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.
SB GROWTH AND INCOME FUND
CLASSIC SERIES | ANNUAL REPORT | OCTOBER 31, 2003
[LOGO] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed.(R)
Your Serious Money. Professionally Managed.(R) is a registered service mark of
Citigroup Global Markets Inc.
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
[PHOTO]
MICHAEL KAGAN
PORTFOLIO MANAGER
[PHOTO]
KEVIN CALIENDO
PORTFOLIO MANAGER
[LOGO]
Classic Series
Annual Report . October 31, 2003
SB GROWTH AND INCOME FUND
MICHAEL KAGAN
Michael Kagan has more than 20 years of securities business experience
and has been managing the fund since August 14, 2000.
Education: BA in Economics, Harvard University. Attended the
Massachusetts Institute of Technology's Sloan School of Management.
KEVIN CALIENDO
Kevin Caliendo has more than 9 years of securities business experience.
Education: BA in Journalism from Boston University.
FUND OBJECTIVE
The fund seeks reasonable growth and income. It invests in a portfolio
consisting principally of equity securities, including convertible
securities, that provide dividend or interest income. However, it may
also invest in non-income producing investments for potential
appreciation in value.
FUND FACTS
FUND INCEPTION
-----------------
April 14, 1987
MANAGERS' INVESTMENT INDUSTRY EXPERIENCE
-----------------------------------------
20 Years (Michael Kagan)
9 Years (Kevin Caliendo)
What's Inside
Letter from the Chairman.............................................. 1
Fund Performance...................................................... 3
Historical Performance................................................ 4
Schedule of Investments............................................... 5
Statement of Assets and Liabilities................................... 9
Statement of Operations............................................... 10
Statements of Changes in Net Assets................................... 11
Notes to Financial Statements......................................... 12
Financial Highlights.................................................. 19
Independent Auditors' Report.......................................... 23
Additional Information................................................ 24
Tax Information....................................................... 26
LETTER FROM THE CHAIRMAN
[PHOTO]
R. JAY GERKEN, CFA
Chairman, President and
Chief Executive Officer
Dear Shareholder,
I am pleased to report that your fund, the SB Growth and Income Fund (Smith
Barney Class 1 Shares), performed quite well during the year ended October 31,
2003. Excluding sales charges, the fund gained 22.91% versus the 20.79% that
the fund's principal benchmark, the unmanaged S&P 500 Index/i/ returned. The
fund also outperformed its Lipper peer group of large-cap core funds, which had
an average return of 17.75%./1/ The fund also outperformed both the S&P 500
Index and its peer group average over the six-month period, as shown below.
Special Shareholder Notice
Effective May 9, 2003, the fund was renamed "SB Growth and Income Fund" and
share Classes A, B, L, O, P, Y and 1 were redesignated Smith Barney Class A,
Smith Barney Class B, Smith Barney Class L, Smith Barney Class O, Smith Barney
Class P, Smith Barney Class Y and Smith Barney Class 1, respectively. The
fund's investment objective was not affected as a result of this change.
In addition, effective November 10, 2003, Kevin Caliendo is co-portfolio
manager of the fund, along with Michael Kagan.
PERFORMANCE SNAPSHOT
AS OF OCTOBER 31, 2003
(excluding sales charges)
6 Months 12 Months
Smith Barney Class 1 Shares 16.98% 22.91%
S&P 500 Index 15.62% 20.79%
Average of Lipper large-cap core funds 14.42% 17.75%
Class 1 share returns assume the reinvestment of income dividends and
capital gains distributions at net asset value and the deduction of all fund
expenses. Returns have not been adjusted to include sales charges that may
apply when shares are purchased or the deduction of taxes that a shareholder
would pay on fund distributions. Results for other shares classes may vary.
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.
Lipper Inc. is a major independent mutual-fund tracking organization. Lipper
average returns are based on the period ended October 31, 2003, calculated
among 1,098 funds for the six-month period and among 1,064 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.
All figures represent past performance and are not a guarantee of future
results. Principal value and investment returns will fluctuate and
investors' shares, when redeemed may be worth more or less than their
original cost.
/1/Lipper Inc. is a major independent mutual-fund tracking organization.
Average annual returns are based on the 12-month period ended October 31,
2003, calculated among 1,064 funds in the large-cap core funds category with
reinvestment of dividends and capital gains excluding sales charges.
1 SB Growth and Income Fund | 2003 Annual Report
Market and Fund Overview
The year ended October 2003 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 conflict in Iraq were times of apprehension and
cautiousness. 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, after the U.S.-led coalition toppled the regime of Saddam Hussein,
investors turned their attention to a pending stabilization in the outlook for
corporate earnings, and 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 fund's fiscal year in October.
The fund's performance was helped by its positions in electronics retailer Best
Buy Co. Inc., generic drug company Teva Pharmaceuticals Industries Ltd.,
Sponsored ADR, semiconductor maker Intel Corp. and data-management specialist
VERITAS Software Corp. While performance for the fund was positive, some
portfolio holdings detracted from its overall performance for the period.
Shares of software giant Microsoft Corp., packaged foods producer Kraft Foods
Inc., home mortgage lender Freddie Mac and wireless phone maker Nokia Corp.,
Sponsored ADR all lost value during the period, reducing the fund's overall
performance.
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
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 5 through 8 for a list and percentage breakdown
of the fund's holdings.
The fund's top ten holdings and each holding's percentage of the fund's net
assets, as of October 31, 2003 were: Pfizer Inc. (3.61%), General Electric Co.
(3.12%), Microsoft Corp. (2.90%), Best Buy Co., Inc. (2.70%), Exxon Mobil Corp.
(2.63%), Intel Corp. (2.55%), Teva Pharmaceutical Industries Ltd., Sponsored
ADR(a) (2.37%), The Bank of New York Co., Inc. (2.34%), American International
Group, Inc. (2.13%), Alcoa Inc. (2.07).
/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.
Additional Information About Your Fund
The Fund's Adviser and some of its affiliates have received requests for
information from various government regulators regarding market timing, late
trading, fees and other mutual fund issues in connection with various
investigations. The 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 SB Growth and Income Fund | 2003 Annual Report
AVERAGE ANNUAL TOTAL RETURNS/(1)/+ (UNAUDITED)
Without Sales Charges/(2)/
--------------------------------------------------------------
Smith Smith Smith Smith Smith Smith Smith Salomon
Barney Barney Barney Barney Barney Barney Barney Brothers
Class 1 Class A Class B Class L Class O Class P Class Y Class A
- -----------------------------------------------------------------------------------------------
Twelve Months Ended 10/31/03 22.91% 22.36% 21.11% 21.85% 22.15% 22.18% 23.16% N/A
- -----------------------------------------------------------------------------------------------
Five Years Ended 10/31/03 (0.22) (0.53) (1.42) N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------
Ten Years Ended 10/31/03 7.56 N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------
Inception* through 10/31/03 8.32 5.61 4.71 (7.72) (7.03) (6.94) (6.12) 3.05%++
- -----------------------------------------------------------------------------------------------
With Sales Charges/(3)/
--------------------------------------------------------------
Smith Smith Smith Smith Smith Smith Smith Salomon
Barney Barney Barney Barney Barney Barney Barney Brothers
Class 1 Class A Class B Class L Class O Class P Class Y Class A
- -----------------------------------------------------------------------------------------------
Twelve Months Ended 10/31/03 12.43% 16.27% 16.11% 19.64% 19.95% 17.18% 23.16% N/A
- -----------------------------------------------------------------------------------------------
Five Years Ended 10/31/03 (1.97) (1.55) (1.57) N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------
Ten Years Ended 10/31/03 6.61 N/A N/A N/A N/A N/A N/A N/A
- -----------------------------------------------------------------------------------------------
Inception* through 10/31/03 7.74 4.86 4.71 (8.03) (7.36) (7.91) (6.12) (2.87)%++
- -----------------------------------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(2)/
- -----------------------------------------------------------------------------------------
Smith Barney Class 1 (10/31/93 through 10/31/03) 107.31%
- -----------------------------------------------------------------------------------------
Smith Barney Class A (Inception* through 10/31/03) 48.13
- -----------------------------------------------------------------------------------------
Smith Barney Class B (Inception* through 10/31/03) 39.29
- -----------------------------------------------------------------------------------------
Smith Barney Class L (Inception* through 10/31/03) (21.86)
- -----------------------------------------------------------------------------------------
Smith Barney Class O (Inception* through 10/31/03) (19.03)
- -----------------------------------------------------------------------------------------
Smith Barney Class P (Inception* through 10/31/03) (18.79)
- -----------------------------------------------------------------------------------------
Smith Barney Class Y (Inception* through 10/31/03) (16.70)
- -----------------------------------------------------------------------------------------
Salomon Brothers Class A (Inception* through 10/31/03) 3.05
- -----------------------------------------------------------------------------------------
(1) On May 9, 2003 Class 1, A, B, L, O, P and Y shares were renamed as Smith
Barney Class 1, Smith Barney Class A, Smith Barney Class B, Smith Barney
Class L, Smith Barney Class O, Smith Barney Class P and Smith Barney Class
Y shares, respectively.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect deduction of the applicable
sales charges with respect to Smith Barney Class 1, Smith Barney Class A,
Smith Barney Class L and Salomon Brothers Class A shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Smith Barney
Class B, Smith Barney Class L, Smith Barney Class O and Smith Barney Class
P shares.
