject to change. These fund's top ten holdings as of this date were:
Pfizer Inc. (3.50%); General Electric Co. (3.18%); Microsoft Corp. (2.90%);
Exxon Mobil Corp. (2.65%); Best Buy Co., Inc. (2.60%); Intel Corp. (2.45%);
Teva Pharmaceutical Industries Ltd. (2.33%); The Bank of New York Co., Inc.
(2.32%); American International Group, Inc. (2.20%); Alcoa Inc. (2.07%).
9 Smith Barney Investment Series | 2003 Annual Report
Thank you for your investment in the Smith Barney Growth and Income Portfolio.
We appreciate that you have entrusted us to manage your money and value our
relationship with you.
Sincerely,
/s/ Michael Kagan /s/ Kevin Caliendo
Michael A. Kagan Kevin Caliendo
Portfolio Manager Portfolio Manager
November 20, 2003
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 October 31, 2003 and are subject to
change. Please refer to pages 24 through 27 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.
/ii/ The federal funds rate is the interest rate that banks with excess reserves
at a Federal Reserve district bank charge other banks that need overnight
loans.
10 Smith Barney Investment Series | 2003 Annual Report
Smith Barney Growth and Income Portfolio at a Glance (unaudited)
Value of $10,000 Invested in the Smith Barney Growth and Income Portfolio vs.
S&P 500 Index+
- --------------------------------------------------------------------------------
September 1999 -- October 2003
[CHART]
Smith Barney Growth S&P
and Income Portfolio 500 Index
-------------------- -----------------
9/15/1999 $10,000 $10,000
10/99 10,100 10,633
10/00 10,793 11,278
10/01 8,242 8,471
10/02 7,050 7,193
10/31/2003 8,607 8,688
+Hypothetical illustration of $10,000 invested on September 15, 1999
(commencement of operations), assuming the reinvestment of dividends and
capital gains, if any, at net asset value through October 31, 2003. The S&P
500 Index is an index of widely held common stocks listed on the New York and
American Stock Exchanges and the over-the-counter markets. Figures for the S&P
500 Index include reinvestment of dividends. The Index is unmanaged and is not
subject to the same management and trading expenses of a mutual fund. Please
note that an investor cannot invest directly in an index. 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.
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. The graph does not reflect expenses associated with the
separate account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns for all periods
shown.
Average Annual Total Returns++ (unaudited)
Twelve Months Ended 10/31/03 22.09%
- -----------------------------------------
9/15/99* through 10/31/03 (3.57)
- -----------------------------------------
Cumulative Total Return++ (unaudited)
9/15/99* through 10/31/03 (13.93)%
- ----------------------------------------------------
++ Assumes reinvestment of all dividends and capital gain distributions.
Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of the
fee waivers and/or expense reimbursements, the total return would be
reduced. Total returns do not reflect expenses associated with the separate
account such as administrative fees, account charges and surrender charges
which, if reflected, would reduce the total returns for all periods shown.
* Commencement of operations.
11 Smith Barney Investment Series | 2003 Annual Report
SB Government Portfolio
Performance Update
For the 12 months ended October 31, 2003, the fund returned 0.87%. In
comparison, the fund underperformed its benchmark, the unmanaged Lehman
Brothers Government Bond Index,/i/ which returned 2.90% for the same period.
The fund also underperformed its Lipper peer group of variable general U.S.
government funds, which had an average return of 2.95% for the same period./1/
Past performance is no guarantee of future results.
A Vacillating Government Bond Market
Early in the period, in the wake of a sputtering U.S. economy, the conflict
with Iraq and more pronounced concerns about North Korea's nuclear program,
U.S. Treasuries vacillated but performed relatively well as investors in search
of safer-haven investments turned to U.S. government securities. In May,
Treasury bond prices rose significantly in anticipation that the Fed would
lower its target for short-term rates to create a more accommodative borrowing
environment (as prices of bonds move opposite to interest rates and yields). In
June, the Fed proceeded to lower its interest rate targets to their lowest
levels since the Eisenhower Administration. Given the combination of rate cuts
and a significant tax-cut package passed by lawmakers this year, it seemed that
the U.S. government was going to throw "everything but the kitchen sink" at the
economy in an attempt to revive its growth.
Shortly after the Fed's rate reduction, U.S. Treasury bonds sold off. Treasury
prices spiraled lower in July due to stronger-than-expected economic data,
which generated interest rate concerns. For example, yields on the two-year
Treasury note edged higher from July through August as estimates of Gross
Domestic Product ("GDP")/ii /growth soared. The decline was exacerbated due to
selling from investors holding mortgage-backed securities ("MBS") in their
portfolios. Many investors who had previously bought Treasuries when long-term
yields were dropping to help hedge their portfolios' exposure to MBS reversed
course as yields rose in July by selling Treasuries to help lower the
duration/iii/ to better preserve the value of their portfolios against a
further rise in long-term rates. Although Treasury bonds fluctuated
significantly in July, the prices of mortgage-backed securities held up
considerably better that month.
Prices of Treasuries bounced back in September as investors questioned the
strength of 2004 economic growth, but rate concerns resurfaced after the
Commerce Department released preliminary third-quarter economic data stating
that the economy grew at its fastest pace in almost 20 years. However, selling
in the Treasury markets was more contained than in July as some of this growth
was attributable to one-time factors, such as the tax cuts and end of the war,
and many analysts and investors felt that the Fed appeared to be in a holding
pattern from adjusting its rate targets.
Domestic market participants have recently continued to debate the
sustainability of economic growth into 2004 with particular attention fixed on
the employment situation, which has remained rather tepid. The Fed has recently
held interest rates steady, although investor
/1/ Lipper Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended October 31, 2003, calculated among 50
funds for the 12-month period in the fund's Lipper peer group including the
reinvestment of dividends and capital gains and excluding sales charges.
12 Smith Barney Investment Series | 2003 Annual Report
interpretation of just what the Fed means by being on hold for "a considerable
period" of time proved to be fickle. Looking back, the residential MBS market
has been a focus of market attention this past year. Hedging activity among
investors against rapidly changing MBS characteristics likely caused long-term
rates to fall further than they otherwise may have.
Portfolio Changes During the Period
During the period, the fund significantly reduced its exposure to U.S. Treasury
obligations and raised its position in mortgage-backed securities. We
strategically allocated the portfolio to MBS, U.S. Treasuries, agencies and
asset-backed securities. Some of the portfolio's underperformance was due to
the extreme volatility of the Treasury market, which resulted in a high degree
of prepayments on the portfolio's MBS. Also, being longer than the benchmark in
duration recently detracted from performance, as long-term rates rose.
Typically, MBS have tended to perform more favorably in environments when
interest rate volatility is low. While a substantial portion of the portfolio's
holdings are in MBS, we maintained a view during the period that there remains
potential opportunity in this asset class at various levels, and we continued
to allocate to this sector.
Although interest rate fluctuations can be unpredictable, as of the period's
close we maintained a more defensive posture in terms of the portfolio's
exposure to interest rate risk, relative to prior periods. We plan to remain
attentive to the interest rate environment while seeking competitive yields.
Thank you for your investment in the SB Government Portfolio. We appreciate
that you have entrusted us to manage your money and value our relationship with
you.
Sincerely,
/s/ Roger M. Lavan /s/ Francis L. Mustaro
Roger M. Lavan, CFA Francis L. Mustaro
Portfolio Manager Portfolio Manager
November 20, 2003
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 October 31, 2003 and are subject to
change. Please refer to pages 28 and 29 for a list and percentage breakdown of
the fund's holdings.
/i/ The Lehman Brothers Government Bond Index is a broad-based index of all
public debt obligations of the U.S. government and its agencies that have
an average maturity of roughly nine years. Please note that an investor
cannot invest directly in an index.
/ii/ GDP is a market value of goods and services produced by labor and property
in a given country.
/iii/ Duration is a common gauge of the price sensitivity of a fixed-income
asset or portfolio to a change in interest rates.
13 Smith Barney Investment Series | 2003 Annual Report
SB Government Portfolio at a Glance (unaudited)
Value of $10,000 Invested in the SB Government Portfolio vs. Lehman Brothers
Government Bond Index+
- --------------------------------------------------------------------------------
September 1999 -- October 2003
[CHART]
SB Government Lehman Brothers
Portfolio Government Bond Index
--------------- ---------------------
9/15/1999 $10,000 $10,000
10/99 10,130 10,016
10/00 10,793 10,820
10/01 12,257 12,451
10/02 12,772 13,249
10/31/2003 12,883 13,634
+ Hypothetical illustration of $10,000 invested on September 15, 1999
(commencement of operations), assuming the reinvestment of dividends and
capital gains, if any, at net asset value through October 31, 2003. The Lehman
Brothers Government Bond Index includes U.S. Treasury and government agency
securities with maturities of one year or more having a minimum outstanding
principal of $100 million and are only fixed-coupon securities. 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.
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.
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. The graph does not reflect expenses associated with the
separate account such as administrative fees, account charges and surrender
charges which, if reflected, would reduce the total returns for all periods
shown.
Average Annual Total Returns++ (unaudited)
Twelve Months Ended 10/31/03 0.87%
- -----------------------------------------
9/15/99* through 10/31/03 6.33
- -----------------------------------------
Cumulative Total Return++ (unaudited)
9/15/99* through 10/31/03 28.83%
- --------------------------------------------------
++ Assumes reinvestment of all dividends and capital gain distributions.
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.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown.
* Commencement of operations.
14 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments October 31, 2003
Smith Barney Premier Selections All Cap Growth Portfolio
SHARES SECURITY VALUE
- ------------------------------------------------------------------
COMMON STOCK -- 99.1%
Aerospace and Defense -- 0.5%
3,085 Alliant Techsystems Inc.* $ 159,680
- ------------------------------------------------------------------
Air Freight and Couriers -- 0.2%
2,025 Expeditors International of Washington, Inc. 76,018
- ------------------------------------------------------------------
Auto Components -- 0.6%
3,400 Lear Corp.* 197,506
- ------------------------------------------------------------------
Banks -- 2.4%
6,650 Banknorth Group, Inc. 208,278
2,300 M&T Bank Corp. 215,970
4,300 Westamerica Bancorporation 215,258
3,300 Zion Bancorporation 202,257
- ------------------------------------------------------------------
841,763
- ------------------------------------------------------------------
Beverages -- 2.8%
20,900 The Coca-Cola Co. 969,760
- ------------------------------------------------------------------
Biotechnology -- 3.1%
12,000 Amgen Inc.* 741,120
3,000 Gilead Sciences, Inc.* 163,740
2,700 Idec Pharmaceuticals Corp.*+ 94,851
3,600 MedImmune, Inc.* 95,976
- ------------------------------------------------------------------
1,095,687
- ------------------------------------------------------------------
Building Products -- 0.6%
2,000 American Standard Cos. Inc.* 191,400
- ------------------------------------------------------------------
Chemicals -- 0.7%
5,400 Valspar Corp. 257,580
- ------------------------------------------------------------------
Commercial Services and Supplies -- 5.6%
7,900 Alliance Data Systems Corp.* 219,462
7,101 ARAMARK Corp., Class B Shares* 189,739
15,000 Career Education Corp.* 803,250
5,600 DST Systems, Inc.* 211,792
5,000 Manpower Inc. 232,000
10,900 Monster Worldwide Inc.* 277,623
- ------------------------------------------------------------------
1,933,866
- ------------------------------------------------------------------
Communications Equipment -- 3.3%
8,700 Advanced Fibre Communications, Inc.* 209,409
12,600 Cisco Systems, Inc.* 264,348
11,800 Emulex Corp.* 334,176
26,500 Motorola, Inc. 358,545
- ------------------------------------------------------------------
1,166,478
- ------------------------------------------------------------------
Computers and Peripherals -- 1.1%
4,400 Dell Inc.* 158,928
8,300 Electronics for Imaging, Inc.* 224,930
- ------------------------------------------------------------------
383,858
- ------------------------------------------------------------------
Construction and Engineering -- 0.5%
3,800 Jacobs Engineering Group Inc.* 176,016
- ------------------------------------------------------------------
Containers and Packaging -- 0.8%
18,100 Smurfit-Stone Container Corp.* 280,550
- ------------------------------------------------------------------
See Notes to Financial Statements.
