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.
SMITH BARNEY
INTERNATIONAL 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
CLASSIC SERIES
[GRAPHIC]
Annual Report . October 31, 2003
SMITH BARNEY
INTERNATIONAL FUND
TEAM MANAGED
A team of individuals employed by the fund's subadviser manages the
day-to-day operations of the fund.
FUND OBJECTIVE
The fund seeks long-term capital growth. Dividend income, if any, is
incidental to this goal. It seeks to achieve this objective by investing
primarily in the common stocks of foreign companies that the fund's
manager believes have above-average prospects for growth, including
companies in emerging markets.
FUND FACTS
FUND INCEPTION
-----------------
March 17, 1995
What's Inside
Letter from the Chairman.............................................. 1
Manager Overview...................................................... 2
Fund Performance...................................................... 4
Historical Performance................................................ 5
Schedule of Investments............................................... 6
Statement of Assets and Liabilities................................... 9
Statement of Operations............................................... 10
Statements of Changes in Net Assets................................... 11
Notes to Financial Statements......................................... 12
Financial Highlights.................................................. 17
Independent Auditors' Report.......................................... 19
Additional Information................................................ 20
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
R. JAY GERKEN, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
Upheaval and uncertainty in the global economic and political environment,
including the build-up to war in Iraq, the military campaign and the war's
unsettled aftermath, permeated much of the year ended October 31, 2003. In
addition, foreign markets had to contend with the impact of the SARS epidemic
on economies in the Far East, continued political and economic turmoil in South
America, and Japan's ongoing struggle to get back on solid footing financially
and economically. As the period progressed, international markets responded
positively to low interest rates globally and to signs of economic recovery in
the United States, in Japan, and elsewhere. Consequently, performance results
over the full 12-month period were very positive.
For a more detailed review of how your fund performed within this market
environment, continue reading this report. 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 20, 2003
1 Smith Barney International Fund | 2003 Annual Report
MANAGER OVERVIEW
Performance Review
For the 12 months ended October 31, 2003, Class A shares of the Smith Barney
International Fund (formerly known as Smith Barney International Aggressive
Growth Fund), excluding sales charges, returned 17.13%. These shares
underperformed the fund's unmanaged benchmark, the MSCI EAFE Index,/i/ which
returned 27.03% for the same period. They also underperformed the average of
the fund's Lipper peer group of international funds, which returned 24.51% for
the same period./1/ Past performance is no guarantee of future results.
Market Overview
International markets reached a low point during March, but then recovered
strongly over the balance of the year, due to a combination of low global
interest rates, perceived reduction in geopolitical risk following early
coalition military success in Iraq, and signs of economic recovery in the
United States, Japan and elsewhere. Over the 12-month period, the greatest
increases were seen in Australia and the Pacific. From a sector perspective,
the recovery has been greatest in cyclical areas such as information technology
and materials. By contrast, more stable growth sectors, such as consumer
staples and healthcare, have lagged significantly.
Markets this year have been focused on recovery prospects for corporate
profits. Companies that operate in more depressed businesses or which suffer
from weak financial positions have tended to outperform, as the market
anticipates that these companies will enjoy the greatest relief from economic
recovery. Soundly financed companies, operating in attractive, high-return
businesses, but with less leverage to improving economic conditions, have
tended to underperform, despite enjoying generally lower valuations than their
more cyclical counterparts.
PERFORMANCE SNAPSHOT
AS OF OCTOBER 31, 2003
(excluding sales charges)
6 Months 12 Months
Class A Shares 17.21% 17.13%
MSCI EAFE Index 24.77% 27.03%
Average of Lipper international funds 23.18% 24.51%
Class A share returns assume the reinvestment of income dividends and
capital gains distributions at net asset value and the deduction of all fund
expenses. Returns have not been adjusted to include sales charges that may
apply when shares are purchased or the deduction of taxes that a shareholder
would pay on fund distributions.
The MSCI EAFE Index is an unmanaged index of common stocks of companies
located in Europe, Australasia and the Far East. Please note that an
investor cannot invest directly in an index.
Lipper Inc. is a major independent mutual-fund tracking organization.
Returns are based on the period ended October 31, 2003, calculated among 868
funds for the six-month period and among 835 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. Performance of other share classes may vary.
Fund Performance
The fund focuses on companies that our analysis suggests are most attractive
within their global sectors in terms of long-term valuations and seek to
project cash flows and dividends several years into the future. While this
approach remains a proven long-term strategy, it has proved less effective in
an environment focused primarily on short-term recovery prospects. We emphasize
stock selection rather than geographic or sector allocations when constructing
the fund's portfolio.
/1/Lipper Inc. is a major independent mutual-fund tracking organization.
Returns are based on the 12-month period ended October 31, 2003, calculated
among 835 funds in the Lipper international funds category with reinvestment
of dividends and capital gains and excluding sales charges.
2 Smith Barney International Fund | 2003 Annual Report
The strategy resulted in disappointing stock selection in Japan and continental
Europe. In Japan, the fund did not hold domestic financial companies such as
UFJ Holdings and Mizuho Financial, but did hold overweight positions in
exporting companies such as Honda Motor Co., Ltd., Toyota Motor Corp. and Canon
Inc. A combination of domestic cyclical recovery and the rise in the Japanese
yen against the U.S. dollar made this positioning disadvantageous in the short
term. As of the end of the period, the fund remained underweight in the
Japanese financials sector and continued to hold Honda, Toyota and Canon.
Within continental Europe, selection suffered in France and Switzerland, with
Sanofi-Synthelabo and Nestle S.A., held with overweight positions for much of
the period, the largest detractors respectively. We sold both Sanofi-Synthelabo
and Nestle during the period.
Partially offsetting these factors, the fund benefited from positive stock
selection in the United Kingdom, where Hanson PLC, Tesco PLC and Wolseley PLC
contributed positively. As of the end of October, Tesco remained in the fund
but we have sold Hanson and Wolseley.
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.
Thank you for your investment in the Smith Barney International Fund. We
appreciate that you have entrusted us to manage your money and we value our
relationship with you.
Sincerely,
The International Portfolio Management Team
November 20, 2003
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of October 31, 2003 and are subject to
change. Please refer to pages 6 through 8 for a list and percentage breakdown
of the fund's holdings.