(3) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Smith Barney Class 1, Smith Barney
Class A, Smith Barney Class L, Smith Barney Class O and Salomon Brothers
Class A shares reflect the deduction of the maximum initial sales charges
of 8.50%, 5.00%, 1.00%, 1.00%, and 5.75%, respectively. Smith Barney Class
B and Smith Barney Class P shares reflect the deduction of a 5.00% CDSC,
which applies if shares are redeemed within one year from purchase payment
and declines by 1.00% per year until no CDSC is incurred. Smith Barney
Class L and Smith Barney Class O shares also reflect the deduction of a
1.00% CDSC, which applies if shares are redeemed within one year from
purchase payment.
* Inception date for Smith Barney Class 1 shares is April 14, 1987. Inception
date for Smith Barney Class A and Smith Barney Class B shares is August 18,
1996. Inception date for Smith Barney Class L shares is October 9, 2000.
Inception date for Smith Barney Class O, Smith Barney Class P and Smith
Barney Class Y shares is December 8, 2000. Inception date for Salomon
Brothers Class A shares is October 3, 2003.
+ The returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
3 SB Growth and Income Fund | 2003 Annual Report
HISTORICAL PERFORMANCE (UNAUDITED)
Value of $10,000 Invested in Smith Barney Class 1 Shares of the SB Growth and
Income Fund
vs. S&P 500 Index+
- --------------------------------------------------------------------------------
October 1993 -- October 2003
[CHART]
SB
Growth and Income Fund -- S&P
Smith Barney Class 1 Shares 500 Index
--------------------------- -----------------
10/93 $ 9,151 $10,000
10/94 9,197 10,386
10/95 11,262 13,129
10/96 13,579 16,292
10/97 17,293 21,522
10/98 19,178 26,259
10/99 23,065 32,998
10/00 24,307 35,003
10/01 18,186 26,290
10/02 15,434 22,322
10/03 18,971 26,963
+Hypothetical illustration of $10,000 invested in Smith Barney Class 1 shares
on October 31, 1993, assuming deduction of the 8.50% maximum initial sales
charge at the time of investment and 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 Stock
Exchange, American Stock Exchange and over-the-counter markets. Figures for
the 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. The performance of
the Fund's other classes may be greater or less than the performance of Smith
Barney Class 1 shares' performance indicated on this chart, depending on
whether greater or lesser sales charges and fees were incurred by shareholder
investing in other classes. The returns shown do not reflect the deduction of
taxes that a shareholder would pay on fund distributions or the redemption of
fund shares.
All figures represent past performance and are not a guarantee of future
results. The performance data represents past performance, including the
investment return and principal value of an investment, which will fluctuate
so that an investor's shares, when redeemed, may be worth more or less than
their original cost.
4 SB Growth and Income Fund | 2003 Annual Report
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
SHARES SECURITY VALUE
--------------------------------------------------------
COMMON STOCK -- 99.4%
Aerospace & Defense -- 3.1%
417,500 The Boeing Co. $ 16,069,575
325,500 Honeywell International Inc. 9,963,555
206,300 Lockheed Martin Corp. 9,564,068
--------------------------------------------------------
35,597,198
--------------------------------------------------------
Banks -- 11.1%
203,900 Bank of America Corp. 15,441,347
851,600 The Bank of New York Co., Inc. 26,561,404
336,800 Bank One Corp. 14,297,160
165,000 Comerica Inc. 8,494,200
186,900 Fifth Third Bancorp 10,832,724
357,790 FleetBoston Financial Corp. 14,451,138
339,300 U.S. Bancorp 9,235,746
131,400 Wachovia Corp. 6,027,318
371,000 Wells Fargo & Co. 20,894,720
--------------------------------------------------------
126,235,757
--------------------------------------------------------
Beverages -- 1.6%
373,400 PepsiCo, Inc. 17,855,988
--------------------------------------------------------
Biotechnology -- 3.1%
257,004 Amgen Inc.* 15,872,567
182,700 Chiron Corp.*+ 9,980,901
337,700 MedImmune, Inc.* 9,003,082
--------------------------------------------------------
34,856,550
--------------------------------------------------------
Building Products -- 1.2%
139,900 American Standard Cos. Inc.* 13,388,430
--------------------------------------------------------
Commercial Services & Supplies -- 2.2%
184,500 Avery Dennison Corp. 9,701,010
385,700 Paychex, Inc. 15,011,444
--------------------------------------------------------
24,712,454
--------------------------------------------------------
Communications Equipment -- 2.7%
825,400 Cisco Systems, Inc.* 17,316,892
374,000 Comverse Technology, Inc.* 6,746,960
454,700 Motorola, Inc. 6,152,091
--------------------------------------------------------
30,215,943
--------------------------------------------------------
Computers & Peripherals -- 3.0%
514,500 Dell Inc.* 18,583,740
675,200 Hewlett-Packard Co. 15,063,712
--------------------------------------------------------
33,647,452
--------------------------------------------------------
Containers & Packaging -- 0.5%
358,400 Smurfit-Stone Container Corp.* 5,555,200
--------------------------------------------------------
Diversified Financials -- 6.1%
217,000 American Express Co. 10,183,810
107,800 Freddie Mac 6,050,814
177,200 The Goldman Sachs Group, Inc. 16,639,080
294,000 J.P. Morgan Chase & Co. 10,554,600
See Notes to Financial Statements.
5 SB Growth and Income Fund | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
SHARES SECURITY VALUE
------------------------------------------------------------------
Diversified Financials -- 6.1% (continued)
399,100 MBNA Corp. $ 9,877,725
272,100 Merrill Lynch & Co., Inc. 16,108,320
------------------------------------------------------------------
69,414,349
------------------------------------------------------------------
Electric Utilities -- 1.7%
270,800 FirstEnergy Corp. 9,312,812
240,400 Progress Energy, Inc. 10,361,240
------------------------------------------------------------------
19,674,052
------------------------------------------------------------------
Electronic Equipment & Instruments -- 0.7%
537,400 Flextronics International Ltd.* 7,523,600
------------------------------------------------------------------
Energy Equipment & Services -- 1.5%
357,600 ENSCO International Inc.+ 9,422,760
338,500 GlobalSantaFe Corp. 7,619,635
------------------------------------------------------------------
17,042,395
------------------------------------------------------------------
Food & Drug Retailing -- 1.3%
681,300 Safeway Inc.* 14,375,430
------------------------------------------------------------------
Food Products -- 0.8%
315,000 Kraft Foods Inc. 9,166,500
------------------------------------------------------------------
Gas Utilities -- 0.6%
338,400 NiSource Inc. 7,008,264
------------------------------------------------------------------
Health Care Equipment & Supplies -- 1.0%
230,600 Guidant Corp. 11,762,906
------------------------------------------------------------------
Hotels Restaurants & Leisure -- 2.1%
686,100 McDonald's Corp. 17,159,361
200,800 MGM MIRAGE 7,128,400
------------------------------------------------------------------
24,287,761
------------------------------------------------------------------
Household Products -- 2.4%
305,000 Kimberly-Clark Corp. 16,107,050
119,200 The Procter & Gamble Co. 11,716,168
------------------------------------------------------------------
27,823,218
------------------------------------------------------------------
Industrial Conglomerates -- 4.5%
1,219,700 General Electric Co. 35,383,497
763,200 Tyco International Ltd. 15,935,616
------------------------------------------------------------------
51,319,113
------------------------------------------------------------------
Insurance -- 3.5%
397,300 American International Group, Inc. 24,167,759
68 Berkshire Hathaway Inc., Class A Shares* 5,291,080
243,800 Marsh & McLennan Cos., Inc. 10,422,450
------------------------------------------------------------------
39,881,289
------------------------------------------------------------------
Internet & Catalog Retail -- 1.1%
328,000 InterActiveCorp*+ 12,040,880
------------------------------------------------------------------
IT Consulting & Services -- 1.2%
655,700 Electronic Data Systems Corp. 14,064,765
------------------------------------------------------------------
See Notes to Financial Statements.