15 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Premier Selections All Cap Growth Portfolio
SHARES SECURITY VALUE
- ---------------------------------------------------------------------
Diversified Financials -- 4.1%
5,300 Affiliated Managers Group, Inc.* $ 384,250
6,000 Investors Financial Services Corp. 211,980
10,000 Merrill Lynch & Co., Inc. 592,000
10,300 Waddell & Reed Financial, Inc., Class A Shares 228,454
- ---------------------------------------------------------------------
1,416,684
- ---------------------------------------------------------------------
Electric Utilities -- 0.5%
5,000 Wisconsin Energy Corp. 163,750
- ---------------------------------------------------------------------
Electronic Equipment and Instruments -- 1.5%
5,600 Benchmark Electronics, Inc.* 272,832
2,000 Diebold, Inc. 114,120
5,200 Jabil Circuit, Inc.* 144,820
- ---------------------------------------------------------------------
531,772
- ---------------------------------------------------------------------
Energy Equipment and Services -- 1.6%
9,800 FMC Technologies, Inc.* 196,784
3,950 Nabors Industries, Ltd.* 149,310
5,500 Smith International, Inc.* 204,765
- ---------------------------------------------------------------------
550,859
- ---------------------------------------------------------------------
Food and Drug Retailing -- 0.5%
4,475 Performance Food Group Co.* 166,694
- ---------------------------------------------------------------------
Food Products -- 1.2%
7,400 Hormel Foods Corp. 182,706
4,100 Wm. Wrigley Jr. Co. 231,240
- ---------------------------------------------------------------------
413,946
- ---------------------------------------------------------------------
Gas Utilities -- 0.3%
2,950 KeySpan Corp. 103,161
- ---------------------------------------------------------------------
Healthcare Equipment and Supplies -- 2.5%
6,600 Advanced Neuromodulation Systems, Inc.* 270,600
4,450 DENTSPLY International Inc. 196,646
5,600 ResMed Inc.* 233,912
2,800 St. Jude Medical, Inc.* 162,848
- ---------------------------------------------------------------------
864,006
- ---------------------------------------------------------------------
Healthcare Providers and Services -- 3.8%
9,600 Coventry Health Care, Inc.* 525,600
7,500 Henry Schein, Inc.* 465,375
6,700 Select Medical Corp.* 224,919
2,550 Universal Health Services, Inc.* 119,977
- ---------------------------------------------------------------------
1,335,871
- ---------------------------------------------------------------------
Hotels, Restaurants and Leisure -- 3.7%
8,500 Alliance Gaming Corp.* 206,125
6,300 Brinker International, Inc.* 200,529
6,600 Leapfrog Enterprises, Inc.* 228,162
3,500 P.F. Chang's China Bistro, Inc.* 170,590
16,600 Station Casinos, Inc. 493,850
- ---------------------------------------------------------------------
1,299,256
- ---------------------------------------------------------------------
See Notes to Financial Statements.
16 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Premier Selections All Cap Growth Portfolio
SHARES SECURITY VALUE
- ---------------------------------------------------------------------
Household Durables -- 1.0%
3,300 Fortune Brands, Inc. $ 214,995
1,300 Lennar Corp., Class A Shares 119,405
- ---------------------------------------------------------------------
334,400
- ---------------------------------------------------------------------
Industrial Conglomerates -- 1.6%
4,400 Carlisle Cos. Inc. 252,340
10,500 General Electric Co. 304,605
- ---------------------------------------------------------------------
556,945
- ---------------------------------------------------------------------
Insurance -- 7.1%
3,667 Ambac Financial Group, Inc. 259,404
10,500 American International Group, Inc. 638,715
434 Berkshire Hathaway Inc.* 1,125,145
880 Old Republic International Corp. 31,627
3,100 PartnerRe Ltd. 168,237
7,500 Willis Group Holdings Ltd. 249,750
- ---------------------------------------------------------------------
2,472,878
- ---------------------------------------------------------------------
Internet and Catalog Retail -- 4.7%
30,400 Amazon.com, Inc.* 1,654,368
- ---------------------------------------------------------------------
Internet Software and Services -- 0.6%
9,400 Digital Insight Corp.* 197,212
- ---------------------------------------------------------------------
Leisure Equipment and Products -- 0.5%
6,400 Marvel Enterprises, Inc.* 188,480
- ---------------------------------------------------------------------
Machinery -- 0.5%
5,120 IDEX Corp. 190,362
- ---------------------------------------------------------------------
Media -- 4.0%
2,800 The E.W. Scripps Co., Class A Shares 260,148
5,300 Meredith Corp. 257,156
15,400 Time Warner Inc.* 235,466
6,600 Univision Communications Inc., Class A Shares* 224,070
18,700 The Walt Disney Co. 423,368
- ---------------------------------------------------------------------
1,400,208
- ---------------------------------------------------------------------
Oil and Gas -- 0.6%
3,700 Murphy Oil Corp. 218,226
- ---------------------------------------------------------------------
Paper and Forest Products -- 0.6%
5,100 Bowater Inc. 208,233
- ---------------------------------------------------------------------
Personal Products -- 2.4%
26,000 The Gillette Co. 829,400
- ---------------------------------------------------------------------
Pharmaceuticals -- 5.5%
11,200 Johnson & Johnson 563,696
2,950 Medicis Pharmaceutical Corp. 186,882
15,900 Merck & Co. Inc. 703,575
15,100 Pfizer Inc. 477,160
- ---------------------------------------------------------------------
1,931,313
- ---------------------------------------------------------------------
Real Estate -- 0.5%
5,200 The St. Joe Co. 171,808
- ---------------------------------------------------------------------
See Notes to Financial Statements.
17 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Premier Selections All Cap Growth Portfolio
SHARES SECURITY VALUE
- ------------------------------------------------------------
Road and Rail -- 0.5%
7,700 Heartland Express, Inc. $ 191,268
- ------------------------------------------------------------
Semiconductor Equipment and Products -- 9.6%
15,700 Cypress Semiconductor Corp.* 336,922
15,800 Integrated Device Technology, Inc.* 248,060
19,800 Intel Corp. 654,390
12,700 Lam Research Corp.* 364,998
18,400 Micrel, Inc.* 303,600
23,500 Skyworks Solutions, Inc.* 201,630
43,000 Texas Instruments Inc. 1,243,560
- ------------------------------------------------------------
3,353,160
- ------------------------------------------------------------
Software -- 7.0%
2,600 Adobe Systems Inc. 113,984
8,300 Cognos, Inc.* 286,101
4,700 Kronos Inc.* 282,000
3,975 Mercury Interactive Corp.* 184,599
29,500 Microsoft Corp. 771,425
36,000 Quest Software, Inc.* 536,400
20,000 Siebel Systems, Inc.* 251,800
- ------------------------------------------------------------
2,426,309
- ------------------------------------------------------------
Specialty Retail -- 7.5%
15,800 Chico's FAS, Inc.* 593,132
7,400 Christopher & Banks Corp. 216,080
18,600 The Home Depot, Inc. 689,502
11,850 Hot Topic, Inc.* 340,213
6,800 Pacific Sunwear of California, Inc.* 157,012
5,549 PETsMART, Inc. 142,110
7,100 Tractor Supply Co.* 297,561
4,700 Williams-Sonoma, Inc.* 166,051
- ------------------------------------------------------------
2,601,661
- ------------------------------------------------------------
Textiles and Apparel -- 2.4%
15,000 Coach, Inc.* 532,050
6,900 K-Swiss Inc., Class A Shares 303,186
- ------------------------------------------------------------
835,236
- ------------------------------------------------------------
Trading Companies and Distributors -- 0.6%
4,600 Fastenal Co. 204,562
- ------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $30,101,481) 34,542,190
- ------------------------------------------------------------
See Notes to Financial Statements.
18 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Premier Selections All Cap Growth Portfolio
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.9%
$300,000 Merrill Lynch & Co., Inc., 0.990% due 11/3/03; Proceeds at maturity -- $300,025; (Fully collateralized by
U.S. Treasury Inflation Indexed Notes and Bonds, 1.875% to 3.625% due 7/15/12 to 4/15/28;
Market value -- $306,002) (Cost -- $300,000) $ 300,000
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $30,401,481**) $34,842,190
- ------------------------------------------------------------------------------------------------------------------------------------
* Non-income producing security.
+ Subsequent to the reporting period, the company changed its name to Biogen
Idec Inc. due to a merger.
** Aggregate cost for Federal income tax purposes is $30,811,006.
Abbreviation used in this schedule:
-----------------------------------
ADR -- American Depositary Receipt
See Notes to Financial Statements.
19 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Large Cap Core Portfolio
SHARES SECURITY VALUE
- --------------------------------------------------------------
COMMON STOCK -- 96.9%
Aerospace and Defense -- 1.8%
13,675 Lockheed Martin Corp. $ 633,973
8,100 United Technologies Corp. 685,989
- -------------------------------------------------------------------
1,319,962
- -------------------------------------------------------------------
Air Freight and Couriers -- 0.5%
5,500 United Parcel Service, Inc., Class B Shares 398,860
- -------------------------------------------------------------------
Automobiles -- 0.6%
9,625 Harley-Davidson, Inc. 456,321
- -------------------------------------------------------------------
Banks -- 6.0%
11,375 Bank of America Corp. 861,429
30,900 The Bank of New York Co., Inc. 963,771
4,000 Comerica, Inc. 205,920
17,050 Fifth Third Bancorp 988,218
24,050 Wells Fargo & Co. 1,354,496
- -------------------------------------------------------------------
4,373,834
- -------------------------------------------------------------------
Beverages -- 2.0%
8,100 The Coca-Cola Co. 375,840
22,655 PepsiCo, Inc. 1,083,362
- -------------------------------------------------------------------
1,459,202
- -------------------------------------------------------------------
Biotechnology -- 2.4%
10,135 Amgen, Inc.* 625,938
28,800 Biogen, Inc.*+ 1,165,536
- -------------------------------------------------------------------
1,791,474
- -------------------------------------------------------------------
Chemicals -- 1.4%
15,500 E.I. du Pont de Nemours & Co. 626,200
5,725 Praxair, Inc. 398,346
- -------------------------------------------------------------------
1,024,546
- -------------------------------------------------------------------
Commercial Services and Supplies -- 1.3%
23,925 Paychex, Inc. 931,161
- -------------------------------------------------------------------
Communications Equipment -- 3.3%
23,200 Alcatel SA, Sponsored ADR 305,776
53,600 Cisco Systems, Inc.* 1,124,528
30,300 Motorola, Inc. 409,959
34,200 Nokia Oyj, Sponsored ADR 581,058
- -------------------------------------------------------------------
2,421,321
- -------------------------------------------------------------------
Computers and Peripherals -- 4.4%
13,875 Dell Inc.* 501,165
43,825 EMC Corp.* 606,538
49,750 Hewlett-Packard Co. 1,109,922
11,150 International Business Machines Corp. 997,702
- -------------------------------------------------------------------
3,215,327
- -------------------------------------------------------------------
See Notes to Financial Statements.