/i/The MSCI EAFE Index is an unmanaged index of common stocks of companies
located in Europe, Australasia and the Far East. Please note that an
investor cannot invest directly in an index.
Portfolio holdings and breakdowns are as of October 31, 2003 and are subject to
change. The fund's top 10 holdings as of October 31, 2003 were: BP PLC (4.18%);
BNP Paribas S.A. (3.00%); Tesco PLC (2.84%); Toyota Motor Corp. (2.64%); Eni
S.p.A. (2.50%); UniCredito Italiano S.p.A. (2.38%); Mitsui Sumitomo Insurance
Co., Ltd. (2.31%); Royal Bank of Scotland Group PLC (2.30%); Canon Inc.
(2.23%); Diageo PLC (2.10%).
3 Smith Barney International Fund | 2003 Annual Report
AVERAGE ANNUAL TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(1)/
-------------------------------
Class 1 Class A Class B Class L
- -------------------------------------------------------------------
Twelve Months Ended 10/31/03 18.00% 17.13% 16.03% 18.10%
- -------------------------------------------------------------------
Five Years Ended 10/31/03 (1.38) (1.95) (2.75) N/A
- -------------------------------------------------------------------
Inception* through 10/31/03 1.47 4.32 3.50 (27.26)
- -------------------------------------------------------------------
With Sales Charges/(2)/
-------------------------------
Class 1 Class A Class B Class L
- -------------------------------------------------------------------
Twelve Months Ended 10/31/03 7.96% 11.26% 11.03% 15.89%
- -------------------------------------------------------------------
Five Years Ended 10/31/03 (3.12) (2.96) (2.94) N/A
- -------------------------------------------------------------------
Inception* through 10/31/03 0.23 3.69 3.50 (27.49)
- -------------------------------------------------------------------
CUMULATIVE TOTAL RETURNS+ (UNAUDITED)
Without Sales Charges/(1)/
- -------------------------------------------------------------------------------
Class 1 (Inception* through 10/31/03) 11.11%
- -------------------------------------------------------------------------------
Class A (Inception* through 10/31/03) 43.96
- -------------------------------------------------------------------------------
Class B (Inception* through 10/31/03) 34.58
- -------------------------------------------------------------------------------
Class L (Inception* through 10/31/03) (63.08)
- -------------------------------------------------------------------------------
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class 1, A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class 1, A and L shares reflect the
deduction of the maximum initial sales charges of 8.50%, 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase payment. This
CDSC declines by 1.00% per year until no CDSC is incurred. Class L shares
also reflect the deduction of a 1.00% CDSC, which applies if shares are
redeemed within one year from purchase payment.
+ The returns shown do not reflect the deduction of taxes that a shareholder
would pay on fund distributions or the redemption of fund shares.
* Inception date for Class 1 shares is August 8, 1996. Inception date for
Class A and B shares is March 17, 1995. Inception date for Class L shares
is September 13, 2000.
4 Smith Barney International Fund | 2003 Annual Report
HISTORICAL PERFORMANCE (UNAUDITED)
Value of $10,000 Invested in Class A and B Shares of the
Smith Barney International Fund vs. MSCI EAFE Index+
- --------------------------------------------------------------------------------
March 1995 -- October 2003
[CHART]
Smith Barney Smith Barney
International International
Fund-Class A Fund-Class B
Shares Shares MSCI EAFE Index
------------- ------------- ---------------
3/17/1995 9,498 10,000 10,000
10/1995 11,044 11,569 9,993
10/1996 13,171 13,716 11,073
10/1997 14,454 14,941 11,618
10/1998 15,092 15,470 12,755
10/1999 25,689 26,141 15,694
10/2000 33,654 33,995 16,281
10/2001 16,313 16,358 12,209
10/2002 11,674 11,599 10,596
10/31/2003 13,674 13,458 13,460
+Hypothetical illustration of $10,000 invested in Class A and B shares on March
17, 1995 (inception date), assuming deduction of the maximum 5.00% sales
charge at the time of investment for Class A shares. It also assumes
reinvestment of dividends and capital gains, if any, at net asset value
through October 31, 2003. The Morgan Stanley Capital International Europe,
Australasia and the Far East Index ("MSCI EAFE") is a composite portfolio
consisting of equity total returns for the countries of Europe, Australasia
and the Far East. The Index is unmanaged and is not subject to the same
management and trading expenses of a mutual fund. The performance of the
Fund's other classes may be greater or less than the performance of Class A
and B shares as indicated on this chart, depending on whether greater or
lesser sales charges and fees were incurred by shareholders investing in the
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.
5 Smith Barney International Fund | 2003 Annual Report
SCHEDULE OF INVESTMENTS OCTOBER 31, 2003
SHARES SECURITY VALUE
- ----------------------------------------------------------------
COMMON STOCK -- 99.1%
Australia -- 3.1%
160,125 Australia & New Zealand Banking Group Ltd.+ $ 2,018,387
156,046 Brambles Industries Ltd.+ 516,054
90,844 QBE Insurance Group Ltd.+ 662,611
- ----------------------------------------------------------------
3,197,052
- ----------------------------------------------------------------
Denmark -- 1.4%
39,508 Novo Nordisk A/S, Class B Shares 1,419,375
- ----------------------------------------------------------------
Finland -- 3.7%
119,844 Nokia Oyj* 2,033,611
123,398 Stora Enso Oyj 1,676,274
- ----------------------------------------------------------------
3,709,885
- ----------------------------------------------------------------
France -- 9.9%
25,595 Accor S.A. 1,005,329
23,577 Alcatel S.A.+ 310,696
16,893 Aventis S.A. 893,401
57,183 BNP Paribas S.A. 3,000,934
25,593 Bouygues S.A. 695,325
20,257 Carrefour S.A. 1,062,136
9,738 Renault S.A. 643,329
12,010 Schneider Electric S.A. 702,091
10,989 Total S.A. 1,705,849
- ----------------------------------------------------------------
10,019,090
- ----------------------------------------------------------------
Germany -- 7.5%
15,759 Altana AG* 991,880
29,443 Bayer AG* 706,600
10,013 Bayerische Motoren Werke AG* 400,502
16,199 DaimlerChrysler AG* 603,544
36,393 E.ON AG 1,837,209
22,953 Metro AG+* 937,533
14,397 RWE AG* 399,504
26,012 Siemens AG 1,751,672
- ----------------------------------------------------------------
7,628,444
- ----------------------------------------------------------------
Italy -- 5.4%
55,995 Alleanza Assicurazioni S.p.A.+ 559,762
157,664 Eni S.p.A.+ 2,500,543
483,157 UniCredito Italiano S.p.A.+ 2,378,511
- ----------------------------------------------------------------
5,438,816
- ----------------------------------------------------------------
Japan -- 22.6%
18,700 Advantest Corp. 1,390,909
46,000 Canon Inc. 2,222,505
89,000 Denso Corp. 1,685,269
94 East Japan Railway Co.+ 425,138
16,300 Eisai Co., Ltd. 381,927
20,000 Fuji Photo Film Co., Ltd. 588,502
46,400 Honda Motor Co., Ltd. 1,828,862
14,900 Hoya Corp. 1,346,426
38,000 Matsushita Electric Industrial Co., Ltd. 500,064
91 Mitsubishi Tokyo Financial Group, Inc. 652,893
See Notes to Financial Statements.