6 SB Growth and Income Fund | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
SHARES SECURITY VALUE
-----------------------------------------------------------------------------
Machinery -- 2.1%
96,200 Eaton Corp. $ 9,643,088
220,400 Navistar International Corp.* 8,910,772
65,200 PACCAR Inc. 5,148,192
-----------------------------------------------------------------------------
23,702,052
-----------------------------------------------------------------------------
Media -- 5.0%
415,100 Comcast Corp., Class A Shares* 14,080,192
378,800 Comcast Corp., Special Class A Shares* 12,356,456
726,402 Liberty Media Corp., Class A Shares* 7,329,396
399,300 The News Corp. Ltd., Preferred Shares, ADR 11,779,350
267,100 Viacom Inc., Class B Shares 10,649,277
-----------------------------------------------------------------------------
56,194,671
-----------------------------------------------------------------------------
Metals & Mining -- 2.7%
743,300 Alcoa Inc. 23,465,981
372,600 Barrick Gold Corp. 7,254,522
-----------------------------------------------------------------------------
30,720,503
-----------------------------------------------------------------------------
Multiline Retail -- 1.2%
375,700 Costco Wholesale Corp.* 13,288,509
-----------------------------------------------------------------------------
Oil & Gas -- 5.4%
189,200 ChevronTexaco Corp. 14,057,560
814,900 Exxon Mobil Corp. 29,809,042
221,000 Total SA 17,253,470
-----------------------------------------------------------------------------
61,120,072
-----------------------------------------------------------------------------
Paper & Forest Products -- 1.7%
128,000 Bowater Inc. 5,226,240
294,300 International Paper Co. 11,580,705
111,300 Louisiana-Pacific Corp.* 2,116,926
-----------------------------------------------------------------------------
18,923,871
-----------------------------------------------------------------------------
Personal Products -- 1.5%
445,800 The Estee Lauder Cos. Inc., Class A Shares+ 16,668,462
-----------------------------------------------------------------------------
Pharmaceuticals -- 8.1%
182,000 Johnson & Johnson 9,160,060
1,295,600 Pfizer Inc. 40,940,960
1,002,400 Schering-Plough Corp. 15,306,648
473,100 Teva Pharmaceutical Industries Ltd., Sponsored ADR+ 26,914,659
-----------------------------------------------------------------------------
92,322,327
-----------------------------------------------------------------------------
Real Estate -- 0.3%
92,200 iStar Financial Inc. 3,509,132
-----------------------------------------------------------------------------
Road & Rail -- 0.9%
175,800 Canadian National Railway Co. 10,583,160
-----------------------------------------------------------------------------
Semiconductor Equipment & Products -- 4.1%
760,700 Infineon Technologies AG 11,182,290
876,900 Intel Corp. 28,981,545
236,800 STMicroelectronics N.V. 6,308,352
-----------------------------------------------------------------------------
46,472,187
-----------------------------------------------------------------------------
See Notes to Financial Statements.
7 SB Growth and Income Fund | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------
Software -- 5.0%
393,500 BMC Software, Inc.* $ 6,839,030
1,261,000 Microsoft Corp. 32,975,150
659,900 Oracle Corp.* 7,892,404
258,900 VERITAS Software Corp.* 9,359,235
- --------------------------------------------------------------------------------------------------------------------------
57,065,819
- --------------------------------------------------------------------------------------------------------------------------
Specialty Retail -- 3.8%
526,200 Best Buy Co., Inc. 30,682,722
322,800 The Home Depot, Inc. 11,966,196
- --------------------------------------------------------------------------------------------------------------------------
42,648,918
- --------------------------------------------------------------------------------------------------------------------------
Wireless Telecommunication Services -- 0.6%
1,013,600 AT&T Wireless Services Inc.* 7,348,600
- --------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $987,653,115) 1,128,017,777
- --------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- --------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.6%
$6,712,000 State Street Bank & Trust Co., 0.940% due 11/3/03; Proceeds at maturity -- $6,712,526;
(Fully collateralized by U.S. Treasury Bonds, 8.000% due 11/15/21; Market value -- $6,849,799)
(Cost -- $6,712,000) 6,712,000
- --------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $994,365,115**) $1,134,729,777
- --------------------------------------------------------------------------------------------------------------------------
* 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 $1,001,738,030.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
LOANED SECURITIES COLLATERAL OCTOBER 31, 2003
FACE
AMOUNT SECURITY VALUE
- -----------------------------------------------------------------------------------------------------------------
$10,843,729 State Street Navigator Securities Lending Trust Prime Portfolio (Cost -- $10,843,729) $10,843,729
- -----------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
8 SB Growth and Income Fund | 2003 Annual Report
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2003
ASSETS:
Investments, at value (Cost -- $994,365,115) $1,134,729,777
Loaned securities collateral, at value (Cost --
$10,843,729) (Note 6) 10,843,729
Cash 824
Receivable for securities sold 11,662,900
Dividends and interest receivable 992,460
Receivable for Fund shares sold 304,308
Prepaid expenses 29,603
- ----------------------------------------------------------------------------
Total Assets 1,158,563,601
- ----------------------------------------------------------------------------
LIABILITIES:
Payable for loaned securities collateral (Note 6) 10,843,729
Payable for securities purchased 9,602,987
Payable for Fund shares reacquired 890,455
Management fee payable 614,627
Service plan fees payable 298,671
Trustees' retirement plan 256,762
Accrued expenses 589,566
- ----------------------------------------------------------------------------
Total Liabilities 23,096,797
- ----------------------------------------------------------------------------
Total Net Assets $1,135,466,804
- ----------------------------------------------------------------------------
NET ASSETS:
Par value of shares of beneficial interest $ 844
Capital paid in excess of par value 1,224,576,142
Undistributed net investment income 459,085
Accumulated net realized loss from investment transactions (229,933,929)
Net unrealized appreciation on investments 140,364,662
- ----------------------------------------------------------------------------
Total Net Assets $1,135,466,804
- ----------------------------------------------------------------------------
Shares Outstanding:
Smith Barney Class 1 39,624,646
- ----------------------------------------------------------------------------
Smith Barney Class A 20,586,300
- ----------------------------------------------------------------------------
Smith Barney Class B 9,046,600
- ----------------------------------------------------------------------------
Smith Barney Class L 427,208
- ----------------------------------------------------------------------------
Smith Barney Class O 116,845
- ----------------------------------------------------------------------------
Smith Barney Class P 1,711,226
- ----------------------------------------------------------------------------
Smith Barney Class Y 12,842,433
- ----------------------------------------------------------------------------
Salomon Brothers Class A 1,796
- ----------------------------------------------------------------------------
Net Asset Value:
Smith Barney Class 1 (and redemption price) $13.53
- ----------------------------------------------------------------------------
Smith Barney Class A (and redemption price) $13.52
- ----------------------------------------------------------------------------
Smith Barney Class B * $12.91
- ----------------------------------------------------------------------------
Smith Barney Class L * $13.33
- ----------------------------------------------------------------------------
Smith Barney Class O * $13.40
- ----------------------------------------------------------------------------
Smith Barney Class P * $13.44
- ----------------------------------------------------------------------------
Smith Barney Class Y (and redemption price) $13.55
- ----------------------------------------------------------------------------
Salomon Brothers Class A (and redemption price) $13.52
- ----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Smith Barney Class 1 (net asset value plus 9.29% of net
asset value per share) $14.79
- ----------------------------------------------------------------------------
Smith Barney Class A (net asset value plus 5.26% of net
asset value per share) $14.23
- ----------------------------------------------------------------------------
Smith Barney Class L (net asset value plus 1.01% of net
asset value per share) $13.46
- ----------------------------------------------------------------------------
Smith Barney Class O (net asset value plus 1.01% of net
asset value per share) $13.54
- ----------------------------------------------------------------------------
Salomon Brothers Class A (net asset value plus 6.10% of
net asset value per share) $14.34
- ----------------------------------------------------------------------------
* Redemption price is NAV of Smith Barney Class B, L, O and P shares reduced by
a 5.00%, 1.00%, 1.00% and 5.00% CDSC, respectively, if shares are redeemed
within one year from purchase payment (See Note 2).