20 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Large Cap Core Portfolio
SHARES SECURITY VALUE
- -------------------------------------------------------------
Diversified Financials -- 9.0%
3,275 American Express Co. $ 1,561,596
8,400 The Goldman Sachs Group, Inc. 788,760
15,575 J.P. Morgan Chase & Co. 559,142
40,550 MBNA Corp. 1,003,612
26,700 Merrill Lynch & Co., Inc. 1,580,640
28,000 SLM Corp. 1,096,480
- ------------------------------------------------------------
6,590,230
- ------------------------------------------------------------
Diversified Telecommunication Services -- 0.9%
19,240 Verizon Communications Inc. 646,464
- ------------------------------------------------------------
Electric Utilities -- 0.6%
7,475 Exelon Corp. 474,289
- ------------------------------------------------------------
Electronic Equipment and Instruments -- 2.8%
28,000 Agilent Technologies, Inc.* 697,760
98,675 Flextronics International Ltd.* 1,381,450
- ------------------------------------------------------------
2,079,210
- ------------------------------------------------------------
Energy Equipment and Services -- 1.5%
30,700 Halliburton Co. 733,116
11,450 Noble Corp.* 393,078
- ------------------------------------------------------------
1,126,194
- ------------------------------------------------------------
Food Products -- 0.6%
13,650 Kellogg Co. 452,224
- ------------------------------------------------------------
Healthcare Equipment and Supplies -- 0.7%
5,075 Medtronic, Inc. 231,268
4,400 St. Jude Medical, Inc.* 255,904
- ------------------------------------------------------------
487,172
- ------------------------------------------------------------
Healthcare Providers and Services -- 0.4%
4,375 Anthem, Inc.* 299,381
- ------------------------------------------------------------
Hotels, Restaurants and Leisure -- 1.0%
18,350 Outback Steakhouse, Inc. 770,700
- ------------------------------------------------------------
Household Products -- 1.8%
13,375 The Procter & Gamble Co. 1,314,629
- ------------------------------------------------------------
Industrial Conglomerates -- 5.8%
14,050 3M Co. 1,108,124
76,555 General Electric Co. 2,220,861
43,400 Tyco International Ltd. 906,192
- ------------------------------------------------------------
4,235,177
- ------------------------------------------------------------
Insurance -- 3.2%
16,025 Ambac Financial Group, Inc. 1,133,608
20,225 American International Group, Inc. 1,230,287
- ------------------------------------------------------------
2,363,895
- ------------------------------------------------------------
Internet and Catalog Retail -- 1.1%
22,125 InterActiveCorp.* 812,209
- ------------------------------------------------------------
Machinery -- 1.3%
11,950 Danaher Corp. 990,058
- ------------------------------------------------------------
See Notes to Financial Statements.
21 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Large Cap Core Portfolio
SHARES SECURITY VALUE
- --------------------------------------------------------------------------
Media -- 3.8%
33,332 Comcast Corp., Class A Shares* $ 1,130,621
12,700 The News Corp. Ltd., Preferred Shares ADR 374,650
56,625 Time Warner Inc.* 865,796
11,331 Viacom Inc., Class B Shares 451,767
- --------------------------------------------------------------------------
2,822,834
- --------------------------------------------------------------------------
Metals and Mining -- 1.2%
27,225 Alcoa Inc. 859,493
- --------------------------------------------------------------------------
Multiline Retail -- 3.7%
9,675 J.C. Penney Co., Inc. 228,814
21,900 Target Corp. 870,306
27,525 Wal-Mart Stores, Inc. 1,622,599
- --------------------------------------------------------------------------
2,721,719
- --------------------------------------------------------------------------
Oil and Gas -- 4.4%
68,056 Exxon Mobil Corp. 2,489,488
9,200 Total SA, Sponsored ADR 718,244
- --------------------------------------------------------------------------
3,207,732
- --------------------------------------------------------------------------
Paper and Forest Products -- 1.5%
26,600 Bowater Inc. 1,086,078
- --------------------------------------------------------------------------
Personal Products -- 1.4%
4,400 Avon Products, Inc. 299,024
19,275 The Estee Lauder Cos. Inc. 720,692
- --------------------------------------------------------------------------
1,019,716
- --------------------------------------------------------------------------
Pharmaceuticals -- 8.9%
16,275 Johnson & Johnson 819,121
17,200 Merck & Co. Inc. 761,100
75,140 Pfizer Inc. (a) 2,374,424
25,450 Teva Pharmaceutical Industries Ltd., Sponsored ADR 1,447,850
26,225 Wyeth 1,157,572
- --------------------------------------------------------------------------
6,560,067
- --------------------------------------------------------------------------
Road and Rail -- 1.0%
11,700 Canadian National Railway Co. 704,340
- --------------------------------------------------------------------------
Semiconductor Equipment and Products -- 3.8%
67,393 Intel Corp. 2,227,339
13,875 Linear Technology Corp. 591,214
- --------------------------------------------------------------------------
2,818,553
- --------------------------------------------------------------------------
Software -- 9.3%
11,675 Adobe Systems, Inc. 511,832
54,000 BEA Systems, Inc.* 750,600
4,140 Electronic Arts Inc.* 410,026
82,985 Microsoft Corp. (a) 2,170,057
17,600 SAP AG, Sponsored ADR 643,104
72,450 Siebel Systems, Inc.* 912,146
39,395 VERITAS Software Corp.* 1,424,129
- --------------------------------------------------------------------------
6,821,894
- --------------------------------------------------------------------------
See Notes to Financial Statements.
22 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Large Cap Core Portfolio
SHARES SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------
Specialty Retail -- 2.7%
9,075 Bed Bath and Beyond Inc.* $ 383,328
26,226 The Home Depot, Inc. 972,198
28,150 The TJX Cos., Inc. 590,868
- -------------------------------------------------------------------------------------------------------------------
1,946,394
- -------------------------------------------------------------------------------------------------------------------
Trading Companies and Distributors -- 0.4%
6,675 W.W. Grainger, Inc. 305,582
- -------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services -- 0.4%
37,029 AT&T Wireless Services Inc.* 268,460
- -------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $65,501,936) 71,176,702
- -------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.1%
$2,245,000 Merrill Lynch & Co., Inc., 0.990% due 11/3/03; Proceeds at maturity -- $2,245,185;
(Fully collateralized by U.S. Treasury Inflation Indexed Notes and Bonds, 1.875% to 3.625%
due 7/15/12 to 4/15/28; Market value -- $2,289,914) (Cost -- $2,245,000) 2,245,000
- -------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $67,746,936**) $73,421,702
- -------------------------------------------------------------------------------------------------------------------
(a) All or a portion of this security is held as collateral for futures
contracts commitments.
* Non-income producing security.
+ Subsequent to the reporting period, the company changed its name to Biogen
Idec Inc. due to a merger.
** Aggregate cost for Federal income tax purposes is $69,001,467.
Abbreviation used in this schedule:
-----------------------------------
ADR -- American Depositary Receipt
See Notes to Financial Statements.
23 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Growth and Income Portfolio
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
COMMON STOCK -- 98.2%
Aerospace and Defense -- 3.1%
20,060 The Boeing Co. $ 772,109
15,400 Honeywell International Inc. 471,394
9,710 Lockheed Martin Corp. 450,156
- -------------------------------------------------------------------------------------------------------------
1,693,659
- -------------------------------------------------------------------------------------------------------------
Banks -- 11.1%
9,720 Bank of America Corp. 736,096
40,440 The Bank of New York Co., Inc. 1,261,324
16,040 Bank One Corp. 680,898
7,760 Comerica Inc. 399,485
8,940 Fifth Third Bancorp 518,162
17,250 FleetBoston Financial Corp. 696,728
16,100 U.S. Bancorp 438,242
6,400 Wachovia Corp. 293,568
17,540 Wells Fargo & Co. 987,853
- -------------------------------------------------------------------------------------------------------------
6,012,356
- -------------------------------------------------------------------------------------------------------------
Beverages -- 1.6%
17,730 PepsiCo, Inc. 847,849
- -------------------------------------------------------------------------------------------------------------
Biotechnology -- 3.0%
12,140 Amgen Inc.* 749,767
8,560 Chiron Corp.* 467,633
16,000 MedImmune, Inc.* 426,560
- -------------------------------------------------------------------------------------------------------------
1,643,960
- -------------------------------------------------------------------------------------------------------------
Building Products -- 1.2%
6,530 American Standard Cos. Inc.* 624,921
- -------------------------------------------------------------------------------------------------------------
Commercial Services and Supplies -- 2.1%
8,700 Avery Dennison Corp. 457,446
17,810 Paychex, Inc. 693,165
- -------------------------------------------------------------------------------------------------------------
1,150,611
- -------------------------------------------------------------------------------------------------------------
Communications Equipment -- 2.6%
39,250 Cisco Systems, Inc.* 823,465
17,400 Comverse Technology, Inc.* 313,896
21,700 Motorola, Inc. 293,601
- -------------------------------------------------------------------------------------------------------------
1,430,962
- -------------------------------------------------------------------------------------------------------------
Computers and Peripherals -- 2.9%
23,350 Dell Inc.* 843,402
32,210 Hewlett-Packard Co. 718,605
- -------------------------------------------------------------------------------------------------------------
1,562,007
- -------------------------------------------------------------------------------------------------------------
Containers and Packaging -- 0.5%
16,650 Smurfit-Stone Container Corp.* 258,075
- -------------------------------------------------------------------------------------------------------------
Diversified Financials -- 5.9%
9,740 American Express Co. 457,098
5,090 Freddie Mac 285,702
7,560 The Goldman Sachs Group, Inc. 709,884
13,760 J.P. Morgan Chase & Co. 493,984
See Notes to Financial Statements.