6 Smith Barney International Fund | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
SHARES SECURITY VALUE
- -----------------------------------------------------------------
Japan -- 22.6% (continued)
281,000 Mitsui Sumitomo Insurance Co., Ltd. $ 2,312,106
434 Nippon Telegraph and Telephone Corp. 1,935,283
87,000 Ricoh Co., Ltd. 1,647,398
15,500 Sankyo Co., Ltd. 247,752
111,000 Sumitomo Electric Industries, Ltd. 952,638
59,000 Takeda Chemical Industries, Ltd. 2,084,370
92,900 Toyota Motor Corp. 2,640,786
- -----------------------------------------------------------------
22,842,828
- -----------------------------------------------------------------
Netherlands -- 6.8%
30,692 Akzo Nobel N.V.+ 969,271
73,393 Fortis+ 1,302,906
24,049 Heineken N.V.* 857,209
29,768 ING Groep N.V. 617,280
32,430 Koninklijke (Royal) Philips Electronics N.V. 873,170
27,442 Unilever N.V.+ 1,592,122
21,218 VNU N.V. 645,441
- -----------------------------------------------------------------
6,857,399
- -----------------------------------------------------------------
Norway -- 2.0%
374,343 Telenor ASA 2,034,415
- -----------------------------------------------------------------
Portugal -- 0.4%
54,631 Portugal Telecom, SGPS, S.A. 458,594
- -----------------------------------------------------------------
Singapore -- 1.1%
73,000 Oversea-Chinese Banking Corp. Ltd. 507,687
75,000 United Overseas Bank Ltd. 586,258
- -----------------------------------------------------------------
1,093,945
- -----------------------------------------------------------------
Spain -- 3.9%
1 Anetena 3 Television, S.A.* 31
124,431 Banco Bilbao Vizcaya Argentaria, S.A.+ 1,425,926
58,956 Endesa, S.A.+ 934,355
127,089 Telefonica, S.A. 1,578,857
- -----------------------------------------------------------------
3,939,169
- -----------------------------------------------------------------
Sweden -- 1.0%
17,706 Electrolux AB, Series B 362,958
100,213 Nordea AB 621,420
- -----------------------------------------------------------------
984,378
- -----------------------------------------------------------------
Switzerland -- 3.0%
36,236 Credit Suisse Group 1,274,647
10,509 UBS AG 644,266
8,382 Zurich Financial Services AG 1,071,603
- -----------------------------------------------------------------
2,990,516
- -----------------------------------------------------------------
United Kingdom -- 27.3%
68,543 Allied Irish Banks PLC 1,002,732
27,647 AstraZeneca PLC 1,297,858
58,863 Barclays PLC 496,149
91,238 BHP Billiton PLC 716,037
130,978 BOC Group PLC 1,784,832
601,753 BP PLC 4,174,021
See Notes to Financial Statements.
7 Smith Barney International Fund | 2003 Annual Report
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2003
SHARES SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------
United Kingdom -- 27.3% (continued)
43,086 British Sky Broadcasting Group PLC* $ 467,659
26,306 Carnival PLC 907,888
22,332 CRH PLC 400,597
178,588 Diageo PLC 2,098,933
43,616 HBOS PLC 507,068
127,166 HSBC Holdings PLC 1,908,655
68,905 InterContinental Hotels Group PLC* 624,906
110,839 Reed Elsevier PLC 860,937
272,417 Rentokil Initial PLC 1,031,428
85,729 Royal Bank of Scotland Group PLC 2,295,741
136,612 The Sage Group PLC 432,096
59,872 Scottish & Southern Energy PLC 622,947
137,932 Smith & Nephew PLC 1,095,357
706,808 Tesco PLC 2,831,955
954,692 Vodafone Group PLC 2,003,649
- ----------------------------------------------------------------------------------------------------------------------------
27,561,445
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $89,549,581) 100,175,351
- ----------------------------------------------------------------------------------------------------------------------------
RIGHTS SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------
RIGHTS -- 0.1%
Australia -- 0.1%
29,114 Australia & New Zealand Banking Group Ltd. (Cost -- $0) 88,859
- ----------------------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.8%
$805,000 Merrill Lynch & Co., Inc., 0.990% due 11/3/03; Proceeds at maturity -- $805,066; (Fully collateralized
by U.S. Treasury Inflation Indexed Notes and Bonds, 1.875% to 3.625% due 7/15/12 to 4/15/28;
Market value -- $821,105) (Cost -- $805,000) 805,000
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $90,354,581**) $101,069,210
- ----------------------------------------------------------------------------------------------------------------------------
+ All or a portion of this security is on loan (See Note 6).
* Non-income producing security.
** Aggregate cost for Federal income tax purposes is $91,163,422.
LOANED SECURITIES COLLATERAL OCTOBER 31, 2003
FACE
AMOUNT SECURITY VALUE
- ---------------------------------------------------------------------------------------
$11,788,380 State Street Navigator Securities Lending Trust Prime Portfolio
(Cost -- $11,788,380) $11,788,380
- ---------------------------------------------------------------------------------------
See Notes to Financial Statements.