See Notes to Financial Statements.
9 SB Growth and Income Fund | 2003 Annual Report
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003
INVESTMENT INCOME:
Dividends $ 15,842,686
Interest 432,147
Less: Foreign withholding tax (185,677)
- --------------------------------------------------------------------------
Total Investment Income 16,089,156
- --------------------------------------------------------------------------
EXPENSES:
Management fee (Note 2) 6,685,331
Shareholder servicing fees (Note 7) 3,298,119
Service plan fees (Note 7) 1,955,295
Audit and legal 135,547
Registration fees 107,363
Shareholder communications (Note 7) 95,677
Custody 76,118
Trustees' fees 36,550
Other 14,759
- --------------------------------------------------------------------------
Total Expenses 12,404,759
- --------------------------------------------------------------------------
Net Investment Income 3,684,397
- --------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FOREIGN CURRENCIES (NOTE 3):
Realized Loss From:
Investment transactions (109,929,388)
Foreign currency transactions (195)
- --------------------------------------------------------------------------
Net Realized Loss (109,929,583)
- --------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments:
Beginning of year (177,788,103)
End of year 140,364,662
- --------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 318,152,765
- --------------------------------------------------------------------------
Net Gain on Investments and Foreign Currencies 208,223,182
- --------------------------------------------------------------------------
Increase in Net Assets From Operations $ 211,907,579
- --------------------------------------------------------------------------
See Notes to Financial Statements.
10 SB Growth and Income Fund | 2003 Annual Report
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED OCTOBER 31,
2003 2002
- ----------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,684,397 $ 2,426,842
Net realized loss (109,929,583) (105,235,906)
Increase (decrease) in net unrealized
appreciation 318,152,765 (85,037,610)
- ---------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Operations 211,907,579 (187,846,674)
- ---------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 8):
Net investment income (3,166,671) (3,410,246)
Capital -- (832,371)
- ---------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders (3,166,671) (4,242,617)
- ---------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 83,291,446 96,525,033
Net asset value of shares issued for
reinvestment of dividends 2,102,528 3,257,499
Cost of shares reacquired (165,271,692) (250,790,369)
- ---------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share
Transactions (79,877,718) (151,007,837)
- ---------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 128,863,190 (343,097,128)
NET ASSETS:
Beginning of year 1,006,603,614 1,349,700,742
- ---------------------------------------------------------------------------------
End of year* $1,135,466,804 $1,006,603,614
- ---------------------------------------------------------------------------------
* Includes undistributed (overdistributed) net
investment income of: $459,085 $(58,299)
- ---------------------------------------------------------------------------------
See Notes to Financial Statements.
11 SB Growth and Income Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The SB Growth and Income Fund ("Fund") (formerly known as Smith Barney Growth
and Income Fund), a separate investment fund of the Smith Barney Investment
Series ("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. The Trust consists of this Fund and six
other separate investment funds: Smith Barney International Fund, formerly
known as Smith Barney International Aggressive Growth Fund, Smith Barney Large
Cap Core Fund, Smith Barney Large Cap Core Portfolio, Smith Barney Premier
Selections All Cap Growth Portfolio, Smith Barney Growth and Income Portfolio
and SB Government Portfolio (formerly known as Smith Barney Government
Portfolio). The financial statements and financial highlights for the other
funds are presented in separate shareholder reports.
The significant accounting policies consistently followed by the Fund are: (a)
security transactions are accounted for on trade date; (b) securities traded on
national securities markets are valued at the closing 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 an 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 Fund determines 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) class specific expenses are charged to each
class; management fees and general fund expenses are allocated on the basis of
relative net assets of each class or on another reasonable basis; (i) dividends
and distributions to shareholders are recorded by the Fund on the ex-dividend
date; the Fund distributes dividends quarterly and capital gains, if any, at
least annually; (j) the accounting records of the Fund are maintained in U.S.
dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income and expense amounts recorded and collected or paid are adjusted
when reported by the custodian bank; (k) 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; (l) the character of income and gains to be distributed are
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America; (m)
the 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. At October 31, 2003, reclassifications were
made to the capital accounts of the Fund to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Net investment income, net realized gains and net assets were not
affected by this change; and (n) 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.
12 SB Growth and Income Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Also, the Fund may enter into forward foreign 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.
2. Management Agreement and Other Transactions
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary
of Citigroup Inc. ("Citigroup") acts as the investment manager to the Fund. The
Fund pays SBFM a management fee, which is calculated daily and paid monthly, at
an annual rate of the Fund's average daily net assets as follows:
Average Daily Net Assets Annual Rate
- -------------------------------------------------------------------------------
First $1 billion 0.65%
- ------------------------------------------------------------------------------
Next $1 billion 0.60
- ------------------------------------------------------------------------------
Next $1 billion 0.55
- ------------------------------------------------------------------------------
Next $1 billion 0.50
- ------------------------------------------------------------------------------
Over $4 billion 0.45
- ------------------------------------------------------------------------------
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Fund's transfer agent. PFPC Inc. ("PFPC") and Primerica Shareholder Services
("PSS"), another subsidiary of Citigroup, act as the Fund's sub-transfer
agents. CTB receives account fees and asset-based fees that vary according to
the size and type of account. PFPC and PSS are responsible for shareholder
recordkeeping and financial processing for all shareholder accounts and is paid
by CTB. For the year ended October 31, 2003, the Fund paid transfer agent fees
of $2,744,232 to CTB.
Citigroup Global Markets Inc. ("CGM") (formerly known as Salomon Smith Barney
Inc.) and PFS Distributors, Inc. ("PFS"), both of which are subsidiaries of
Citigroup, act as the Fund's distributors. In addition, CGM, PFS and certain
other broker-dealers continue to sell Fund shares to the public as members of
the selling group. For the year ended October 31, 2003, CGM and its affiliates
did not receive any brokerage commissions for the Fund's portfolio agency
transactions.
There are maximum initial sales charges of 8.50%, 5.00%, 1.00%, 1.00% and 5.75%
for Smith Barney Class 1, Smith Barney Class A, Smith Barney Class L, Smith
Barney Class O and Salomon Brothers Class A shares, respectively. There is a
contingent deferred sales charge ("CDSC") of 5.00% on Smith Barney Class B and
Smith Barney Class P shares, which applies if redemption occurs within one year
from purchase payment and declines thereafter by 1.00% per year until no CDSC
is incurred. Smith Barney Class L and Smith Barney Class O shares also have a
1.00% CDSC, which applies if redemption occurs within one year from purchase
payment. In certain cases, Smith Barney Class A and Salomon Brothers Class A
shares have a 1.00% CDSC, which applies if redemption occurs within one year
from purchase payment. This CDSC only applies to those purchases of Smith
Barney Class A and Salomon Brothers Class A shares, respectively, which, when
combined with current holdings of Smith Barney Class A and Salomon Brothers
Class A shares, respectively, equal or exceed $1,000,000 in the aggregate.
These purchases do not incur an initial sales charge.
For the year ended October 31, 2003, CGM and its affiliates received sales
charges of approximately $928,000, $830,000, $10,000 and $1,400 on sales on the
Fund's Smith Barney Class 1, Smith Barney Class A, Smith Barney Class L and
Salomon Brothers Class A shares, respectively. In addition CDSCs paid to CGM
and its affiliates for the year ended October 31, 2003 were approximately:
Smith Barney Smith Barney
Class B Class P
- ------------------------------------------------------------------
CDSCs $293,000 $13,000
- -----------------------------------------------------------------
13 SB Growth and Income Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 Fund, 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. 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 year ended October 31, 2003 were $28,878. Two additional
Trustees have announced their intention to retire, effective December 31, 2003.