24 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Growth and Income Portfolio
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
Diversified Financials -- 5.9% (continued)
18,740 MBNA Corp. $ 463,815
13,010 Merrill Lynch & Co., Inc. 770,192
- --------------------------------------------------------------------------------------------------------------
3,180,675
- --------------------------------------------------------------------------------------------------------------
Electric Utilities -- 1.7%
12,900 FirstEnergy Corp. 443,631
11,230 Progress Energy, Inc. 484,013
- --------------------------------------------------------------------------------------------------------------
927,644
- --------------------------------------------------------------------------------------------------------------
Electronic Equipment and Instruments -- 0.7%
25,400 Flextronics International Ltd.* 355,600
- --------------------------------------------------------------------------------------------------------------
Energy Equipment and Services -- 1.5%
17,160 ENSCO International Inc. 452,166
16,380 GlobalSantaFe Corp. 368,714
- --------------------------------------------------------------------------------------------------------------
820,880
- --------------------------------------------------------------------------------------------------------------
Food and Drug Retailing -- 1.3%
32,550 Safeway Inc.* 686,805
- --------------------------------------------------------------------------------------------------------------
Food Products -- 0.8%
14,460 Kraft Foods Inc. 420,786
- --------------------------------------------------------------------------------------------------------------
Gas Utilities -- 0.6%
15,920 NiSource Inc. 329,703
- --------------------------------------------------------------------------------------------------------------
Healthcare Equipment and Supplies -- 1.0%
10,840 Guidant Corp. 552,948
- --------------------------------------------------------------------------------------------------------------
Hotels, Restaurants and Leisure -- 2.1%
31,160 McDonald's Corp. 779,312
9,500 MGM MIRAGE 337,250
- --------------------------------------------------------------------------------------------------------------
1,116,562
- --------------------------------------------------------------------------------------------------------------
Household Products -- 2.4%
14,310 Kimberly-Clark Corp. 755,711
5,680 The Procter & Gamble Co. 558,287
- --------------------------------------------------------------------------------------------------------------
1,313,998
- --------------------------------------------------------------------------------------------------------------
Industrial Conglomerates -- 4.5%
59,600 General Electric Co. 1,728,996
35,360 Tyco International Ltd. 738,317
- --------------------------------------------------------------------------------------------------------------
2,467,313
- --------------------------------------------------------------------------------------------------------------
Information Technology Consulting and Services -- 1.2%
31,050 Electronic Data Systems Corp. 666,022
- --------------------------------------------------------------------------------------------------------------
Insurance -- 3.5%
19,680 American International Group, Inc. 1,197,134
3 Berkshire Hathaway Inc., Class A Shares* 233,430
11,190 Marsh & McLennan Cos., Inc. 478,372
- --------------------------------------------------------------------------------------------------------------
1,908,936
- --------------------------------------------------------------------------------------------------------------
Internet and Catalog Retail -- 1.1%
15,950 InterActiveCorp* 585,524
- --------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
25 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Growth and Income Portfolio
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------
Machinery -- 2.1%
4,630 Eaton Corp. $ 464,111
10,330 Navistar International Corp. 417,642
3,020 PACCAR Inc. 238,459
- ---------------------------------------------------------------------------------
1,120,212
- ---------------------------------------------------------------------------------
Media -- 4.9%
19,160 Comcast Corp., Class A Shares* 649,907
17,810 Comcast Corp., Special Class A Shares* 580,962
35,014 Liberty Media Corp., Class A Shares* 353,291
19,180 The News Corp. Ltd., Preferred Shares ADR 565,810
12,900 Viacom Inc., Class B Shares 514,323
- ----------------------------------------------------------------------------------
2,664,293
- ---------------------------------------------------------------------------------
Metals and Mining -- 2.7%
35,550 Alcoa Inc. 1,122,314
17,070 Barrick Gold Corp. 332,353
- ---------------------------------------------------------------------------------
1,454,667
- ---------------------------------------------------------------------------------
Multiline Retail -- 1.2%
17,790 Costco Wholesale Corp. 629,232
- ---------------------------------------------------------------------------------
Oil and Gas -- 5.5%
8,940 ChevronTexaco Corp. 664,242
39,370 Exxon Mobil Corp. 1,440,155
11,370 Total SA 887,656
- ---------------------------------------------------------------------------------
2,992,053
- ---------------------------------------------------------------------------------
Paper and Forest Products -- 1.7%
6,100 Bowater Inc. 249,063
14,330 International Paper Co. 563,886
5,000 Louisiana-Pacific Corp.* 95,100
- ---------------------------------------------------------------------------------
908,049
- ---------------------------------------------------------------------------------
Personal Products -- 1.4%
20,680 The Estee Lauder Cos. Inc.+ 773,225
- ---------------------------------------------------------------------------------
Pharmaceuticals -- 7.9%
8,370 Johnson & Johnson 421,262
60,110 Pfizer Inc. 1,899,476
46,570 Schering-Plough Corp. 711,124
22,250 Teva Pharmaceutical Industries Ltd., Sponsored ADR+ 1,265,802
- ---------------------------------------------------------------------------------
4,297,664
- ---------------------------------------------------------------------------------
Real Estate -- 0.3%
4,260 iStar Financial Inc. 162,136
- ---------------------------------------------------------------------------------
Road and Rail -- 0.9%
7,930 Canadian National Railway Co. 477,386
- ---------------------------------------------------------------------------------
Semiconductor Equipment and Products -- 4.0%
36,230 Infineon Technologies AG+ 532,581
40,210 Intel Corp. 1,328,940
11,400 STMicroelectronics N.V. 303,696
- ---------------------------------------------------------------------------------
2,165,217
- ---------------------------------------------------------------------------------
See Notes to Financial Statements.
26 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
Smith Barney Growth and Income Portfolio
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
Software -- 4.9%
18,590 BMC Software, Inc.* $ 323,094
60,170 Microsoft Corp. 1,573,446
26,980 Oracle Corp.* 322,681
12,450 VERITAS Software Corp.* 450,068
- ------------------------------------------------------------------------------------------------------------
2,669,289
- ------------------------------------------------------------------------------------------------------------
Specialty Retail -- 3.6%
24,230 Best Buy Co., Inc. 1,412,851
15,260 The Home Depot, Inc. 565,688
- ------------------------------------------------------------------------------------------------------------
1,978,539
- ------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services -- 0.7%
49,900 AT&T Wireless Services Inc.* 361,775
- ------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $47,443,379) 53,211,533
- ------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 1.8%
$990,000 Merrill Lynch & Co., Inc., 0.990% due 11/3/03; Proceeds at maturity -- $990,082;
(Fully collateralized by U.S. Treasury Inflation Indexed Notes and Bonds, 1.875%
to 3.625% due 7/15/12 to 4/15/28; Market value -- $1,009,806) (Cost -- $990,000) 990,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $48,433,379**) $54,201,533
- ------------------------------------------------------------------------------------------------------------
* Non-income producing security.
+ All or a portion of this security is on loan (See Note 6).
** Aggregate cost for Federal income tax purposes is $49,391,919.
Abbreviation used in this schedule:
-----------------------------------
ADR -- American Depositary Receipt
Loaned Securities Collateral October 31, 2003
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
$1,047,983 State Street Navigator Securities Lending Trust Prime Portfolio (Cost -- $1,047,983) $1,047,983
- ----------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
27 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
SB Government Portfolio
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 14.9%
U.S. Treasury Notes:
$11,500,000 3.250% due 8/15/07 (a)(b) $ 11,701,710
10,000,000 3.000% due 2/15/08 (a) 10,008,600
1,500,000 4.875% due 2/15/12 (a) 1,582,853
5,000,000 4.000% due 11/15/12 (a) 4,925,980
U.S. Treasury Bonds:
300,000 7.250% due 5/15/16 (a) 371,871
200,000 9.000% due 11/15/18 (a)(b) 286,820
700,000 7.625% due 2/15/25 (a) 917,110
1,350,000 U.S. Treasury Strip, zero coupon to yield 4.645% due 5/15/05 (a) 1,319,417
- -------------------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost -- $31,079,252) 31,114,361
- -------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 1.8%
Fannie Mae:
1,200,000 4.750% due 11/14/03 (a) 1,201,346
1,700,000 5.250% due 1/15/09 (a) 1,825,297
700,000 Federal Home Loan Bank (FHLB), 6.500% due 11/15/05 (a) 761,788
- -------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost -- $3,582,640) 3,788,431
- -------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 43.8%
Federal Home Loan Mortgage Corp. (FHLMC), Gold:
665,512 6.500% due 9/1/31 (a) 692,466
341,070 6.000% due 12/1/31 (a) 350,280
1,783,355 4.500% due 4/15/32 (a) 1,754,140
3,000,000 5.000% due 11/13/33 (c)(d) 2,953,125
8,000,000 6.000% due 11/13/33 (c)(d) 8,212,496
Federal National Mortgage Association (FNMA):
142,515 6.000% due 8/1/16 (a) 148,294
1,000,000 6.000% due 11/18/18 (c)(d) 1,040,312
1,000,000 6.500% due 11/18/18 (c)(d) 1,052,500
59,159 6.500% due 4/1/29 (a) 61,557
322,859 7.000% due 11/1/31 (a) 340,046
37,749 7.500% due 3/1/32 (a) 40,236
288,015 7.500% due 4/1/32 (a) 306,992
336,807 6.500% due 5/1/32 (a) 350,018
612,691 6.000% due 6/1/32 (a) 629,330
169,123 7.500% due 12/1/32 (a) 180,266
4,811,313 6.000% due 1/1/33 (a) 4,941,970
12,000,000 5.000% due 11/13/33 (c)(d) 11,838,744
38,000,000 5.500% due 11/13/33 (c)(d) 38,356,250
6,000,000 6.500% due 11/13/33 (c)(d) 6,234,372
1,000,000 7.000% due 11/13/33 (c)(d) 1,053,125
Government National Mortgage Association (GNMA):
171,303 6.500% due 6/15/31 (a) 179,526
10,035 7.000% due 8/15/31 (a) 10,640
251,426 7.000% due 9/15/31 (a) 266,680
See Notes to Financial Statements.
28 Smith Barney Investment Series | 2003 Annual Report
Schedules of Investments (continued) October 31, 2003
SB Government Portfolio
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 43.8% (continued)
$10,000,000 6.000% due 11/19/33 (c)(d) $ 10,328,120
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost -- $90,731,225) 91,321,485
- ------------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS
(Cost -- $125,393,117) 126,224,277
- ------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 39.5%
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 22.6%
25,000,000 Federal Farm Credit Bank (FCDN) Discount Notes, zero coupon to yield 0.963% due 11/6/03 24,996,701
Federal Home Loan Bank (FHLB) Discount Notes:
12,092,000 Zero coupon to yield 1.004% due 11/12/03 12,088,342
10,000,000 Zero coupon to yield 1.014% due 11/14/03 9,996,353
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCY DISCOUNT NOTES
(Cost -- $47,081,396) 47,081,396
- ------------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENTS (a) -- 16.9%
9,892,000 Goldman Sachs & Co., 0.960% due 11/3/03; Proceeds at maturity -- $9,892,791; (Fully collateralized by
U.S. Treasury Notes and Inflation Indexed Bonds, 3.376% to 13.875% due 5/15/11 to 4/15/32;
Market value -- $10,089,862) 9,892,000
12,707,000 J.P. Morgan Chase & Co., 0.980% due 11/3/03; Proceeds at maturity -- $12,708,038;
(Fully collateralized by U.S. Treasury Notes, 3.000% due 2/15/08; Market value -- $12,961,507) 12,707,000
12,707,000 Merrill Lynch & Co., Inc., 0.990% due 11/3/03; Proceeds at maturity -- $12,708,048;
(Fully collateralized by U.S. Treasury Inflation Indexed Notes and Bonds,
1.875% to 3.625% due 7/15/12 to 4/15/28; Market value -- $12,961,221) 12,707,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL REPURCHASE AGREEMENTS
(Cost -- $35,306,000) 35,306,000
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $82,387,396) 82,387,396
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $207,780,513**) $208,611,673
- ------------------------------------------------------------------------------------------------------------------------------
(a) All or a portion of this security is segregated for "to-be-announced"
securities and open futures contracts commitments.
(b) All or a portion of this security is held as collateral for open futures
contracts commitments.
(c) Security acquired under mortgage dollar roll agreement (See Note 8).
(d) Security is traded on a "to-be-announced" basis (See Note 7).
** Aggregate cost of Federal income tax purposes is $208,169,674.
See Notes to Financial Statements.