8 Smith Barney International Fund | 2003 Annual Report
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2003
ASSETS:
Investments, at value (Cost -- $90,354,581) $ 101,069,210
Loaned securities collateral, at value (Cost --
$11,788,380) (Note 6) 11,788,380
Foreign currency, at value (Cost -- $47,628) 47,547
Cash 8,369
Receivable for securities sold 761,418
Dividends and interest receivable 181,321
Receivable for Fund shares sold 74,921
- ---------------------------------------------------------------------------
Total Assets 113,931,166
- ---------------------------------------------------------------------------
LIABILITIES:
Payable for loaned securities collateral (Note 6) 11,788,380
Payable for securities purchased 1,751,480
Management fee payable 84,663
Payable for Fund shares reacquired 51,250
Trustees' retirement plan 30,723
Service plan fees payable 24,772
Accrued expenses 312,826
- ---------------------------------------------------------------------------
Total Liabilities 14,044,094
- ---------------------------------------------------------------------------
Total Net Assets $ 99,887,072
- ---------------------------------------------------------------------------
NET ASSETS:
Par value of shares of beneficial interest $ 61
Capital paid in excess of par value 201,535,208
Accumulated net realized loss from investment transactions (112,371,818)
Net unrealized appreciation of investments and foreign
currencies 10,723,621
- ---------------------------------------------------------------------------
Total Net Assets $ 99,887,072
- ---------------------------------------------------------------------------
Shares Outstanding:
Class 1 179,779
- ---------------------------------------------------------------------------
Class A 2,893,604
- ---------------------------------------------------------------------------
Class B 2,897,418
- ---------------------------------------------------------------------------
Class L 126,388
- ---------------------------------------------------------------------------
Net Asset Value:
Class 1 (and redemption price) $17.50
- ---------------------------------------------------------------------------
Class A (and redemption price) $16.89
- ---------------------------------------------------------------------------
Class B * $15.78
- ---------------------------------------------------------------------------
Class L * $17.03
- ---------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class 1 (net asset value plus 9.29% of net asset value
per share) $19.13
- ---------------------------------------------------------------------------
Class A (net asset value plus 5.26% of net asset value
per share) $17.78
- ---------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value
per share) $17.20
- ---------------------------------------------------------------------------
* Redemption price is NAV of Class B and L shares reduced by a 5.00% and 1.00%
CDSC, respectively, if shares are redeemed within one year from purchase
payment (See Note 2).
See Notes to Financial Statements.
9 Smith Barney International Fund | 2003 Annual Report
STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 2003
INVESTMENT INCOME:
Dividends $ 2,344,331
Interest 104,591
Less: Foreign withholding tax (262,995)
- -------------------------------------------------------------------------
Total Investment Income 2,185,927
- -------------------------------------------------------------------------
EXPENSES:
Shareholder servicing fees (Note 7) 1,592,425
Management fee (Note 2) 901,957
Service plan fees (Note 7) 553,633
Shareholder communications (Note 7) 57,423
Custody 52,114
Audit and legal 48,580
Registration fees 34,444
Trustees' fees 6,762
Other 7,084
- -------------------------------------------------------------------------
Total Expenses 3,254,422
- -------------------------------------------------------------------------
Net Investment Loss (1,068,495)
- -------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Loss From:
Investment transactions (31,206,211)
Foreign currency transactions (24,492)
- -------------------------------------------------------------------------
Net Realized Loss (31,230,703)
- -------------------------------------------------------------------------
Change in Net Unrealized Appreciation From:
Investments 46,607,461
Foreign currencies 860
- -------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 46,608,321
- -------------------------------------------------------------------------
Net Gain on Investments and Foreign Currencies 15,377,618
- -------------------------------------------------------------------------
Increase in Net Assets From Operations $ 14,309,123
- -------------------------------------------------------------------------
See Notes to Financial Statements.
10 Smith Barney International Fund | 2003 Annual Report
STATEMENTS OF CHANGES IN NET ASSETS FOR THE YEARS ENDED OCTOBER 31,
2003 2002
- ------------------------------------------------------------------------------
OPERATIONS:
Net investment loss $ (1,068,495) $ (2,372,135)
Net realized loss (31,230,703) (43,134,109)
Increase in net unrealized appreciation 46,608,321 9,373,329
- -----------------------------------------------------------------------------
Increase (Decrease) in Net Assets From
Operations 14,309,123 (36,132,915)
- -----------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 8):
Net proceeds from sale of shares 25,612,115 49,624,611
Cost of shares reacquired (28,418,479) (51,477,198)
- -----------------------------------------------------------------------------
Decrease in Net Assets From Fund Share
Transactions (2,806,364) (1,852,587)
- -----------------------------------------------------------------------------
Increase (Decrease) in Net Assets 11,502,759 (37,985,502)
NET ASSETS:
Beginning of year 88,384,313 126,369,815
- -----------------------------------------------------------------------------
End of year $ 99,887,072 $ 88,384,313
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
11 Smith Barney International Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS
1. Significant Accounting Policies
The Smith Barney International Fund ("Fund") (formerly known as the Smith
Barney International Aggressive Growth Fund), is 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
Large Cap Core Fund, SB Growth and Income Fund (formerly known as Smith Barney
Growth and Income 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 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; 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; (c) securities maturing within 60 days are valued
at cost plus accreted discount, or minus amortized premium, which approximates
value; (d) securities for which market quotations are not available will be
valued in good faith at fair value by or under the direction of the Board of
Trustees; (e) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on the accrual basis; (f ) dividend income
is recorded on the ex-dividend date; foreign dividend income is recorded on the
ex-dividend date or as soon as practical after the 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 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 is
determined in accordance with income tax regulations which may differ from
accounting principles generally accepted in the United States of America. At
October 31, 2003, reclassifications were made to the Fund's capital accounts to
reflect permanent book/tax differences and income and gains available for
distributions under income tax regulations. Accordingly, accumulated net
investment loss amounting to $1,092,987 and expired capital loss carryforwards
from accumulated net realized loss amounting to $245,990 were reclassified to
paid-in capital. Net investment income, net realized gains and net assets were
not affected by this change; (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; 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
12 Smith Barney International Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
economic environment, financial markets and any other parameters used in
determining these estimates could cause actual results to differ.
In addition, the Fund may enter into forward 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 or offset by
entering into another forward exchange contract. The Fund may from time to time
enter into options and/or futures contracts typically to hedge market or
currency risk.