The amount of benefits to be paid under the prior plan cannot currently be
determined for these Trustees.
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) were as follows:
- ------------------------------------------------------------------------------
Purchases $645,050,014
- ------------------------------------------------------------------------------
Sales 725,484,318
- ------------------------------------------------------------------------------
At October 31, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
- -----------------------------------------------------------------------------
Gross unrealized appreciation $181,806,039
Gross unrealized depreciation (48,814,292)
- -----------------------------------------------------------------------------
Net unrealized appreciation $132,991,747
- -----------------------------------------------------------------------------
4. Repurchase Agreements
The Fund purchases (and the custodian takes possession of) U.S. government
securities from securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day),
at an agreed-upon higher repurchase price. The Fund requires continual
maintenance of the market value (plus accrued interest) of the collateral in
amounts at least equal to the repurchase price.
14 SB Growth and Income Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. Foreign Securities
Investing in securities of foreign companies and foreign governments involves
special risks and considerations not typically associated with investing in
U.S. companies and the U.S. government. These risks include revaluation of
currencies and future adverse political and economic developments. Moreover,
securities of many foreign companies and foreign governments and their markets
may be less liquid and their prices more volatile than those of securities of
comparable U.S. companies and the U.S. government.
6. Lending of Portfolio Securities
The Fund has an agreement with its custodian whereby the custodian may lend
securities owned by the Fund to brokers, dealers and other financial
organizations. Fees earned by the Fund on securities lending are recorded in
interest income. Loans of securities by the Fund are collateralized by cash,
U.S. government securities or high-quality money market instruments that are
maintained at all times in an amount at least equal to the current market value
of the loaned securities, plus a margin which may vary depending on the type of
securities loaned. The Fund maintains exposure for the risk of any losses in
the investment of amounts received as collateral.
At October 31, 2003, the Fund loaned stocks having a market value of
$10,473,371. The Fund received cash collateral amounting to $10,843,729 which
was invested in the State Street Navigator Securities Lending Trust Prime
Portfolio.
Income earned by the Fund from securities lending for the year ended October
31, 2003 was $98,384.
7. Class Specific Expenses
Pursuant to Service Plans, the Fund pays a distribution/service fee with
respect to its Smith Barney Class A, Smith Barney Class B, Smith Barney Class
L, Smith Barney Class O, Smith Barney Class P and Salomon Brothers Class A
shares calculated at an annual rate not to exceed 0.25%, 1.00%, 1.00%, 0.70%,
0.75% and 0.25% of the average daily net assets of each class, respectively.
For the year ended October 31, 2003, total Service Plan fees incurred, which
are accrued daily and paid monthly, were as follows:
Smith Smith Smith Smith Smith Salomon
Barney Barney Barney Barney Barney Brothers
Class A Class B Class L Class O Class P Class A
- -------------------------------------------------------------------------------------------------------------
Service Plan Fees $612,452 $1,104,914 $47,031 $11,076 $179,817 $5
- ------------------------------------------------------------------------------------------------------------
For the year ended October 31, 2003, total Shareholder Servicing fees were as follows:
Smith Smith Smith Smith Smith Smith Smith Salomon
Barney Barney Barney Barney Barney Barney Barney Brothers
Class 1 Class A Class B Class L Class O Class P Class Y Class A
- -------------------------------------------------------------------------------------------------------------
Shareholder Servicing Fees $1,501,321 $986,613 $786,790 $4,967 $1,968 $16,128 $328 $4
- ------------------------------------------------------------------------------------------------------------
For the year ended October 31, 2003, total Shareholder Communication expenses were as follows:
Smith Smith Smith Smith Smith Smith Smith Salomon
Barney Barney Barney Barney Barney Barney Barney Brothers
Class 1 Class A Class B Class L Class O Class P Class Y Class A
- -------------------------------------------------------------------------------------------------------------
Shareholder Communication Expenses $43,392 $29,125 $19,915 $519 $148 $2,566 $11 $1
- ------------------------------------------------------------------------------------------------------------
15 SB Growth and Income Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. Distributions Paid to Shareholders by Class
Year Ended Year Ended
October 31, 2003 October 31, 2002
- ----------------------------------------------------------------
Smith Barney Class 1
Net investment income $1,877,177 $2,490,922
Capital -- 488,237
- ---------------------------------------------------------------
Total $1,877,177 $2,979,159
- ---------------------------------------------------------------
Smith Barney Class A
Net investment income $ 236,104 $ 69,899
Capital -- 221,474
- ---------------------------------------------------------------
Total $ 236,104 $ 291,373
- ---------------------------------------------------------------
Smith Barney Class Y
Net investment income $1,053,390 $ 849,425
Capital -- 122,660
- ---------------------------------------------------------------
Total $1,053,390 $ 972,085
- ---------------------------------------------------------------
9. Shares of Beneficial Interest
The Fund has eight classes of beneficial interest, Smith Barney Class 1, Smith
Barney Class A, Smith Barney Class B, Smith Barney Class L, Smith Barney Class
O, Smith Barney Class P, Smith Barney Class Y, and Salomon Brothers Class A
shares, each with a par value of $0.00001 per share. There are an unlimited
number of shares authorized.
Transactions in shares of each class were as follows:
Year Ended Year Ended
October 31, 2003* October 31, 2002
------------------------- -------------------------
Shares Amount Shares Amount
- --------------------------------------------------------------------------
Smith Barney Class
1**
Shares sold 1,258,123 $ 14,889,228 1,459,600 $ 18,817,820
Shares issued on 158,372
reinvestment 1,877,176 224,707 2,979,158
Shares reacquired (6,508,330) (75,645,878) (8,730,622) (109,850,857)
- -------------------------------------------------------------------------
Net Decrease (5,091,835) $(58,879,474) (7,046,315) $ (88,053,879)
- -------------------------------------------------------------------------
Smith Barney Class
A**
Shares sold 3,283,089 $ 39,175,584 3,843,001 $ 50,293,317
Shares issued on 19,201
reinvestment 225,352 21,569 278,341
Shares reacquired (3,750,095) (43,787,798) (5,426,592) (68,871,412)
- -------------------------------------------------------------------------
Net Decrease (447,805) $ (4,386,862) (1,562,022) $ (18,299,754)
- -------------------------------------------------------------------------
Smith Barney Class
B**
Shares sold 1,606,684 $ 18,270,578 1,880,555 $ 23,614,456
Shares reacquired (2,998,549) (33,804,525) (4,007,351) (49,879,341)
- -------------------------------------------------------------------------
Net Decrease (1,391,865) $(15,533,947) (2,126,796) $ (26,264,885)
- -------------------------------------------------------------------------
Smith Barney Class
L**
Shares sold 112,187 $ 1,351,536 80,882 $ 1,057,782
Shares reacquired (97,670) (1,136,849) (112,274) (1,430,039)
- -------------------------------------------------------------------------
Net Increase
(Decrease) 14,517 $ 214,687 (31,392) $ (372,257)
- -------------------------------------------------------------------------
16 SB Growth and Income Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Year Ended Year Ended
October 31, 2003* October 31, 2002
---------------------- -------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------
Smith Barney Class
O**
Shares sold 862 $ 9,949 1,143 $ 15,732
Shares reacquired (29,389) (352,879) (43,921) (552,644)
- -------------------------------------------------------------------------
Net Decrease (28,527) $ (342,930) (42,778) $ (536,912)
- -------------------------------------------------------------------------
Smith Barney Class
P**
Shares sold 16,828 $ 195,959 30,626 $ 410,789
Shares reacquired (697,379) (8,174,198) (1,299,417) (16,860,835)
- -------------------------------------------------------------------------
Net Decrease (680,551) $(7,978,239) (1,268,791) $(16,450,046)
- -------------------------------------------------------------------------
Smith Barney Class
Y**
Shares sold 779,555 $ 9,375,000 218,170 $ 2,315,137
Shares reacquired (206,647) (2,369,516) (286,176) (3,345,241)
- -------------------------------------------------------------------------
Net Increase
(Decrease) 572,908 $ 7,005,484 (68,006) $ (1,030,104)
- -------------------------------------------------------------------------
Salomon Brothers
Class A
Shares sold 1,800 $ 23,612 -- --
Shares reacquired (4) (49) -- --
- -------------------------------------------------------------------------
Net Increase 1,796 $ 23,563 -- --
- -------------------------------------------------------------------------
* For Salomon Brothers Class A shares, transactions are for the period October
3, 2003 (inception date) to October 31, 2003.