29 Smith Barney Investment Series | 2003 Annual Report
Statements of Assets and Liabilities October 31, 2003
Smith Barney
Premier Selections Smith Barney Smith Barney SB
All Cap Large Cap Growth and Government
Growth Portfolio Core Portfolio Income Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost $ 30,101,481 $ 65,501,936 $ 47,443,379 $125,393,117
Short-term investments, at cost 300,000 2,245,000 990,000 82,387,396
Loaned securities collateral, at cost (Note 6) -- -- 1,047,983 --
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at value $ 34,542,190 $ 71,176,702 $ 53,211,533 $126,224,277
Short-term investments, at value 300,000 2,245,000 990,000 82,387,396
Loaned securities collateral, at value (Note 6) -- -- 1,047,983 --
Cash 194 526 960 1,209
Receivable for securities sold 360,158 1,121,774 537,800 4,043,583
Dividends and interest receivable 18,455 53,443 47,766 566,569
Receivable for Fund shares sold -- 17,389 64,428 30,731
Receivable from broker -- variation margin -- -- -- 20,313
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets 35,220,997 74,614,834 55,900,470 213,274,078
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 236,284 729,508 454,804 85,610,135
Payable for Fund shares reacquired 53,166 88,617 -- 172,678
Management fees payable 21,763 46,415 33,842 82,303
Payable for loaned securities collateral (Note 6) -- -- 1,047,983 --
Trustees' retirement plan 3,361 6,143 6,134 2,642
Accrued expenses 22,408 27,343 23,688 27,990
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 336,982 898,026 1,566,451 85,895,748
- ----------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 34,884,015 $ 73,716,808 $ 54,334,019 $127,378,330
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Par value of shares of beneficial interest $ 30 $ 88 $ 64 $ 109
Capital paid in excess of par value 42,120,186 98,375,915 59,447,852 125,825,222
Undistributed net investment income -- 259,221 245,374 3,422,090
Accumulated net realized loss from investment transactions
and futures contracts (11,676,910) (30,593,182) (11,127,425) (2,897,201)
Net unrealized appreciation of investments and
futures contracts 4,440,709 5,674,766 5,768,154 1,028,110
- ----------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 34,884,015 $ 73,716,808 $ 54,334,019 $127,378,330
- ----------------------------------------------------------------------------------------------------------------------------
Shares Outstanding 3,045,402 8,847,713 6,437,973 10,905,741
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value $11.45 $8.33 $8.44 $11.68
- ----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
30 Smith Barney Investment Series | 2003 Annual Report
Statements of Operations For the Year Ended October 31, 2003
Smith Barney
Premier Selections Smith Barney Smith Barney SB
All Cap Large Cap Growth and Government
Growth Portfolio Core Portfolio Income Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 234,340 $ 883,811 $ 647,679 --
Interest 7,193 13,899 28,549 $ 4,475,049
Less: Foreign withholding tax (162) (6,799) (8,178) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Investment Income 241,371 890,911 668,050 4,475,049
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 221,516 483,490 323,656 748,054
Custody 14,803 19,797 15,234 19,409
Shareholder communications 9,174 23,304 8,163 19,694
Audit and legal 7,952 41,487 19,771 52,425
Shareholder servicing fees 5,000 5,000 5,000 5,000
Trustees' fees 2,176 6,182 1,709 2,915
Other 4,964 6,047 1,669 3,907
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses 265,585 585,307 375,202 851,404
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (24,214) 305,604 292,848 3,623,645
- ---------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 3 AND 5):
Realized Gain (Loss) From:
Investment transactions (2,703,066) (5,190,119) (3,819,725) (1,228,802)
Futures contracts -- 11,759 -- (1,374,975)
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Loss (2,703,066) (5,178,360) (3,819,725) (2,603,777)
- ---------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments and Futures Contracts:
Beginning of year (5,743,336) (8,712,461) (6,720,746) 1,483,895
End of year 4,440,709 5,674,766 5,768,154 1,028,110
- ---------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) 10,184,045 14,387,227 12,488,900 (455,785)
- ---------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) on Investments and Futures Contracts 7,480,979 9,208,867 8,669,175 (3,059,562)
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 7,456,765 $ 9,514,471 $ 8,962,023 $ 564,083
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
31 Smith Barney Investment Series | 2003 Annual Report
Statements of Changes in Net Assets For the Year Ended October 31, 2003
Smith Barney
Premier Selections Smith Barney Smith Barney SB
All Cap Growth Large Cap Growth and Government
Portfolio Core Portfolio Income Portfolio Portfolio
- -------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (24,214) $ 305,604 $ 292,848 $ 3,623,645
Net realized loss (2,703,066) (5,178,360) (3,819,725) (2,603,777)
Change in net unrealized appreciation 10,184,045 14,387,227 12,488,900 (455,785)
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 7,456,765 9,514,471 8,962,023 564,083
- -------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- (214,782) (198,672) (1,371,678)
- -------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders -- (214,782) (198,672) (1,371,678)
- -------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 3,413,153 8,969,468 11,668,435 66,440,163
Net assets value of shares issued
for reinvestment of dividends -- 214,782 198,672 1,371,678
Cost of shares reacquired (4,613,714) (5,906,321) (3,026,552) (23,729,838)
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Fund
Share Transactions (1,200,561) 3,277,929 8,840,555 44,082,003
- -------------------------------------------------------------------------------------------------------------------
Increase in Net Assets 6,256,204 12,577,618 17,603,906 43,274,408
NET ASSETS:
Beginning of year 28,627,811 61,139,190 36,730,113 84,103,922
- -------------------------------------------------------------------------------------------------------------------
End of year* $34,884,015 $73,716,808 $54,334,019 $127,378,330
- -------------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of: -- $259,221 $245,374 $3,422,090
- -------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
32 Smith Barney Investment Series | 2003 Annual Report
Statements of Changes in Net Assets (continued) For the Year Ended October 31,
2002
Smith Barney
Premier Selections Smith Barney Smith Barney SB
All Cap Growth Large Cap Growth and Government
Portfolio Core Portfolio Income Portfolio Portfolio
- ------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (87,395) $ 169,137 $ 154,000 $ 902,915
Net realized loss (6,532,841) (15,801,301) (3,914,987) (22,345)
Change in net unrealized appreciation
(depreciation) 528,777 497,788 (3,064,839) 1,016,483
- ------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Operations (6,091,459) (15,134,376) (6,825,826) 1,897,053
- ------------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (18,768) (197,647) (113,186) (471,166)
Net realized gains -- -- -- (323,201)
- ------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders (18,768) (197,647) (113,186) (794,367)
- ------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 11):
Net proceeds from sale of shares 5,995,549 16,910,865 15,695,927 70,965,054
Net asset value of shares issued
for reinvestment of dividends 18,768 197,647 113,186 794,367
Cost of shares reacquired (5,659,901) (7,730,105) (3,716,053) (2,167,846)
- ------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Fund Share
Transactions 354,416 9,378,407 12,093,060 69,591,575
- ------------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (5,755,811) (5,953,616) 5,154,048 70,694,261
NET ASSETS:
Beginning of year 34,383,622 67,092,806 31,576,065 13,409,661
- ------------------------------------------------------------------------------------------------------------------
End of year* $28,627,811 $ 61,139,190 $36,730,113 $84,103,922
- ------------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of: -- $168,399 $151,960 $925,706
- ------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
33 Smith Barney Investment Series | 2003 Annual Report
Notes to Financial Statements
1. Significant Accounting Policies
The Smith Barney Premier Selections All Cap Growth Portfolio, Smith Barney
Large Cap Core Portfolio, Smith Barney Growth and Income Portfolio, and SB
Government Portfolio (formerly known as Smith Barney Government Portfolio)
("Funds") are separate investment funds of the Smith Barney Investment Series
("Trust"). The Trust, a Massachusetts business trust, is registered under the
Investment Company Act of 1940, as amended, ("1940 Act") as a diversified
open-end management investment company and consists of these Funds and three
other separate retail investment funds: Smith Barney Large Cap Core Fund, SB
Growth and Income Fund (formerly known as Smith Barney Growth and Income Fund)
and Smith Barney International Fund (formerly known as Smith Barney
International Aggressive Growth 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 Funds are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing prices on such markets
or, if there were no sales during the day, at fair value determined by or under
the direction of the Board of Trustees; securities primarily traded on foreign
exchanges are generally valued at the preceding closing values of such
securities on their respective exchanges, except that when a significant event,
subsequent to the time a value was so established, is likely to have
significantly changed the value then, the fair value of those securities will
be determined by consideration of other factors by or under the direction of
the Board of Trustees or its delegates; over-the-counter securities are valued
on the basis of the bid price at the close of business on each day; U.S.
government and agency obligations are valued at the average between bid and
asked prices in the over-the-counter market; 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 maturing within 60 days are valued
at cost plus accreted discount or minus amortized premium, which approximates
value; (d) 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
Trustees; (e) interest income, adjusted for amortization of premium and
accretion of discount is recorded on the accrual basis; (f ) dividend income is
recorded on the ex-dividend date; foreign dividend income is recorded on the
ex-dividend date or as soon as practical after the Funds determine the
existence of a dividend declaration after exercising reasonable due diligence;
(g) gains or losses on the sale of securities are calculated by using the
specific identification method; (h) dividends and distributions to shareholders
are recorded by the Funds on the ex-dividend date; the Funds distribute
dividends and capital gains, if any, annually; (i) the accounting records of
the Funds 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 and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank; (j) realized gain and loss on foreign currency includes the net realized
amount from the sale of currency and the amount realized between trade date and
settlement date on security transactions; (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 October 31, 2003, reclassifications were made to the capital
accounts of the Smith Barney Premier Selections All Cap Growth, Smith Barney
Growth and Income and SB Government Portfolios to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Accordingly, accumulated net investment loss amounting to $24,214
was reclassified to paid-in capital for the Smith Barney Premier Selections All
Cap Growth Portfolio. Net investment loss, net realized loss and net assets
were not affected by this adjustment; (l) each Fund intends to comply with the
requirements 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.
34 Smith Barney Investment Series | 2003 Annual Report
Notes to Financial Statements (continued)
In addition, the Smith Barney Premier Selections All Cap Growth Portfolio 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
Funds may from time to time enter into options and/or futures contracts in
order to hedge market or currency risk.
2. Investment 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 Funds. The
Smith Barney Premier Selections All Cap Growth, Smith Barney Large Cap Core and
Smith Barney Growth and Income Portfolios pay SBFM a management fee calculated
at an annual rate of 0.75% of the average daily net assets of each Fund
respectively, and the SB Government Portfolio pays SBFM a management fee
calculated at an annual rate of 0.60% of the Fund's average daily net assets.
These fees are calculated daily and paid monthly.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Funds' transfer agent. PFPC Inc. ("PFPC") acts as the Funds' 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 October 31, 2003, each Fund paid transfer agent fees of $5,000
to CTB.
Citigroup Global Markets Inc. ("CGM") (formerly known as Salomon Smith Barney
Inc.), another indirect wholly-owned subsidiary of Citigroup, acts as the
Funds' distributor. For the year ended October 31, 2003, CGM and its affiliates
received $2,514 in brokerage commissions for the Funds' agency transactions.
All officers and one Trustee of the Trust are employees of Citigroup or its
affiliates.
The Trustees of the Funds have adopted a Retirement Plan ("Plan") for all
Trustees who are not "interested persons" of the Funds, within the meaning of
the 1940 Act. Under the Plan, all Trustees are required to retire from the
Board as of the last day of the calendar year in which the applicable Trustee
attains age 75 (certain Trustees who had already attained age 75 when the Plan
was adopted are required to retire effective December 31, 2003). Trustees may
retire under the Plan before attaining the mandatory retirement age. Trustees
who have served as Trustee of the Trust or any of the investment companies
associated with Citigroup for at least ten years when they retire are eligible
to receive the maximum retirement benefit under the Plan. The maximum
retirement benefit is an amount equal to five times the amount of retainer and
regular meeting fees payable to a Trustee during the calendar year ending on or
immediately prior to the applicable Trustee's retirement. Amounts under the
Plan may be paid in installments or in a lump sum (discounted to present
value). Benefits under the Plan are unfunded. Two former Trustees are currently
receiving payments under the Plan. Two additional Trustees have announced their
intention to retire, effective December 31, 2003. The amount of benefits to be
paid under the Plan cannot currently be determined for current Trustees.
Messrs. Carlton, Cocanougher, Gross, Merten and Pettit also are covered by a
prior retirement plan. Under the prior plan, retirement benefits are payable
for a ten-year period following retirement, with the annual payment to be based
upon the Trustee's compensation from the Trust during calendar year 2000.
Trustees with more than five but less than ten years of service at retirement
will receive a prorated benefit. In order to receive benefits under the current
Plan, a Trustee must waive all rights under the prior plan prior to receiving
payment under either plan. Total aggregate retirement benefits accrued under
the prior plan for the year ended October 31, 2003 were $6,577. The amount of
benefits to be paid under the prior plan cannot currently be determined for
these Trustees.
35 Smith Barney Investment Series | 2003 Annual Report
Notes to Financial Statements (continued)
3. Investments
During the year ended October 31, 2003, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments and mortgage dollar rolls)
were as follows:
Purchases Sales
- ------------------------------------------------------------
Smith Barney Premier Selections
All Cap Growth Portfolio $ 19,158,426 $19,467,130
- -----------------------------------------------------------
Smith Barney Large Cap Core
Portfolio 51,175,121 48,898,733
- -----------------------------------------------------------
Smith Barney Growth and Income
Portfolio 36,042,677 27,209,713
- -----------------------------------------------------------
SB Government Portfolio 149,802,302 94,984,053
- -----------------------------------------------------------
At October 31, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
Net Unrealized
Appreciation Depreciation Appreciation
- ----------------------------------------------------------------------------
Smith Barney Premier Selections
All Cap Growth Portfolio $6,558,783 $(2,527,599) $4,031,184
- ---------------------------------------------------------------------------
Smith Barney Large Cap Core
Portfolio 8,542,145 (4,121,910) 4,420,235
- ---------------------------------------------------------------------------
Smith Barney Growth and Income
Portfolio 7,221,898 (2,412,284) 4,809,614
- ---------------------------------------------------------------------------
SB Government Portfolio 1,278,340 (836,341) 441,999
- ---------------------------------------------------------------------------
4. Repurchase Agreements
The Funds purchase (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 Funds require continual
maintenance of the market value (plus accrued interest) of the collateral in
amounts at least equal to the repurchase price.