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 calculated at an annual rate of 1.00% of
the Fund's average daily net assets. The fee is calculated daily and paid
monthly.
Effective January 21, 2003, SBFM entered into a sub-advisory agreement with
Citigroup Asset Management Ltd. ("CAM Ltd."). Pursuant to the sub-advisory
agreement, the sub-adviser is responsible for the day-to-day fund operations
and investment decisions of the Fund. SBFM pays CAM Ltd. a sub-advisory fee
calculated at an annual rate of 0.70% of the aggregate assets of the Fund
allocated to the sub-adviser.
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. For the year ended October 31, 2003, the Fund
paid transfer agent fees of $1,110,327 to CTB.
Citigroup Global Markets Inc. ("CGM") (formerly known as Salomon Smith Barney
Inc.) and PFS Distributors, Inc., both of which are subsidiaries of Citigroup,
act as the Fund's distributors. For the year ended October 31, 2003, CGM and
its affiliates received brokerage commissions of $813.
There are maximum initial sales charges of 8.50%, 5.00% and 1.00% for Class 1,
A and L shares, respectively. There is a contingent deferred sales charge
("CDSC") of 5.00% on Class B shares, which applies if redemption occurs within
one year from purchase payment and declines by 1.00% per year until no CDSC is
incurred. Class L shares also have a 1.00% CDSC which applies if redemption
occurs within one year from purchase payment. In certain cases, Class A shares
have a 1.00% CDSC, which applies if redemption occurs within one year from
purchase payment. This CDSC only applies to those purchases of Class A shares,
which, when combined with current holdings of Class A shares, equal or exceed
$1,000,000 in the aggregate. These purchases do not incur an initial sales
charge.
For the year ended October 31, 2003, CGM and its affiliates received sales
charges of approximately $9,000 and $269,000 on the sale of the Fund's Class 1
and A shares, respectively. In addition, for the year ended October 31, 2003,
CDSCs paid to CGM and its affiliates were approximately $122,000 for Class B
shares.
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. Two additional Trustees have announced their
intention to retire, effective December 31, 2003. The amount of benefits to be
paid under the Plan cannot currently be determined for current Trustees.
13 Smith Barney International Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Messrs. Carlton, Cocanougher, Gross, Merten and Pettit also are covered by a
prior retirement plan. Under the prior plan, retirement benefits are payable
for a ten-year period following retirement, with the annual payment to be based
upon the Trustee's compensation from the Trust during calendar year 2000.
Trustees with more than five but less than ten years of service at retirement
will receive a prorated benefit. In order to receive benefits under the current
Plan, a Trustee must waive all rights under the prior plan prior to receiving
payment under either plan. Total aggregate retirement benefits accrued under
the prior plan for the year ended October 31, 2003 were $3,865. The amount of
benefits to be paid under the prior plan cannot currently be determined for
these.
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 $139,861,196
- ---------------------------------------------------------
Sales 134,054,009
- ---------------------------------------------------------
At October 31, 2003, the aggregate gross unrealized appreciation and
depreciation of investments for Federal income tax purposes were as follows:
- --------------------------------------------------------
Gross unrealized appreciation $11,947,453
Gross unrealized depreciation (2,041,665)
- --------------------------------------------------------
Net unrealized appreciation $ 9,905,788
- --------------------------------------------------------
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.
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 loss in the
investment of amounts received as collateral.
14 Smith Barney International Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
At October 31, 2003, the Fund loaned securities having a market value of
$11,413,545. The Fund received cash collateral amounting to $11,788,380 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 $70,156.
7. Class Specific Expenses
Pursuant to Rule 12b-1 Service Plans, the Fund pays a distribution/service fee
with respect to its Class A, B and L shares calculated at an annual rate not to
exceed 0.25% of the average daily net assets with respect to Class A shares and
at the annual rate of 1.00% of the respective average daily net assets of Class
B and L shares. For the year ended October 31, 2003, total Rule 12b-1 Service
Plan fees, which are accrued daily and paid monthly, were as follows:
Class A Class B Class L
- ----------------------------------------------
Rule 12b-1 Service
Plan Fees $106,565 $425,129 $21,939
- ---------------------------------------------
For the year ended October 31, 2003, total Shareholder Servicing fees were as
follows:
Class 1 Class A Class B Class L
- ------------------------------------------------------
Shareholder
Servicing Fees $35,443 $738,053 $814,048 $4,881
- -----------------------------------------------------
For the year ended October 31, 2003, total Shareholder Communication expenses
were as follows:
Class 1 Class A Class B Class L
- ----------------------------------------------------
Shareholder
Communication
Expenses $1,371 $26,429 $29,445 $178
- ---------------------------------------------------
8. Shares of Beneficial Interest
The Fund has five classes of beneficial interest, Classes 1, A, B, L and Y, of
which four are outstanding, 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
- ----------------------------------------------------------------------
Class 1
Shares sold 17,696 $ 267,442 17,225 $ 325,885
Shares reacquired (29,062) (438,142) (44,677) (839,429)
- ---------------------------------------------------------------------
Net Decrease (11,366) $ (170,700) (27,452) $ (513,544)
- ---------------------------------------------------------------------
Class A
Shares sold 991,523 $ 14,766,183 1,184,030 $ 21,598,717
Shares reacquired (884,252) (13,162,738) (1,016,901) (18,409,599)
- ---------------------------------------------------------------------
Net Increase 107,271 $ 1,603,445 167,129 $ 3,189,118
- ---------------------------------------------------------------------
Class B
Shares sold 596,603 $ 8,328,976 788,931 $ 13,629,840
Shares reacquired (860,263) (12,008,136) (1,015,017) (17,339,606)
- ---------------------------------------------------------------------
Net Decrease (263,660) $ (3,679,160) (226,086) $ (3,709,766)
- ---------------------------------------------------------------------
Class L
Shares sold 151,998 $ 2,249,514 747,701 $ 14,070,169
Shares reacquired (189,097) (2,809,463) (788,990) (14,888,564)
- ---------------------------------------------------------------------
Net Decrease (37,099) $ (559,949) (41,289) $ (818,395)
- ---------------------------------------------------------------------
15 Smith Barney International Fund | 2003 Annual Report
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. Capital Loss Carryforward
At October 31, 2003, the Fund had, for Federal income tax purposes,
approximately $111,563,000 of unused capital loss carryforwards available to
offset future capital gains. To the extent that these carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed.