** On May 9, 2003, Class 1, A, B, L, O, P and Y shares were renamed as Smith
Barney Class 1, Smith Barney Class A, Smith Barney Class B, Smith Barney
Class L, Smith Barney Class O, Smith Barney Class P and Smith Barney Class Y
shares, respectively.
10.Capital Loss Carryforward
At October 31, 2003, the Fund had, for Federal income tax purposes,
approximately $222,561,000 of unused capital loss carryforwards available to
offset future capital gains. To the extent that these capital carryforward
losses are used to offset capital gains, it is probable that the gains so
offset will not be distributed. The amount and year of expiration for each
carryforward loss is indicated below. Expiration occurs on October 31 of the
year indicated.
2009 2010 2011
---------------------------------------------------------
Carryforward Amounts $13,844,000 $98,235,000 $110,482,000
---------------------------------------------------------
11.Income Tax Information and Distributions to Shareholders
At October 31, 2003, the tax basis components of distributable earnings were:
--------------------------------------------
Undistributed ordinary income $ 452,936
--------------------------------------------
Accumulated capital losses (222,561,014)
--------------------------------------------
Unrealized appreciation 132,991,747
--------------------------------------------
The difference between book basis and tax basis unrealized appreciation is
attributable primarily to wash sale loss deferrals.
The tax character of distributions paid during the year ended October 31, 2003
was:
--------------------------
Ordinary income $3,166,671
--------------------------
17 SB Growth and Income Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12.Subsequent Event
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer agent
(PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
$16 million (plus interest) that CAM and its affiliates received from the
Revenue Guarantee Agreement and its amendment. CAM also plans an independent
review to verify that the transfer agency fees charged by CAM were fairly
priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
18 SB Growth and Income Fund | 2003 Annual Report
FINANCIAL HIGHLIGHTS
For a share of each class of beneficial interest outstanding throughout each
year ended October 31, unless otherwise noted:
Smith Barney Class 1 Shares/(1)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- ----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.05 $13.08 $19.03 $21.36 $18.53
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.07 0.05 0.10 0.08 0.09
Net realized and unrealized gain (loss) 2.46 (2.02) (4.62) 1.11 3.60
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.53 (1.97) (4.52) 1.19 3.69
- ---------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.05) (0.05) (0.06) (0.07) (0.08)
Net realized gains -- -- (1.37) (3.45) (0.78)
Capital -- (0.01) -- -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.05) (0.06) (1.43) (3.52) (0.86)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.53 $11.05 $13.08 $19.03 $21.36
- ----------------------------------------------------------------------------------------------------
Total Return 22.91% (15.13)% (25.18)% 5.39% 20.27%
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 536 $ 494 $ 678 $1,017 $1,122
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.00% 0.99% 0.73% 0.85% 0.84%
Net investment income 0.56 0.38 0.62 0.43 0.43
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 63% 44% 69% 63% 53%
- ----------------------------------------------------------------------------------------------------
Smith Barney Class A Shares/(3)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- ----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.06 $13.07 $19.03 $21.35 $18.53
- ----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.02 0.02 0.03 0.04 0.03
Net realized and unrealized gain (loss) 2.45 (2.02) (4.61) 1.11 3.60
- ----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.47 (2.00) (4.58) 1.15 3.63
- ----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.01) (0.00)* (0.01) (0.02) (0.03)
Net realized gains -- -- (1.37) (3.45) (0.78)
Capital -- (0.01) -- -- --
- ----------------------------------------------------------------------------------------------------
Total Distributions (0.01) (0.01) (1.38) (3.47) (0.81)
- ----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.52 $11.06 $13.07 $19.03 $21.35
- ----------------------------------------------------------------------------------------------------
Total Return 22.36% (15.29)% (25.51)% 5.14% 19.93%
- ----------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 278 $ 233 $ 295 $ 215 $ 181
- ----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.35% 1.25% 1.17% 1.06% 1.12%
Net investment income 0.21 0.12 0.19 0.21 0.15
- ----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 63% 44% 69% 63% 53%
- ---------------------------------------------------------------------------------------------------
(1)On May 9, 2003, Class 1 shares were renamed as Smith Barney Class 1 shares.
(2)Per share amounts have been calculated using the monthly average shares
method.
(3) On May 9, 2003, Class A shares were renamed as Smith Barney Class A shares.
*Amount represents less than $0.01 per share.
19 SB Growth and Income Fund | 2003 Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout each
year ended October 31, unless otherwise noted:
Smith Barney Class B Shares/(1)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- -----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $10.66 $12.73 $18.70 $21.16 $18.48
- -----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.10) (0.11) (0.10) (0.10) (0.12)
Net realized and unrealized gain (loss) 2.35 (1.96) (4.50) 1.09 3.58
- -----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.25 (2.07) (4.60) 0.99 3.46
- -----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- --
Net realized gains -- -- (1.37) (3.45) (0.78)
- -----------------------------------------------------------------------------------------------------
Total Distributions -- -- (1.37) (3.45) (0.78)
- -----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $12.91 $10.66 $12.73 $18.70 $21.16
- -----------------------------------------------------------------------------------------------------
Total Return 21.11% (16.26)% (26.10)% 4.36% 19.03%
- -----------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $ 117 $ 111 $ 160 $ 232 $ 208
- -----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.42% 2.28% 2.00% 1.81% 1.87%
Net investment loss (0.85) (0.91) (0.65) (0.54) (0.60)
- -----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 63% 44% 69% 63% 53%
- -----------------------------------------------------------------------------------------------------
Smith Barney Class L Shares/(3)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)(4)/
- -----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $10.94 $13.00 $19.04 $18.49
- -----------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.03) (0.07) (0.08) (0.02)
Net realized and unrealized gain (loss) 2.42 (1.99) (4.59) 0.57
- -----------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.39 (2.06) (4.67) 0.55
- -----------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- --
Net realized gains -- -- (1.37) --
- -----------------------------------------------------------------------------------------------------
Total Distributions -- -- (1.37) --
- -----------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.33 $10.94 $13.00 $19.04
- -----------------------------------------------------------------------------------------------------
Total Return 21.85% (15.85)% (25.99)% 2.97%++
- -----------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $5,696 $4,516 $5,774 $205
- -----------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.80% 1.89% 1.85% 1.71%+
Net investment loss (0.25) (0.52) (0.49) (1.23)+
- -----------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 63% 44% 69% 63%
- -----------------------------------------------------------------------------------------------------
(1) On May 9, 2003, Class B shares were renamed as Smith Barney Class B shares.
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On May 9, 2003, Class L shares were renamed as Smith Barney Class L shares.
(4) For the period October 9, 2000 (inception date) to October 31, 2000.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
20 SB Growth and Income Fund | 2003 Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout each
year ended October 31, unless otherwise noted:
Smith Barney Class O Shares/(1)/ 2003/(2)/ 2002/(2)/ 2001/(2)(3)/
- -----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $10.97 $13.04 $16.55
- -------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) 0.01 (0.06) (0.03)
Net realized and unrealized gain (loss) 2.42 (2.01) (3.48)
- -------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.43 (2.07) (3.51)
- -------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- --
- -------------------------------------------------------------------------------------------
Total Distributions -- -- --
- -------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.40 $10.97 $13.04
- -------------------------------------------------------------------------------------------
Total Return 22.15% (15.87)% (21.21)%++
- -------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $1,566 $1,595 $2,453
- -------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.52% 1.82% 1.53%+
Net investment income (loss) 0.05 (0.45) (0.18)+
- -------------------------------------------------------------------------------------------
Portfolio Turnover Rate 63% 44% 69%
- -------------------------------------------------------------------------------------------
Smith Barney Class P Shares/(4)/ 2003/(1)(2)/ 2002/(2)/ 2001/(2)(3)/
- -----------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.00 $13.04 $16.55
- -------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) 0.01 (0.03) (0.03)
Net realized and unrealized gain (loss) 2.43 (2.01) (3.48)
- -------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.44 (2.04) (3.51)
- -------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- --
- -------------------------------------------------------------------------------------------
Total Distributions -- -- --
- -------------------------------------------------------------------------------------------
Net Asset Value, End of Year $13.44 $11.00 $13.04
- -------------------------------------------------------------------------------------------
Total Return 22.18% (15.64)% (21.21)%++
- -------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $22,993 $26,301 $47,719
- -------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.51% 1.61% 1.53%+
Net investment income (loss) 0.06 (0.23) (0.20)+
- -------------------------------------------------------------------------------------------
Portfolio Turnover Rate 63% 44% 69%
- -------------------------------------------------------------------------------------------
(1) On May 9, 2003, Class O shares were renamed as Smith Barney Class O shares.