5. Futures Contracts
The Funds may from time to time enter into futures contracts. Securities or
cash equal to the initial margin amount are either deposited with the broker or
segregated by the custodian upon entering into the futures contract. During the
period the futures contract is open, changes in the value of the contract are
recognized as unrealized gains or losses by "marking to market" on a daily
basis to reflect the market value of the contract at the end of each day's
trading. Variation margin payments are made or received and recognized as
assets due from or liabilities due to broker, depending upon whether unrealized
gains or losses are incurred. When the contract is closed, the Fund records a
realized gain or loss equal to the difference between the proceeds from (and
cost of) the closing transaction and the Fund's basis in the contract. The Fund
enters into such contracts typically to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices.
At October 31, 2003, the SB Government Portfolio had the following open futures
contracts:
Number of Market Unrealized
Contracts Expiration Basis Value Value Gain (Loss)
- --------------------------------------------------------------------------------------------
To Sell:
U.S. Treasury Notes 161 12/03 $18,035,441 $18,069,141 $(33,700)
To Buy:
U.S. Treasury Bonds 100 12/03 10,641,225 10,871,875 230,650
- -------------------------------------------------------------------------------------------
Net Unrealized Gain on Open
Futures Contracts $196,950
- -------------------------------------------------------------------------------------------
36 Smith Barney Investment Series | 2003 Annual Report
Notes to Financial Statements (continued)
At October 31, 2003, the Smith Barney Premier Selections All Cap Growth, Smith
Barney Large Cap Core and Smith Barney Growth and Income Portfolios did not
hold any futures contracts.
6. Lending of Portfolio Securities
The Funds have an agreement with their custodian whereby the custodian may lend
securities owned by the Funds to brokers, dealers and other financial
organizations. Fees earned by the Funds on securities lending are recorded as
interest income. Loans of securities by the Funds are collateralized by cash,
U.S. government securities, high quality money market instruments or other
securities 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 Funds maintain exposure for the risk of any loss in the investment of
amounts received as collateral.
At October 31, 2003, Smith Barney Growth and Income Portfolio had loaned common
stocks having a market value of $1,016,750 which were collateralized by cash.
The cash collateral received for the Smith Barney Growth and Income Portfolio
amounting to $1,047,983 was invested in the State Street Navigator Securities
Lending Trust Prime Portfolio.
For the year ended October 31, 2003, the Smith Barney Growth and Income
Portfolio earned $6,142 in interest income from securities loaned.
At October 31, 2003, the Smith Barney Premier Selections All Cap Growth, Smith
Barney Large Cap Core and SB Government Portfolios did not have any securities
on loan.
7. Securities Traded on a To-Be-Announced Basis
The Funds may trade securities on a "to-be-announced" ("TBA") basis. In a TBA
transaction, the Funds commit to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly
the face amount and maturity date in GNMA transactions. Securities purchased on
a TBA basis are not settled until they are delivered to the Funds normally 15
to 45 days later. These transactions are subject to market fluctuations and
their current value is determined in the same manner as for other securities.
At October 31, 2003, the SB Government Portfolio held TBA securities with a
total cost of $80,533,906.
8. Mortgage Dollar Rolls
The SB Government Portfolio may enter into mortgage dollar roll transactions. A
mortgage dollar roll transaction involves a sale by the Fund mortgage related
securities that it holds with an agreement by the Fund to repurchase similar
securities at an agreed upon price and date. The securities repurchased will
bear the same interest rate as those sold, but generally will be collateralized
by pools of mortgages with different prepayment histories than those securities
sold. Proceeds from the sale will be reinvested and the income from these
investments, together with any additional income received on the sale, is
included in investment income. Losses may arise due to changes in the value of
the securities or if the counterparty does not perform under the terms of the
agreement. If the counterparty files for bankruptcy or becomes insolvent, the
Fund's right to repurchase the securities may be limited.
During the year ended October 31, 2003, the SB Government Portfolio entered
into mortgage dollar roll transactions in the aggregate amount of $399,022,774.
At October 31, 2003, the SB Government Portfolio had outstanding mortgage
dollar rolls with a total cost of $80,533,906.
37 Smith Barney Investment Series | 2003 Annual Report
Notes to Financial Statements (continued)
9. Capital Loss Carryforwards
At October 31, 2003, the Smith Barney Premier Selections All Cap Growth, Smith
Barney Large Cap Core, Smith Barney Growth and Income and SB Government
Portfolios had, for Federal income tax purposes, capital loss carryforwards of
approximately $11,267,000, $29,339,000, $10,169,000 and $2,428,000,
respectively, 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 the
expiration for each carryforward loss is indicated below. Expiration occurs on
October 31 of the year indicated:
2007 2008 2009 2010 2011
- ------------------------------------------------------------------------------------
Smith Barney Premier Selections
All Cap Growth Portfolio -- -- $2,258,000 $ 6,364,000 $2,645,000
- -----------------------------------------------------------------------------------
Smith Barney Large Cap Core
Portfolio $4,000 $45,000 6,983,000 15,847,000 6,460,000
- -----------------------------------------------------------------------------------
Smith Barney Growth and Income
Portfolio -- -- 2,971,000 3,442,000 3,756,000
- -----------------------------------------------------------------------------------
SB Government Portfolio -- -- -- 49,000 2,379,000
- -----------------------------------------------------------------------------------
10.Income Tax Information and Distributions to Shareholders
At October 31, 2003, the tax basis components of distributable earnings were:
Undistributed
Ordinary Accumulated Unrealized
Income Capital Losses Appreciation
- -----------------------------------------------------------------------------
Smith Barney Premier Selections
All Cap Growth Portfolio -- $(11,267,385) $4,031,184
- ----------------------------------------------------------------------------
Smith Barney Large Cap Core
Portfolio $ 259,221 (29,338,651) 4,420,235
- ----------------------------------------------------------------------------
Smith Barney Growth and Income
Portfolio 245,374 (10,168,885) 4,809,614
- ----------------------------------------------------------------------------
SB Government Portfolio 3,538,587 (2,427,587) 441,999
- ----------------------------------------------------------------------------
The difference between book basis and tax basis unrealized appreciation and
depreciation is attributable primarily to wash sale loss deferrals, mark to
market of derivative contracts, the treatment of accretion of discounts and
amortization of premiums and straddle loss deferrals.
The tax character of distributions paid during the year ended October 31, 2003
was:
Ordinary
Income
- ----------------------------------------------------------------------------
Smith Barney Large Cap Core Portfolio $ 214,782
- ---------------------------------------------------------------------------
Smith Barney Growth and Income Portfolio 198,672
- ---------------------------------------------------------------------------
SB Government Portfolio 1,371,678
- ---------------------------------------------------------------------------
For the year ended October 31, 2003, the Smith Barney Premier Selections All
Cap Growth Portfolio did not make any distributions.
38 Smith Barney Investment Series | 2003 Annual Report
Notes to Financial Statements (continued)
11.Shares of Beneficial Interest
At October 31, 2003, the Trust had an unlimited number of shares authorized
with a par value of $0.00001 per share.
Transactions in shares of each Fund were as follows:
Year Ended Year Ended
October 31, 2003 October 31, 2002
- ------------------------------------------------------------------------
Smith Barney Premier Selections
All Cap Growth Portfolio
Shares sold 344,878 560,604
Shares issued on reinvestment -- 2,076
Shares reacquired (495,589) (570,559)
- ------------------------------------------------------------------------
Net Decrease (150,711) (7,879)
- ------------------------------------------------------------------------
Smith Barney Large Cap Core Portfolio
Shares sold 1,178,419 1,930,789
Shares issued on reinvestment 30,596 26,709
Shares reacquired (801,697) (1,008,749)
- ------------------------------------------------------------------------
Net Increase 407,318 948,749
- ------------------------------------------------------------------------
Smith Barney Growth and Income
Portfolio
Shares sold 1,542,017 1,905,118
Shares issued on reinvestment 29,088 15,764
Shares reacquired (420,814) (509,688)
- ------------------------------------------------------------------------
Net Increase 1,150,291 1,411,194
- ------------------------------------------------------------------------
SB Government Portfolio
Shares sold 5,651,429 6,115,834
Shares issued on reinvestment 117,038 68,717
Shares reacquired (2,029,223) (190,552)
- ------------------------------------------------------------------------
Net Increase 3,739,244 5,993,999
- ------------------------------------------------------------------------
12.Subsequent Event
The Funds have received the following information from Citigroup Asset
Management ("CAM"), the Citigroup business unit which includes the Funds'
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.
39 Smith Barney Investment Series | 2003 Annual Report
Financial Highlights
For a share of each class of beneficial interest outstanding throughout the
year ended October 31, unless otherwise noted:
Smith Barney Premier Selections
All Cap Growth Portfolio 2003 2002 2001 2000/(1)/ 1999/(2)/
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $ 8.96 $ 10.73 $ 14.48 $ 10.11 $ 10.00
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)/(3)/ (0.01) (0.03) 0.02 0.09 0.01
Net realized and unrealized gain (loss) 2.50 (1.73) (3.69) 4.30 0.10
- ------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.49 (1.76) (3.67) 4.39 0.11
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- (0.01) (0.04) (0.02) --
Net realized gains -- -- (0.04) -- --
- ------------------------------------------------------------------------------------------------
Total Distributions -- (0.01) (0.08) (0.02) --
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 11.45 $ 8.96 $ 10.73 $ 14.48 $ 10.11
- ------------------------------------------------------------------------------------------------
Total Return/(4)/ 27.79% (16.44)% (25.45)% 43.43% 1.10%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $34,884 $28,628 $34,384 $21,419 $3,032
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(3)(5)/ 0.90% 0.95% 0.95% 0.95% 0.95%+
Net investment income (loss) (0.08) (0.25) 0.16 0.72 1.00+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 66% 58% 116% 58% 8%
- ------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period September 15, 1999 (commencement of operations) to October
31, 1999.
(3) The Manager agreed to waive all or a portion of its fees for the years
ended October 31, 2002, 2001 and 2000 and the period ended October 31,
1999. In addition, the Manager also reimbursed expenses of $45,159,
$30,419 and $13,182 for the years ended October 31, 2001 and 2000, and the
period ended October 31, 1999, respectively. If such fees were not waived
and expenses not reimbursed, the per share effect on net investment income
(loss) and the actual expense ratios would have been as follows:
Expense Ratios
Net Investment Income (Loss) Without Fee Waivers and/or
Per Share (Increases) Decreases Expense Reimbursements
------------------------------- --------------------------
2002 2001 2000 1999 2002 2001 2000 1999
------ ----- ----- ----- ---- ---- ---- ----
Smith Barney Premier Selections All Cap Growth Portfolio $(0.02) $0.02 $0.15 $0.05 1.11% 1.08% 2.14% 5.35%+
(4) 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.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which,
if reflected, would reduce the total returns for all periods shown.