The amount and year of expiration for each carryforward loss is indicated
below. Expiration occurs on October 31 of the year indicated:
2004 2005 2006 2008 2009 2010 2011
- ---------------------------------------------------------------------------------------------------------------
Carryforward Amounts $515,000 $3,257,000 $570,000 $4,017,000 $29,633,000 $43,173,000 $30,398,000
- --------------------------------------------------------------------------------------------------------------
10.Income Tax Information and Distributions to Shareholders
At October 31, 2003, the tax basis components of distributable earnings were:
- -------------------------------------------------
Accumulated capital losses $(111,562,977)
- -------------------------------------------------
Unrealized appreciation 9,914,780
- -------------------------------------------------
The difference between book basis and tax basis unrealized appreciation and
depreciation is attributable primarily to wash sale loss deferrals.
For the year ended October 31, 2003, the Fund did not make any distributions.
11.Subsequent Event
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer agent
(PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
$16 million (plus interest) that CAM and its affiliates received from the
Revenue Guarantee Agreement and its amendment. CAM also plans an independent
review to verify that the transfer agency fees charged by CAM were fairly
priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
16 Smith Barney International 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:
Class 1 Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- ----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $14.83 $20.58 $42.17 $32.57 $19.06
- -----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.00)* (0.19) (0.24) (0.45) (0.28)
Net realized and unrealized gain (loss) 2.67 (5.56) (21.35) 10.79 13.79
- -----------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.67 (5.75) (21.59) 10.34 13.51
- -----------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- -- (0.74) --
Capital -- -- -- (0.00)* --
- -----------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.74) --
- -----------------------------------------------------------------------------------------
Net Asset Value, End of Year $17.50 $14.83 $20.58 $42.17 $32.57
- -----------------------------------------------------------------------------------------
Total Return 18.00% (27.94)% (51.20)% 31.53% 70.88%
- -----------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $3 $3 $4 $9 $4
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.45% 2.02% 1.54% 1.42% 1.68%
Net investment loss (0.03) (1.00) (0.82) (0.94) (1.12)
- -----------------------------------------------------------------------------------------
Portfolio Turnover Rate 153% 24% 24% 27% 50%
- -----------------------------------------------------------------------------------------
Class A Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- ----------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $14.42 $20.15 $41.57 $32.24 $18.94
- -----------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.12) (0.30) (0.40) (0.64) (0.37)
Net realized and unrealized gain (loss) 2.59 (5.43) (21.02) 10.71 13.67
- -----------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.47 (5.73) (21.42) 10.07 13.30
- -----------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- -- (0.74) --
Capital -- -- -- (0.00)* --
- -----------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.74) --
- -----------------------------------------------------------------------------------------
Net Asset Value, End of Year $16.89 $14.42 $20.15 $41.57 $32.24
- -----------------------------------------------------------------------------------------
Total Return 17.13% (28.44)% (51.53)% 31.00% 70.22%
- -----------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $49 $40 $53 $87 $38
- -----------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 3.21% 2.72% 2.17% 1.82% 2.08%
Net investment loss (0.77) (1.67) (1.44) (1.36) (1.53)
- -----------------------------------------------------------------------------------------
Portfolio Turnover Rate 153% 24% 24% 27% 50%
- -----------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01 per share.
17 Smith Barney International Fund | 2003 Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout the
period ended October 31, unless otherwise noted:
Class B Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)/ 1999/(1)/
- -------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $13.60 $19.18 $39.86 $31.16 $18.44
- --------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.24) (0.44) (0.59) (0.94) (0.53)
Net realized and unrealized gain (loss) 2.42 (5.14) (20.09) 10.38 13.25
- --------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.18 (5.58) (20.68) 9.44 12.72
- --------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- -- (0.74) --
Capital -- -- -- (0.00)* --
- --------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.74) --
- --------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $15.78 $13.60 $19.18 $39.86 $31.16
- --------------------------------------------------------------------------------------------------
Total Return 16.03% (29.09)% (51.88)% 30.04% 68.98%
- --------------------------------------------------------------------------------------------------
Net Assets, End of Year (millions) $46 $43 $65 $123 $41
- --------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses// 4.15% 3.60% 2.90% 2.53% 2.79%
Net investment loss// (1.73) (2.57) (2.18) (2.07) (2.26)
- --------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 153% 24% 24% 27% 50%
- --------------------------------------------------------------------------------------------------
Class L Shares 2003/(1)/ 2002/(1)/ 2001/(1)/ 2000/(1)(2)/
- -------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Year $14.42 $20.13 $41.61 $46.13
- --------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.01) (0.30) (0.43) (0.11)
Net realized and unrealized gain (loss) 2.62 (5.41) (21.05) (4.41)
- --------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 2.61 (5.71) (21.48) (4.52)
- --------------------------------------------------------------------------------------------------
Less Distributions From:
Capital -- -- -- (0.00)*
- --------------------------------------------------------------------------------------------------
Total Distributions -- -- -- (0.00)*
- --------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $17.03 $14.42 $20.13 $41.61
- --------------------------------------------------------------------------------------------------
Total Return 18.10% (28.37)% (51.62)% (9.80)%++
- --------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $2,153 $2,358 $4,123 $287
- --------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.41% 2.63% 2.49% 2.25%+
Net investment loss (0.06) (1.65) (1.60) (2.06)+
- --------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 153% 24% 24% 27%
- --------------------------------------------------------------------------------------------------
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) For the period September 13, 2000 (inception date) to October 31, 2000.
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
18 Smith Barney International Fund | 2003 Annual Report
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Trustees
of Smith Barney Investment Series:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Smith Barney International Fund (formerly
known as Smith Barney International Aggressive Growth Fund), of 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 the 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
19 Smith Barney International Fund | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED)
Information about Trustees and Officers
The business and affairs of the Smith Barney International Fund ("Fund")
(formerly known as Smith Barney International Aggressive Growth 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 the Fund's
Trustees and is available, without charge, upon request by calling Citicorp
Trust Bank, fsb. 1-800-451-2010 or Primerica Shareholder Services at
1-800-544-5445.