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period December 8, 2000 (inception date) to October 31, 2001.
(4) On May 9, 2003, Class P shares were renamed as Smith Barney Class P shares.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
21 SB Growth and Income Fund | 2003 Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout each
year ended October 31, unless otherwise noted:
Smith Barney Class Y Shares/(1)/ 2003/(2)/ 2002/(2)/ 2001/(2)(3)/
- -----------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $11.08 $13.08 $16.55
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.11 0.09 0.10
Net realized and unrealized gain (loss) 2.44 (2.01) (3.51)
- --------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.55 (1.92) (3.41)
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.08) (0.07) (0.06)
Capital -- (0.01) --
- --------------------------------------------------------------------------------
Total Distributions (0.08) (0.08) (0.06)
- --------------------------------------------------------------------------------
Net Asset Value, End of Year $13.55 $11.08 $13.08
- --------------------------------------------------------------------------------
Total Return 23.16% (14.77)% (20.65)%++
- --------------------------------------------------------------------------------
Net Assets, End of Year (millions) $174 $136 $161
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.67% 0.67% 0.67%+
Net investment income 0.88 0.70 0.68+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 63% 44% 69%
- --------------------------------------------------------------------------------
Salomon Brothers Class A Shares 2003/(2)(4)/
- -----------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $13.12
- --------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.00)*
Net realized and unrealized gain 0.40
- --------------------------------------------------------------------------------
Total Income From Operations 0.40
- --------------------------------------------------------------------------------
Less Distributions From:
Net investment income --
Net realized gains --
- --------------------------------------------------------------------------------
Total Distributions --
- --------------------------------------------------------------------------------
Net Asset Value, End of Period $13.52
- --------------------------------------------------------------------------------
Total Return 3.05%++
- --------------------------------------------------------------------------------
Net Assets, End of Period (000s) $24
- --------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.25%+
Net investment loss (0.21)+
- --------------------------------------------------------------------------------
Portfolio Turnover Rate 63%
- --------------------------------------------------------------------------------
(1) On May 9, 2003, Class Y shares were renamed as Smith Barney Class Y shares.
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period December 8, 2000 (inception date) to October 31, 2001.
(4) For the period October 3, 2003 (inception date) to October 31, 2003.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
* Amount represents less than $0.01 per share.
22 SB Growth and Income Fund | 2003 Annual Report
INDEPENDENT AUDITORS' REPORT
The Shareholders and Board of Trustees
of the Smith Barney Investment Series:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the SB Growth and Income Fund, formerly known
as Smith Barney Growth and Income Fund, of the Smith Barney Investment Series
("Fund") as of October 31, 2003, and the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended and the financial highlights for each
of the years in the four-year period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for the year
ended October 31, 1999 were audited by other auditors whose report thereon,
dated December 15, 1999, expressed an unqualified opinion on those financial
highlights.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures
included confirmation of securities owned as of October 31, 2003 by
correspondence with the custodian. As to securities purchased or sold but not
yet received or delivered, we performed other appropriate auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Fund as of October 31, 2003, and the results of its operations for the year
then ended, the changes in its net assets for each of the years in the two-year
period then ended and financial highlights for each of the years in the
four-year period then ended, in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
New York, New York
December 10, 2003
23 SB Growth and Income Fund | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED)
Information about Trustees and Officers
The business and affairs of the SB Growth and Income Fund, formerly known as
Smith Barney Growth and Income Fund ("Fund") are managed under the direction of
the Fund's Board of Trustees. Information pertaining to the Trustees and
Officers of the Fund 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 Fund's Trustees and is available, without charge, upon
request by calling Citicorp Trust Bank, fsb. at 1-800-451-2010 or Primerica
Shareholder Services at 1-800-544-5445.
Term of Number of
Office* and Portfolios in Fund
Position(s) Length Principal Complex Other Board Memberships
Held with of Time Occupation(s) During Overseen by Held by Trustees During
Name, Address and Age Fund Served Past Five Years Trustee Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------
Non-Interested Trustees:
Elliott J. Berv Trustee Since President and Chief 36 Board Member, American
c/o R. Jay Gerken, CFA 2001 Operations Officer, Identity Corp. (doing
Citigroup Asset Landmark City (Real Estate business as Morpheus
Management ("CAM") Development) (since 2002); Technologies) (Biometric
399 Park Avenue Executive Vice President information management)
New York, NY 10022 and Chief Operations (since 2001; Consultant
Age 60 Officer, DigiGym Systems since 1999); Director,
(On-line Personal Training Lapoint Industries
Systems) (since 2001); (Industrial Filter Company)
Chief Executive Officer, (since 2002); Director.
Rocket City Enterprises Alzheimer's Association
(Internet Service Company) (New England Chapter)
(from 2000 to 2001); (since 1998)
President, Catalyst
(Consulting) (since 1984)
Donald M. Carlton Trustee Since Consultant, URS Corporation 31 Director, American Electric
c/o R. Jay Gerken, CFA 1997 (Engineering) (since 1999); Power (Electric Utility)
CAM former Chief Executive (since 1999); Director,
399 Park Avenue Officer, Radian Valero Energy (Petroleum
New York, NY 10022 International L.L.C. Refining) (since 1999);
Age 66 (Engineering) (from 1969 to Director, National
1998), Member of Management Instruments Corp.
Committee, Signature (Technology) (since 1994)
Science (Research and
Development) (since 2000)
A. Benton Cocanougher Trustee Since Dean Emeritus and Wiley 31 Former Director, Randall's
c/o R. Jay Gerken, CFA 1991 Professor, Texas A&M Food Markets, Inc. (from
CAM University (since 2001); 1990 to 1999); former
399 Park Avenue former Dean and Professor Director, First American
New York, NY 10022 of Marketing, College and Bank and First American
Age 65 Graduate School of Business Savings Bank (from 1994 to
of Texas A&M University 1999)
(from 1987 to 2001)
Mark T. Finn Trustee Since Adjunct Professor, William 36 Former President and
c/o R. Jay Gerken, CFA 2001 & Mary College (since Director, Delta Financial,
CAM September 2002); Inc. (Investment Advisory
399 Park Avenue Principal/Member, Belvan Firm) (from 1983 to 1999)
New York, NY 10022 Partners/Balfour
Age 60 Vantage-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 Investment 31 Director, United Telesis,
c/o R. Jay Gerken, CFA 1986 Advisory Partners Inc. (Telecommunications)
CAM (Consulting) (since January (since 1997); Director,
399 Park Avenue 2000); Managing Director, eBank.com, Inc. (since
New York, NY 10022 Fountainhead Ventures, LLC 1997); Director, Andersen
Age 56 (Consulting) (from 1998 to Calhoun, Inc. (Assisted
2002); Secretary, Carint Living) (since 1987);
N.A. (Manufacturing) (since former Director, Charter
1988); former Treasurer, Bank, Inc, Inc. (from 1987
Hank Aaron Enterprises to 1997); former Director,
(Fast Food Franchise) (from Yu Save, Inc. (Internet
1985 to 2001); Chairman, Company) (from 1998 to
Gross, Collins & Cress, 2000); former Director,
P.C. (Accounting Firm) Hotpalm.com, Inc. (Wireless
(since 1980); Treasurer, Applications) (from 1998 to
Coventry Limited, Inc. 2000); former Director,
(since 1985) Ikon Ventures, Inc. (from
1997 to 1998)
24 SB Growth and Income Fund | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Term of Number of
Office* and Portfolios in Fund
Position(s) Length Principal Complex Other Board Memberships
Held with of Time Occupation(s) During Overseen by Held by Trustees During
Name, Address and Age Fund Served Past Five Years Trustee Past Five Years
- ------------------------------------------------------------------------------------------------------------------------------
Diana R. Harrington Trustee Since Professor, Babson College 36 Former Trustee, The
c/o R. Jay Gerken, CFA 2001 (since 1992) Highland Family of Funds
CAM (Investment Company) (from
399 Park Avenue 1997 to 1998)
New York, NY 10022
Age 63
Susan B. Kerley Trustee Since Consultant, Strategic 36 Director, Eclipse Funds
c/o R. Jay Gerken, CFA 2001 Management Advisors, LLC (currently supervises 17
CAM Global Research Associates, investment companies in
399 Park Avenue Inc. (Investment fund complex) (since 1990)
New York, NY 10022 Consulting) (since 1990)
Age 52
Alan G. Merten Trustee Since President, George Mason 31 Director, DigitalNet
c/o R. Jay Gerken, CFA 1990 University (since 1996) Holdings, Inc. (since
CAM October 2003); Director,
399 Park Avenue Comshare, Inc. (Information
New York, NY 10022 Technology) (since 1985);
Age 62 former Director, Indus
(Information Technology)
(from 1995 to 1999)
C. Oscar Morong, Jr. Trustee Since Managing Director, Morong 36 Former Director, Indonesia
c/o R. Jay Gerken, CFA 2001 Capital Management (since Fund (Closed End Fund)
CAM 1993) (from 1990 to 1999);
399 Park Avenue Trustee, Morgan Stanley
New York, NY 10022 Institutional Fund
Age 68 (currently supervises 75
investment companies)
(since 1993)
R. Richardson Pettit Trustee Since Professor of Finance, 31 None
c/o R. Jay Gerken, CFA 1990 University of Houston (from
CAM 1977 to 2002); Independent
399 Park Avenue Consultant (since 1984)
New York, NY 10022
Age 61
Walter E. Robb, III Trustee Since President, Benchmark 36 Director, John Boyle & Co.,
c/o R. Jay Gerken, CFA 1985 Consulting Group, Inc. Inc. (Textiles) (since
CAM (Service Company) (since 1999); Director, Harbor
399 Park Avenue 1991); Sole Proprietor, Sweets, Inc. (Candy) (since
New York, NY 10022 Robb Associates (Financial 1990); Director, W.A. Wilde
Age 77 Consulting) (since 1978); Co. (Direct Media
Co-Owner, Kedron Design Marketing) (since 1982);
(Gifts) (since 1978); Director, Alpha Grainger
former President and Manufacturing Inc.