(5) As a result of a voluntary expense limitation, the expense ratio will not
exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
40 Smith Barney Investment Series | 2003 Annual Report
Financial Highlights (Continued)
For a share of each class of beneficial interest outstanding throughout the
year ended October 31, unless otherwise noted:
Smith Barney Large Cap Core Portfolio 2003 2002 2001 2000/(1)/ 1999/(2)/
- --------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $ 7.24 $ 8.96 $ 12.14 $ 10.51 $ 10.00
- --------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(3)/ 0.03 0.02 0.04 0.05 0.01
Net realized and unrealized gain (loss) 1.09 (1.72) (3.19) 1.59 0.50
- --------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.12 (1.70) (3.15) 1.64 0.51
- --------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) (0.02) (0.03) (0.01) --
- --------------------------------------------------------------------------------------------------
Total Distributions (0.03) (0.02) (0.03) (0.01) --
- --------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 8.33 $ 7.24 $ 8.96 $ 12.14 $ 10.51
- --------------------------------------------------------------------------------------------------
Total Return/(4)/ 15.47% (18.94)% (26.03)% 15.61% 5.10%++
- --------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $73,717 $61,139 $67,093 $49,630 $5,274
- --------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(3)(5)/ 0.91% 0.93% 0.93% 0.95% 0.95%+
Net investment income 0.47 0.24 0.42 0.42 0.67+
- --------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 77% 45% 26% 30% 6%
- --------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period September 15, 1999 (commencement of operations) to October
31, 1999.
(3) The Manager agreed to waive all or a portion of its fees for the year
ended October 31, 2000 and the period ended October 31, 1999. In addition,
the Manager also reimbursed expenses of $20,272 for the period ended
October 31, 1999. If such fees were not waived and expenses not
reimbursed, the per share effect on net investment income and the actual
expense ratios would have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements
--------------------- ------------------------
2000 1999 2000 1999
-------- ------- ---- ----
Smith Barney Large Cap Core Portfolio $0.07 $0.05 1.55% 5.00%+
(4) 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.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which,
if reflected, would reduce the total returns for all periods shown.
(5) As a result of a voluntary expense limitation, the expense ratio will not
exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
41 Smith Barney Investment Series | 2003 Annual Report
Financial Highlights (continued)
For a share of each class of beneficial interest outstanding throughout the
year ended October 31, unless otherwise noted:
Smith Barney Growth and Income Portfolio 2003 2002 2001 2000/(1)/ 1999/(2)/
- ------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $ 6.95 $ 8.15 $ 10.77 $ 10.10 $ 10.00
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(3)/ 0.05 0.02 0.05 0.16 0.01
Net realized and unrealized gain (loss) 1.48 (1.20) (2.58) 0.53 0.09
- ------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.53 (1.18) (2.53) 0.69 0.10
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.04) (0.02) (0.05) (0.02) --
Net realized gains -- -- (0.04) -- --
- ------------------------------------------------------------------------------------------------
Total Distributions (0.04) (0.02) (0.09) (0.02) --
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 8.44 $ 6.95 $ 8.15 $ 10.77 $ 10.10
- ------------------------------------------------------------------------------------------------
Total Return/(4)/ 22.09% (14.47)% (23.63)% 6.86% 1.00%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $54,334 $36,730 $31,576 $18,089 $3,045
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(3)(5)/ 0.87% 0.95% 0.95% 0.95% 0.95%+
Net investment income 0.68 0.40 0.53 1.54 0.69+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 65% 48% 68% 72% 1%
- ------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period September 15, 1999 (commencement of operations) to October
31, 1999.
(3) The Manager agreed to waive all or a portion of its fees for the years
ended October 31, 2002, 2001 and 2000 and the period ended October 31,
1999. In addition, the Manager also reimbursed expenses of $61,498, $21,016
and $12,636 for the years ended October 31, 2001 and 2000, and the period
ended October 31, 1999, respectively. If such fees were not waived and
expenses not reimbursed, the per share effect on net investment income and
the expense ratios would have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements
---------------------- -------------------------
2002 2001 2000 1999 2002 2001 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
Smith Barney Growth and Income Portfolio $0.01 $0.02 $0.12 $0.05 1.09% 1.18% 2.05% 5.22%+
(4) 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.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which,
if reflected, would reduce the total returns for all periods shown.
(5) As a result of a voluntary expense limitation, the expense ratio will not
exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
42 Smith Barney Investment Series | 2003 Annual Report
Financial Highlights (continued)
For a share of each class of beneficial interest outstanding throughout the
year ended October 31, unless otherwise noted:
SB Government Portfolio 2003 2002/(1)/ 2001 2000/(1)/ 1999/(2)/
- --------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.74 $11.44 $10.62 $10.13 $10.00
- ------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(3)(4)/ 0.33 0.35 0.52 0.53 0.05
Net realized and unrealized gain (loss)/(4)/ (0.23) 0.13 0.87 0.12 0.08
- ------------------------------------------------------------------------------------------------
Total Income From Operations 0.10 0.48 1.39 0.65 0.13
- ------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.16) (0.11) (0.57) (0.16) --
Net realized gains -- (0.07) -- -- --
- ------------------------------------------------------------------------------------------------
Total Distributions (0.16) (0.18) (0.57) (0.16) --
- ------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $11.68 $11.74 $11.44 $10.62 $10.13
- ------------------------------------------------------------------------------------------------
Total Return/(5)/ 0.87% 4.20% 13.56% 6.55% 1.30%++
- ------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $127,378 $84,104 $13,410 $4,996 $5,066
- ------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(3)(6)/ 0.68 % 0.80% 0.80% 0.80% 0.80%+
Net investment income/(4)/ 2.91 3.17 4.47 5.19 4.36+
- ------------------------------------------------------------------------------------------------
Portfolio Turnover Rate/(7)/ 83% 145% 90% 0% 0%
- ------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period September 15, 1999 (commencement of operations) to October
31, 1999.
(3) The Manager agreed to waive all or a portion of its fees for the years
ended October 31, 2002, 2001 and 2000 and the period ended October 31,
1999. In addition, the Manager also reimbursed expenses of $57,022,
$33,010 and $14,291 for the years ended October 31, 2001 and 2000, and the
period ended October 31, 1999, respectively. If such fees were not waived
and expenses not reimbursed, the per share effect on net investment income
and the actual expense ratios would have been as follows:
Expense Ratios
Net Investment Income Without Fee Waivers and/or
Per Share Decreases Expense Reimbursements
---------------------- --------------------------
2002 2001 2000 1999 2002 2001 2000 1999
---- ---- ---- ---- ---- ---- ---- -----
SB Government
Portfolio $0.02 $0.06 $0.13 $0.04 1.00% 1.30% 2.06% 3.73%+
(4) Effective November 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended October
31, 2002, net investment income, net realized and unrealized gain and the
ratio of net investment income to average net assets would have been
$0.36, $0.12 and 3.32%, respectively. Per share, ratios and supplemental
data for the periods prior to November 1, 2001 have not been restated to
reflect this change in presentation.
(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.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which,
if reflected, would reduce the total returns for all periods shown.
(6) As a result of a voluntary expense limitation, the expense ratio will not
exceed 0.80%.
(7) Excluding mortgage dollar roll transactions.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
43 Smith Barney Investment Series | 2003 Annual Report
Independent Auditors' Report
The Shareholders and Board of Trustees
of the Smith Barney Investment Series:
We have audited the accompanying statements of assets and liabilities,
including the schedules of investments, of the Smith Barney Premier Selections
All Cap Growth Portfolio, Smith Barney Large Cap Core Portfolio, Smith Barney
Growth and Income Portfolio and SB Government Portfolio ("Funds") of the Smith
Barney Investment Series ("Trust") as of October 31, 2003, and the related
statements 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
financial highlights for each of the years in the four-year period then ended
and for the period from September 15, 1999 (commencement of operations) to
October 31, 1999. These financial statements and financial highlights are the
responsibility of the Trust'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 and financial
highlights. Our procedures included confirmation of securities owned as of
October 31, 2003, by correspondence with the custodian or brokers. As to
securities purchased and sold but not yet received and 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
Portfolios of the Funds as of October 31, 2003, and the results of their
operations for the year then ended, the changes in their 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 four-year period then ended and for the period from
September 15, 1999 to October 31, 1999, in conformity with accounting
principles generally accepted in the United States of America.
/s/ KPMG LLP
New York, New York
December 10, 2003
44 Smith Barney Investment Series | 2003 Annual Report
Additional Information (unaudited)
Information about Trustees and Officers
The business and affairs of the Smith Barney Investment Series ("Trust") are
managed under the direction of the Trust's Board of Trustees. Information
pertaining to the Trustees and officers of the Trust is set forth below. Each
Trustee and Officer holds office for his or her lifetime, unless that
individual resigns, retires or is otherwise removed. The Statement of
Additional Information includes additional information about the Trustees and
is available without charge, upon request by calling the Trust's transfer agent
(Citicorp Trust Bank, fsb.) at 1-800-451-2010.
Number of Other
Term of Principal Portfolios Board Memberships
Office* and Occupation(s) in Fund Complex Held by
Position(s) Held Length of During Past Overseen Trustee
Name, Address and Age with Fund Time Served Five Years by Trustee During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Interested Trustees:
Elliott J. Berv Trustee Since President and Chief 36 Board Member, American
c/o R. Jay Gerken 2001 Operations Officer, Identity Corp. (doing business
Citigroup Asset Management Landmark City (Real as Morpheus Technologies)
("CAM") Estate Development) (Biometric Information
399 Park Avenue, 4th floor (since 2002); Executive Management) (since 2001;
New York, NY 10022 Vice President and Chief Consultant since 1999);
Age 60 Operations Officer, Director, Lapoint Industries
DigiGym Systems (On-line (Industrial Filter Company)
Personal Training (since 2002); Director,
Systems) (since 2001); Alzheimer's Association (New
Chief Executive Officer, England Chapter) (since 1998)
Rocket City Enterprises
(Internet Service
Company) (from 2000 to
2001); President,
Catalyst (Consulting)
(since 1984)
Donald M. Carlton Trustee Since Consultant, URS 31 Director, American Electric
c/o R. Jay Gerken 1997 Corporation Power (Electric Utility) (since
CAM (Engineering) (since 1999); Director, Valero Energy
399 Park Avenue, 4th floor 1999); former Chief (Petroleum Refining) (since
New York, NY 10022 Executive Officer, 1999); Director, National
Age 66 Radian International LLC Instruments Corp. (Technology)
(Engineering) (from 1969 (since 1994)
to 1998), Member of
Management Committee,
Signature Science
(Research and
Development) (since 2000)
A. Benton Cocanougher Trustee Since Dean Emeritus and Wiley 31 Former Director, Randall's Food
c/o R. Jay Gerken 1991 Professor, Texas, A&M Markets, Inc. (from 1990 to
CAM University (since 2001); 1999); former Director, First
399 Park Avenue, 4th floor former Dean and American Bank and First
New York, NY 10022 Professor of Marketing, American Savings Bank (from
Age 65 College and Graduate 1994 to 1999)
School of Business of
Texas A&M University
(from 1987 to 2001)
45 Smith Barney Investment Series | 2003 Annual Report
Additional Information (unaudited) (continued)
Number of Other
Term of Principal Portfolios Board Memberships
Office* and Occupation(s) in Fund Complex Held by
Position(s) Held Length of During Past Overseen Trustee
Name, Address and Age with Fund Time Served Five Years by Trustee During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Interested Trustees (continued):
Mark T. Finn Trustee Since Adjunct Professor, 36 Former President and Director,
c/o R. Jay Gerken 2001 William & Mary College Delta Financial, Inc.
CAM (since September 2002); (Investment Advisory Firm)
399 Park Avenue, 4th floor Principal/Member, Belvan (from 1983 to 1999)
New York, NY 10022 Partners/Balfour Vantage
Age 60 -- Manager and General
Partner to the Vantage
Hedge Fund, LP (since
March 2002); Chairman
and Owner, Vantage
Consulting Group, Inc.
(Investment Advisory and
Consulting Firm) (since
1988); former Vice
Chairman and Chief
Operating Officer,
Lindner Asset Management
Company (Mutual Fund
Company) (from March
1999 to 2001); former
General Partner and
Shareholder, Greenwich
Ventures, LLC
(Investment Partnership)
(from 1996 to 2001);
former President,
Secretary, and Owner,
Phoenix Trading Co.