Number of
Term of Portfolios in
Position(s) Office* and Fund Complex
Held with Length of Principal Occupation(s) Overseen by Other Trusteeships
Name, Address and Age Fund Time Served During Past Five Years Trustee Held by Trustee
- ---------------------------------------------------------------------------------------------------------------------------------
Non-Interested Trustees:
Elliott J. Berv Trustee Since President and Chief Operations 36 Board Member,
c/o R. Jay Gerken 2001 Officer, Landmark City (Real Estate American Identity Corp.
Citigroup Asset Development) (since 2002); (doing business as
Management ("CAM") Executive Vice President and Chief Morpheus Technologies)
399 Park Avenue, 4th Floor Operations Officer, DigiGym (Biometric information
New York, NY 10022 Systems (On-line Personal Training Management) (since
Age 60 Systems) (since 2001); Chief 2002; consultant since
Executive Officer, Rocket City 1999); Director, Lapoint
Enterprises (Internet Service Industries (Industrial
Company) (from 2000 to 2001); Filter Company) (since
President, Catalyst (Consulting) 2002); Director of
(Since 1984). Alzheimer's Association
(New England Chapter)
(since 1998).
Donald M. Carlton Trustee Since Consultant, URS Corporation 31 Director, American
c/o R. Jay Gerken 1997 (Engineering) (since 1999); former Electric Power (Electric
CAM Chief Executive Officer, Radian Utility) (since 1999);
399 Park Avenue, 4th Floor International L.L.C. (Engineering) Director, Valero Energy
New York, NY 10022 (from 1969 to 1998), Member of (Petroleum Refining)
Age 66 Management Committee, (since 1999); Director,
Signature Science (Research and National Instruments
Development) (since 2000). Corp. Technology (since
1994).
A. Benton Cocanougher Trustee Since Dean Emeritus and Wiley 31 Former Director,
c/o R. Jay Gerken 1991 Professor, Texas A&M University Randall's Food Markets,
CAM (since 2001); former Dean and Inc. (from 1990 to
399 Park Avenue, 4th Floor Professor of Marketing, College 1999); former Director,
New York, NY 10022 and Graduate School of Business First American Bank and
Age 65 of Texas A&M University (from First American Savings
1987 to 2001). Bank (from 1994 to
1999).
20 Smith Barney International Fund | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Term of Portfolios in
Position(s) Office* and Fund Complex
Held with Length of Principal Occupation(s) Overseen by Other Trusteeships
Name, Address and Age Fund Time Served During Past Five Years Trustee Held by Trustee
- ----------------------------------------------------------------------------------------------------------------------------
Mark T. Finn Trustee Since Adjunct Professor, William & Mary 36 Former President and
c/o R. Jay Gerken 2001 College (since September 2002); Director, Delta
CAM Principal/Member, Belvan Partners/ Financial, Inc.
399 Park Avenue, 4th Floor Balfour Vantage -- Manager and (Investment Advisory
New York, NY 10022 General Partner to the Vantage Firm) (from 1983 to
Age 60 Hedge Fund, LP (since March 1999).
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 R. Gross Trustee Since Partner, Capital Investment 31 Director, United
c/o R. Jay Gerken 1986 Advisory Partners (Consulting) Telesis, Inc.
CAM (since January 2000); Managing (Telecommunications)
399 Park Avenue, 4th Floor Director, Fountainhead Ventures, (since 1997); Director,
New York, NY 10022 Ltd. (Consulting) (from 1998 to eBank.com, Inc. (since
Age 56 2002); Secretary, Carint N.A. 1997); Director,
(Manufacturing) (since 1988); Andersen Calhoun, Inc.
former Treasurer, Hank Aaron (Assisted Living) (since
Enterprises (Fast Food Franchise) 1987); former Director,
(from 1985 to 2001); Chairman, Charter Bank, Inc, Inc.
Gross, Collins & Cress, P.C. (from 1987 to 1997);
(Accounting Firm) (since 1980); former Director, Yu
Treasurer, Coventry Limited, Inc. Save, Inc. (Internet
(since 1985). Company) (from 1998
to 2000); former
Director, Hotpalm.com,
Inc. (Wireless
Applications) (from
1998 to 2000); former
Director, Ikon Ventures,
Inc. (from 1997 to
1998).
Diana R. Harrington Trustee Since Professor, Babson College 36 Former Trustee, The
c/o R. Jay Gerken 2001 (since 1992). Highland Family of
CAM Funds (Investment
399 Park Avenue, 4th Floor Company) (from 1997
New York, NY 10022 to 1998).
Age 63
21 Smith Barney International Fund | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Term of Portfolios in
Position(s) Office* and Fund Complex
Held with Length of Principal Occupation(s) Overseen by Other Trusteeships
Name, Address and Age Fund Time Served During Past Five Years Trustee Held by Trustee
- --------------------------------------------------------------------------------------------------------------------------------
Susan B. Kerley Trustee Since Consultant, Strategic Management 36 Director, Eclipse Funds
c/o R. Jay Gerken 2001 Advisors, LLC Global Research (currently supervises 17
CAM Associates, Inc. (Investment investment companies
399 Park Avenue, 4th Floor Consulting) (since 1990). in fund complex) (since
New York, NY 10022 1990).
Age 52
Alan G. Merten Trustee Since President, George Mason 31 Director, DigitalNet
c/o R. Jay Gerken 1990 University (since 1996). Holdings, Inc. (since
CAM October 2003); Director,
399 Park Avenue, 4th Floor Comshare, Inc.
New York, NY 10022 (Information
Age 62 Technology) (since
1985); former Director,
Indus (Information
Technology) (from 1995
to 1999).
C. Oscar Morong, Jr. Trustee Since Managing Director, Morong 36 Former Director,
c/o R. Jay Gerken 2001 Capital Management (since 1993). Indonesia Fund (Closed
CAM End Fund) (from 1990
399 Park Avenue, 4th Floor to 1999); Trustee,
New York, NY 10022 Morgan Stanley
Age 68 Institutional Fund
(currently supervises 75
investment companies)
(since 1993).