Treasurer, Benchmark (Electronics) (since 1983);
Advisors, Inc. (Financial former Trustee, MFS Family
Consulting) (from 1989 to of Funds (Investment
2000) Company) (from 1985 to
2001); Harvard Club of
Boston (Audit Committee)
(since 2001)
Interested Trustee:
R. Jay Gerken, CFA ** CAM Chairman, Since Managing Director of 220 N/A
399 Park Avenue President 2002 Citigroup Global Markets
New York, NY 10022 and Chief Inc. ("CGM") Chairman,
Age 52 Executive President and Chief
Officer Executive Officer 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
1996-2001) and Smith Barney
Growth and Income Fund
(from 1996-2000)
25 SB Growth and Income Fund | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Term of Number of
Office* and Portfolios in Fund
Position(s) Length Principal Complex Other Board Memberships
Name, Address and Held with of Time Occupation(s) During Overseen by Held by Trustees During
Age Fund Served Past Five Years Trustee Past Five Years
- --------------------------------------------------------------------------------------------------------------------------------
Officers:
Andrew B. Shoup*** Senior Vice Since Director of CAM; Senior Vice N/A N/A
CAM President 2003 President and Chief Administrative
125 Broad Street and Chief Officer of mutual funds associated
10th Floor Administrative with Citigroup; Head of International
New York, NY 10004 Officer Funds Administration of CAM (from
Age 47 2001 to 2003); Director of Global
Funds Administration of CAM (from
2000 to 2001); Head of U.S.
Citibank Funds Administration of
CAM (from 1998 to 2000)
Richard L. Peteka Chief Since Director of CGM; Chief Financial N/A N/A
CAM Financial 2002 Officer and Treasurer of certain
125 Broad Officer and mutual funds affiliated with
Street 11th Floor Treasurer Citigroup; Director and Head of
New York, NY 10004 Internal Control for CAM U.S.
Age 42 Mutual Fund Administration (from
1999-2002); Vice President, Head of
Mutual Fund Administration and
Treasurer at Oppenheimer Capital
(from 1996-1999)
Michael Kagan Vice Since Managing Director of CGM N/A N/A
CAM President 2000
399 Park Avenue and Investment
New York, NY 10022 Officer
Age 43
Kaprel Ozsolak Controller Since Vice President of CGM; Controller of N/A N/A
CAM 2002 certain funds associated with
125 Board Citigroup
Street 11th Floor
New York, NY 10004
Age 38
Robert I. Frenkel Secretary Since Managing Director and General N/A N/A
CAM 2000 Counsel, Global Mutual Funds for
300 First Stamford CAM and its predecessor (since
Place Chief Legal Since 1994); Secretary of CFM; Secretary
4th Floor Officer 2003 and Chief Legal Officer of mutual
Stamford, CT 06902 funds associated with Citigroup
Age 48
- --------
* EachDirector 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.
TAX INFORMATION (UNAUDITED)
For Federal tax purposes, the Fund hereby designates for the fiscal year ended
October 31, 2003:
. A corporate dividends received deduction of 100.00%.
. For individual shareholders, the maximum amount allowable of qualifying
dividends for the reduced tax rate under The Jobs and Growth Tax Relief
Reconciliation Act of 2003.
26 SB Growth and Income Fund | 2003 Annual Report
SMITH BARNEY
GROWTH AND INCOME FUND
TRUSTEES OFFICERS (cont'd.)
Elliott J. Berv Kaprel Ozsolak
Donald M. Carlton Controller
A. Benton Cocanougher
Mark T. Finn Robert I. Frenkel
R. Jay Gerken, CFA Secretary and
Chairman Chief Legal Officer
Stephen Randolph Gross
Diana R. Harrington INVESTMENT MANAGER
Susan B. Kerley Smith Barney Fund
Alan G. Merten Management LLC
C. Oscar Morong, Jr.
R. Richardson Pettit DISTRIBUTORS
Walter E. Robb, III Citigroup Global Markets Inc.
PFS Distributors, Inc.
OFFICERS
R. Jay Gerken, CFA CUSTODIAN
President and Chief State Street Bank and
Executive Officer Trust Company
Andrew B. Shoup* TRANSFER AGENT
Senior Vice President and Citicorp Trust Bank, fsb.
Chief Administrative Officer 125 Broad Street, 11th Floor
New York, New York 10004
Richard L. Peteka
Chief Financial Officer SUB-TRANSFER AGENTS
and Treasurer PFPC Inc.
P.O. Box 9699
Kevin Caliendo Providence, Rhode Island
Vice President and 02940-9699
Investment Officer
Primerica Shareholder Services
Michael Kagan P.O. Box 9662
Vice President and Providence, Rhode Island
Investment Officer 02940-9662
* As of November 25, 2003.
Smith Barney Investment Series
SB Growth and Income Fund
The Fund is a separate investment fund of the Smith Barney Investment
Series, a Massachusetts business trust.
This report is submitted for the general information of the shareholders of
Smith Barney Investment Series -- Smith Barney Growth and Income Fund. It is
not authorized for distribution to prospective investors unless accompanied or
preceded by a current Prospectus for the Trust, which gives details about
charges, expenses, investment objectives and operating policies of the Fund.
If used as sales material after January 31, 2004, this report must be
accompanied by performance information for the most recently completed
calendar quarter.
SMITH BARNEY GROWTH AND INCOME FUND
Smith Barney Mutual Funds
3120 Breckinridge Boulevard
Duluth, Georgia 30099-0001
For complete information on any Smith Barney Mutual Funds, including
management fees and expenses, call or write your financial professional for a
free prospectus. Read it carefully before you invest or send money.
www.smithbarneymutualfunds.com
(C)2003 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02101 12/03 03-5802
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: January 2, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ R. Jay Gerken
(R. Jay Gerken)
Chief Executive Officer of
Smith Barney Investment Series
Date: January 2, 2004
By: /s/ Richard L. Peteka
(Richard L. Peteka)
Chief Financial Officer of
Smith Barney Investment Series
Date: January 2, 2004