(Commodity Trading
Advisory Firm) (from
1997 to 2000)
Stephen Randolph Gross Trustee Since Partner, Capital 31 Director, United Telesis, Inc.;
c/o R. Jay Gerken 1986 Investment Advisory (Telecommunications) (since
CAM Partners (Consulting) 1997); Director, eBank.com,
399 Park Avenue, 4th floor (since January 2000); Inc.; (since 1997); Director,
New York, NY 10022 Managing Director, Andersen Calhoun, Inc.
Age 56 Fountainhead Ventures, (Assisted Living) (since 1987);
LLC (Consulting) (from former Director, Charter Bank,
1998 to 2002); Inc. (from 1987 to 1997);
Secretary, Carint N.A. former Director, Yu Save, Inc.
(Manufacturing) (since (Internet Company) (from 1998
1988); former Treasurer, to 2000); former Director,
Hank Aaron Enterprises Hotpalm.com, Inc. (Wireless
(Fast Food Franchise) Applications) (from 1998 to
(from 1985 to 2001); 2000); former Director, Ikon
Chairman, Gross, Collins Ventures, Inc. (from 1997 to
& Cress, P.C. 1998)
(Accounting Firm) (since
1980); Treasurer,
Coventry Limited, Inc.
(since 1985)
Diana R. Harrington Trustee Since Professor, Babson College 36 Former Trustee, The Highland
c/o R. Jay Gerken 2001 (since 1992) Family of Funds (Investment
CAM Company) (from 1997 to 1998)
399 Park Avenue, 4th floor
New York, NY 10022
Age 63
Susan B. Kerley Trustee Since Consultant, Strategic 36 Director, Eclipse Funds
c/o R. Jay Gerken 2001 Management Advisors, (currently supervises 17
CAM LLC; Global Research investment companies in fund
399 Park Avenue, 4th floor Associates, Inc. complex) (since 1990)
New York, NY 10022 (Investment Consulting)
Age 52 (since 1990)
46 Smith Barney Investment Series | 2003 Annual Report
Additional Information (unaudited) (continued)
Number of Other
Term of Principal Portfolios Board Memberships
Office* and Occupation(s) in Fund Complex Held
Position(s) Held Length of During Past Overseen by Trustee During
Name, Address and Age with Fund Time Served Five Years by Trustee Past 5 Years
- ----------------------------------------------------------------------------------------------------------------------
Non-Interested Trustees (continued):
Alan G. Merten Trustee Since President, George Mason 31 Director,
c/o R. Jay Gerken 1990 University (since 1996) DigitalNet
CAM Holdings, Inc.
399 Park Avenue, 4th floor (since October
New York, NY 10022 2003) Director of
Age 62 Comshare, Inc.;
(Information
Technology) (since
1985); former
Director, Indus
(Information
Technology) (from
1995 to 1999)
C. Oscar Morong, Jr. Trustee Since Manager Director, Morong 36 Former Director,
c/o R. Jay Gerken 2001 Capital Indonesia Fund
CAM Management (since 1993) (Closed-End Fund)
399 Park Avenue, 4th floor (from 1990 to
New York, NY 10022 1999); Trustee,
Age 68 Morgan Stanley
Institutional Fund
(currently
supervises 75
investment
companies) (since
1993)
R. Richardson Pettit Trustee Since Professor of Finance, 31 None
c/o R. Jay Gerken 1990 University of Houston
CAM (from 1977 to 2002);
399 Park Avenue, 4th floor Independent Consultant
New York, NY 10022 (since 1984)
Age 61
Walter E. Robb, III Trustee Since President, Benchmark 36 Director, John
c/o R. Jay Gerken 1985 Consulting Group, Inc. Boyle & Co., Inc.
CAM (Service Company) (since (Textiles) (since
399 Park Avenue, 4th Floor 1991); Sole Proprietor, 1999); Director,
New York, NY 10022 Robb Associates Harbor Sweets, Inc.
Age 77 (Financial Consulting) (Candy) (since
(since 1978); Co-Owner, 1990); Director,
Kedron Design (Gifts) W.A. Wilde Co.
(since 1978); former (Direct Media
President and Treasurer, Marketing) (since
Benchmark Advisors, Inc. 1982); Director,
(Financial Consulting) Alpha Grainger
(from 1989 to 2000) Manufacturing Inc.
(Electronics)
(since 1983);
former Trustee, MFS
Family of Funds
(Investment
Company) (from 1985
to 2001); Harvard
Club of Boston
(Audit Committee)
(since 2001).
47 Smith Barney Investment Series | 2003 Annual Report
Additional Information (unaudited) (continued)
Number of Other
Term of Principal Portfolios Board Memberships
Office* and Occupation(s) in Fund Complex Held by
Position(s) Held Length of During Past Overseen Trustee
Name, Address and Age with Fund Time Served Five Years by Trustee During Past 5 Years
- -------------------------------------------------------------------------------------------------------------------------------
Interested Trustees:
R. Jay Gerken, CFA** Chairman, President Since Managing Director of 220 None
CAM and Chief Executive 2002 Citigroup Global Markets Inc.
399 Park Avenue, 4th Floor Officer ("CGM"); Chairman, President
New York, NY 10022 and Chief Executive Officer
Age 52 of Smith Barney Fund
Management LLC ("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 to
2001) and Smith Barney Growth
and Income Fund (from 1996
to 2000)
Officers:
Andrew B. Shoup*** Senior Vice Since Director of CAM; Senior Vice N/A N/A
CAM President and Chief 2003 President and Chief
125 Broad Street, 10th Floor Administrative Administrative Officer of
New York, NY 10004 Officer mutual funds associated with
Age 47 Citigroup; Head of
International Funds
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 Financial Since Director of CGM; Chief N/A N/A
CAM Officer and 2002 Financial Officer and
125 Broad Street, 11th Floor Treasurer Treasurer of certain mutual
New York, NY 10004 funds associated with
Age 42 Citigroup; Director and Head
of Internal Control for CAM
U.S. Mutual Fund
Administration (from 1999 to
2002); Vice President, Head
of Mutual Fund Administration
and Treasurer at Oppenheimer
Capital (from 1996 to 1999)
Alan J. Blake Vice President Since Managing Director of CGM N/A N/A
CAM and Investment 2001
399 Park Avenue, 4th Floor Officer
New York, NY 10022
Age 53
Kevin Caliendo Vice President and Since Managing Director of CGM N/A N/A
CAM Investment Officer 2003
399 Park Avenue, 4th Floor
New York, NY 10004
Age 33
Michael A. Kagan Vice President and Since Managing Director of CGM N/A N/A
CAM Investment Officer 2000
399 Park Avenue, 4th Floor
New York, NY 10022
Age 44
48 Smith Barney Investment Series | 2003 Annual Report
Additional Information (unaudited) (continued)
Number of Other
Term of Principal Portfolios Board Memberships
Office* and Occupation(s) in Fund Complex Held by
Position(s) Held Length of During Past Overseen Trustee
Name, Address and Age with Fund Time Served Five Years by Trustee During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------------------
Officers (continued):
Roger M. Lavan, CFA Vice President Since Managing Director of CGM and N/A N/A
CAM and Investment 2002 Salomon Brothers Asset
399 Park Avenue, 4th Floor Officer Management Inc. ("SBAM")
New York, NY 10022
Age 40
Francis L. Mustaro Vice President Since Managing Director of CGM N/A N/A
CAM and Investment 2002
399 Park Avenue, 4th Floor Officer
New York, NY 10022
Age 52
Lawrence B. Weissman, CFA Vice President Since Managing Director of CGM N/A N/A
CAM and Investment 1999
100 First Stamford Place Officer
Stamford, CT 06902
Age 42
Timothy Woods, CFA Vice President Since Managing Director of CGM N/A N/A
CAM and Investment 2001
100 First Stamford Place Officer
Stamford, CT 06902
Age 42
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
Robert I. Frenkel Secretary Since Managing Director and General N/A N/A
CAM 2000 Counsel of Global Mutual Funds
300 First Stamford Place for CAM and its predecessor (since
Stamford, CT 06902 Chief Legal 1994); Secretary of CFM;
Age 48 Officer Since Secretary and Chief Legal Officer
2003 of mutual funds associated with
Citigroup
- --------
* Each Trustee 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 certain of its affiliates.
*** As of November 25, 2003.
49 Smith Barney Investment Series | 2003 Annual Report
Tax Information (unaudited)
The following October 31, 2003 fiscal year end disclosures are of various tax
benefits that will be reported to shareholders at calendar year end.
The following percentages of ordinary income distributions have been designated
as qualifying for the dividends received deduction available to corporate
shareholders:
Smith Barney Large Cap Core Portfolio ............. 100%
Smith Barney Growth and Income Portfolio .......... 100%
Percentage of ordinary dividends paid by the Fund from net investment income
are derived from Federal obligations and may be exempt from taxation at the
state level:
SB Government Portfolio ........ 71.09%
50 Smith Barney Investment Series | 2003 Annual Report
SMITH BARNEY
INVESTMENT SERIES
TRUSTEES OFFICERS (Cont'd.)
Elliott J. Berv Roger M. Lavan, CFA
Donald M. Carlton Vice President and
A. Benton Cocanougher Investment Officer
Mark T. Finn
R. Jay Gerken, CFA Francis L. Mustaro
Chairman Vice President and
Stephen Randolph Gross Investment Officer
Diana R. Harrington
Susan B. Kerley Lawrence B. Weissman, CFA
Alan G. Merten Vice President and
C. Oscar Morong, Jr. Investment Officer
R. Richardson Pettit
Walter E. Robb, III Timothy Woods, CFA
Vice President and
OFFICERS Investment Officer
R. Jay Gerken, CFA
President and Kaprel Ozsolak
Chief Executive Officer Controller
Andrew B. Shoup* Robert I. Frenkel
Senior Vice President and Secretary and
Chief Administrative Officer Chief Legal Officer
Richard L. Peteka INVESTMENT MANAGER
Chief Financial Officer Smith Barney Fund
and Treasurer Management LLC
Alan J. Blake CUSTODIAN
Vice President and State Street Bank and
Investment Officer Trust Company
Kevin Caliendo TRANSFER AGENT
Vice President and Citicorp Trust Bank, fsb.
Investment Officer 125 Broad Street, 11th Floor
New York, New York 10004
Michael A. Kagan
Vice President and SUB-TRANSFER AGENT
Investment Officer PFPC Inc.
P.O. Box 9699
* As of November 25, 2003. Providence, Rhode Island
02940-9699
Smith Barney Investment Series
Smith Barney Premier Selections
All Cap Growth Portfolio
Smith Barney Large Cap Core Portfolio
Smith Barney Growth and Income Portfolio
SB Government Portfolio
The Funds are separate investment funds of the Smith Barney
Investment Series, a Massachusetts business trust.
This report is submitted for general information of the shareholders of the
Smith Barney Investment Series -- Smith Barney Premier Selections All Cap
Growth, Smith Barney Large Cap Core, Smith Barney Growth and Income and SB
Government Portfolios. It is not authorized for distribution to prospective
investors unless accompanied or preceded by a current Prospectus, which
contains information concerning the investment policies and expenses as well
as other pertinent information.
SMITH BARNEY INVESTMENT SERIES
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.
(C)2003 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02461 12/03 03-5775
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 Stephen
Randolph Gross, the Chairman 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. Gross as the Audit Committee's financial expert. Mr.
Gross 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 Series
By: /s/ R. Jay Gerken R. Jay Gerken
Chief Executive Officer of
Smith Barney Investment Series
Date: December 29, 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 Series
Date: December 29, 2003
By: /s/ Richard L. Peteka
(Richard L. Peteka)
Chief Financial Officer of
Smith Barney Investment Series
Date: December 29, 2003