R. Richardson Pettit Trustee Since Professor of Finance, University of 31 None
c/o R. Jay Gerken 1990 Houston (from 1977 to 2002);
CAM Independent Consultant (since
399 Park Avenue, 4th Floor 1984).
New York, NY 10022
Age 61
Walter E. Robb, III Trustee Since President, Benchmark Consulting 36 Director, John Boyle &
c/o R. Jay Gerken 2001 Group, Inc. (Service Company) Co., Inc. (Textiles) (since
CAM (since 1991); Sole Proprietor, Robb 1999); Director, Harbor
399 Park Avenue, 4th Floor Associates (Financial Consulting) Sweets, Inc. (Candy)
New York, NY 10022 (since 1978); Co-Owner, Kedron (since 1990); Director,
Age 77 Design (Gifts) (since 1978); former W.A. Wilde Co. (Direct
President and Treasurer, Media Marketing) (since
Benchmark Advisors, Inc. (Financial 1982); Director, Alpha
Consulting) (from 1989 to 2000). Grainger Manufacturing
Inc. (Electronics) (since
1983); former Trustee,
MFS Family of Funds
(Investment Company)
(from 1985 to 2001);
Harvard Club of Boston
(Audit Committee)
(since 2001).
22 Smith Barney International Fund | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Term of Portfolios in
Position(s) Office* and Fund Complex
Held with Length of Principal Occupation(s) Overseen by Other Trusteeships
Name, Address and Age Fund Time Served During Past Five Years Trustee Held by Trustee
- ------------------------------------------------------------------------------------------------------------------------------
Interested Trustee:
R. Jay Gerken, CFA** Chairman, Since Managing Director of Citigroup 220 None
CAM President and 2002 Global Markets Inc. ("CGM");
399 Park Avenue, 4th Floor Chief Chairman, President and Chief
New York, NY 10022 Executive Executive Officer of Smith Barney
Age 52 Officer 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)
Officers:
Andrew B. Shoup*** Senior Vice Since Director of CAM; Senior Vice N/A N/A
CAM President and 2003 President and Chief Administrative
125 Broad Street, 10th Floor Chief Officer of mutual funds associated
New York, NY 10004 Administrative with Citigroup; Head of
Age 47 Officer International Funds Administration
of CAM from 2001 to 2003;
Director of Global Funds
Administration of CAM from 2000
to 2001; Head of U.S. Citibank
Funds Administration of CAM from
1998 to 2000
Richard L. Peteka Chief Since Director of CGM; Chief Financial N/A N/A
CAM Financial 2002 Officer and Treasurer of certain
125 Broad Street, 11th Floor Officer and mutual funds associated with
New York, NY 10004 Treasurer Citigroup; Director and Head of
Age 42 Internal Control for CAM U.S.
Mutual Fund Administration from
1999-2002; Vice President, Head
of Mutual Fund Administration and
Treasurer at Oppenheimer Capital
from 1996-1999
Michael McElroy Vice President Since CAM since 2000; Director of N/A N/A
CAM and 2002 Quantitative Research and Senior
33 Canada Square/Citigroup Investment Portfolio Manager -- U.S.,
Centre Officer International and Market-Neutral
Canary Wharf Accounts; Consultant; Digital
London, UK Equipment Corporation; Associate,
Age 37 Intermarket Capital Associates Ltd.
Kaprel Ozsolak Controller Since Vice President of CGM; Controller N/A N/A
CAM 2002 of certain funds associated with
125 Broad Street, 11th Floor Citigroup
New York, NY 10004
Age 38
23 Smith Barney International Fund | 2003 Annual Report
ADDITIONAL INFORMATION (UNAUDITED) (CONTINUED)
Number of
Term of Portfolios in
Position(s) Office* and Fund Complex
Held with Length of Principal Occupation(s) Overseen by Other Trusteeships
Name, Address and Age Fund Time Served During Past Five Years Trustee Held by Trustee
- --------------------------------------------------------------------------------------------------------------------------
Robert I. Frenkel Chief Legal Since Managing Director and General N/A N/A
CAM Officer 2003 Counsel of Global Mutual Funds
300 First Stamford Place, 4th for CAM and its predecessor (since
Floor Secretary Since 1994); Secretary of CFM; Secretary
Stamford, CT 06902 2000 and Chief Legal Officer of mutual
Age 48 funds associated with Citigroup
- --------
* Each Trustee and Officer serves until his or her successor has been duly
elected and qualified.
** Mr. Gerken is an "interested person" of the Fund as defined in the
Investment Company Act of 1940, as amended, because Mr. Gerken is an
officer of SBFM and certain of its affiliates.
*** As of November 25, 2003.
24 Smith Barney International Fund | 2003 Annual Report
SMITH BARNEY
INTERNATIONAL FUND
TRUSTEES INVESTMENT MANAGER
Elliott J. Berv Smith Barney Fund Management LLC
Donald M. Carlton
A. Benton Cocanougher DISTRIBUTORS
Mark T. Finn Citigroup Global Markets Inc.
R. Jay Gerken, CFA PFS Distributors, Inc.
Chairman
Stephen R. Gross CUSTODIAN
Diana R. Harrington State Street Bank and
Susan B. Kerley Trust Company
Alan G. Merten
C. Oscar Morong, Jr. TRANSFER AGENT
R. Richardson Pettit Citicorp Trust Bank, fsb.
Walter E. Robb, III 125 Broad Street, 11th Floor
New York, New York 10004
OFFICERS
R. Jay Gerken, CFA SUB-TRANSFER AGENTS
President and PFPC Inc.
Chief Executive Officer P.O. Box 9699
Providence, Rhode Island
Andrew B. Shoup* 02940-9699
Senior Vice President and
Chief Administrative Officer Primerica Shareholder Services
P.O. Box 9662
Richard L. Peteka Providence, Rhode Island
Chief Financial Officer 02940-9662
and Treasurer
Michael McElroy
Vice President and
Investment Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel
Secretary and
Chief Legal Officer
* As of November 25, 2003.
Smith Barney Investment Series
Smith Barney International 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 shareholders of Smith
Barney Investment Series --Smith Barney International Fund, but it may also be
used as sales literature when preceded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after January
31, 2004, this report must be accompanied by performance information for the
most recently completed calendar quarter.
SMITH BARNEY INTERNATIONAL 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/index_pfs.html
(C)2003 Citigroup Global Markets Inc. Member NASD, SIPC
FD03103 12/03 03-5785
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 5, 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 5, 2004
By: /s/ Richard L. Peteka
(Richard L. Peteka)
Chief Financial Officer of
Smith Barney Investment Series
Date: January 5, 2004