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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM N-CSR
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CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5018
SMITH BARNEY INVESTMENT SERIES
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(Exact name of registrant as specified in charter)
125 Broad Street, New York, NY 10004
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(Address of principal executive offices) (Zip code)
Robert I. Frenkel, Esq.
Smith Barney Fund Management LLC
300 First Stamford Place
Stamford, CT 06902
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(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 451-2010
Date of fiscal year end: OCTOBER 31
Date of reporting period: APRIL 30, 2004
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ITEM 1. REPORT TO STOCKHOLDERS.
The Semi-Annual Report to Stockholders is filed herewith.
SMITH BARNEY
LARGE CAP CORE FUND
STYLE PURE SERIES | SEMI-ANNUAL REPORT | APRIL 30, 2004
[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] LARRY WEISSMAN
PORTFOLIO MANAGER
Style Pure Series
[GRAPHIC]
Semi-Annual Report . April 30, 2004
SMITH BARNEY
LARGE CAP CORE FUND
LARRY WEISSMAN, CFA
Larry Weissman, CFA, has more than 18 years of securities
business experience.
Education: BS in Economics from Cornell University, MBA in Finance from
Columbia University.
FUND OBJECTIVE
The fund seeks capital appreciation. It aims to achieve this objective by
investing at least 80% of its net assets in the equity securities of U.S.
large cap issuers and related investments.
FUND FACTS
FUND INCEPTION
-----------------
April 14, 1987
MANAGER'S INVESTMENT
INDUSTRY EXPERIENCE
-----------------
18 Years
What's Inside
Letter from the Chairman.............................................. 1
Schedule of Investments............................................... 4
Statement of Assets and Liabilities................................... 8
Statement of Operations............................................... 9
Statements of Changes in Net Assets................................... 10
Notes to Financial Statements......................................... 11
Financial Highlights.................................................. 16
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
R. JAY GERKEN, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
During the last two months of 2003, domestic economic growth began to show
clear signs of improvement and the stock market began to recover from
multi-year lows in October 2002 and March 2003, as measured by the S&P 500
Index./i/ Aggressive monetary and fiscal policies finally manifested themselves
in the third calendar quarter of 2003, with the best real domestic economic
growth (an annualized 8.2%) the U.S. had recorded in almost two decades. The
fourth quarter of 2003 and the first quarter of 2004 also showed strong real
domestic economic activity with 4.1% and 4.2% growth, respectively.
The consumer, who had held up fairly well during the recession, continued to
spend. There was also a resurgence in capital spending by corporations that had
cautiously controlled spending during the preceding economic downturn. This
practice allowed for dramatic operating leverage in recent months as modest
revenue increases were translated into positive earnings surprises. Strong
corporate performance sustained positive performance in the equity market
during the six months ended April 30.
1 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
PERFORMANCE SNAPSHOT
AS OF APRIL 30, 2004
(excluding sales charges)
6 Months
Class A Shares 3.18%
S&P 500 Index 6.27%
Lipper Large Cap Core Funds Category Average 4.52%
The performance shown represents past performance. Past performance is no
guarantee of future results and current performance may be higher or lower
than the performance shown above. Principal value and investment returns will
fluctuate and investors' shares, when redeemed, may be worth more or less
than their original cost. To obtain performance data current to the most
recent month-end, please visit our website at www.smithbarneymutualfunds.com.
Class A shares returns assume the reinvestment of income dividends and
capital gains distributions at net asset value and the deduction of all fund
expenses. Returns have not been adjusted to include sales charges that may
apply when shares are purchased or the deduction of taxes that a shareholder
would pay on fund distributions. Excluding sales charges, Class 1 shares
returned 3.47%, Class B shares returned 2.75%, and Class C shares returned
3.07% over the six months ended April 30, 2004.
Effective April 29, 2004, Smith Barney Class L shares were renamed Class C
Shares. On February 2, 2004, initial sales charges on these shares were
eliminated.
All index performance reflects no deduction for fees, expenses or taxes. The
S&P 500 Index is a market capitalization-weighted index of 500 widely held
common stocks.
Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the six-month period ended April 30, 2004, calculated
among the 1,052 funds in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any, and excluding sales
charges.
In March of 2004, inflation began to show signs of picking up, with the
annualized rate of inflation reaching 2.5%, the highest reading since June
2001. We believe this new level of inflation was due to higher energy costs
working through the system as well as cost pressures in housing, services and
medical care. The Consumer Price Index ("CPI"),/ii/ excluding food and energy,
showed inflation at 1.6% for the one year ended April 2004. Currently, the
financial markets appear to be discounting a sustainable economic recovery with
higher levels of inflation, as reflected in the 100 basis point increase in the
10-year U.S. Treasury Note over the past three months. (100 basis points is
equal to one percentage point.)
Performance Review
Within this environment, the fund performed as follows: For the six months
ended April 30, 2004, Class A shares of the Smith Barney Large Cap Core Fund,
excluding sales charges, returned 3.18%. These shares underperformed the fund's
unmanaged benchmark, the S&P 500 Index, which returned 6.27% for the same
period. They also underperformed the fund's Lipper large cap core funds
category average, which returned 4.52% for the same period./1/
In terms of individual holdings, among the biggest contributors to the fund's
performance for the six-month period was its position in Biogen Idec Inc., a
biotechnology company that produces the anti-cancer drug, Rituxan. Other
primary contributors were Exxon Mobil Corp., an integrated oil and gas company,
and Pfizer Inc., the world's largest pharmaceutical company.
On the negative side, detractors from fund performance during the six-month
period included Intel Corp., a semiconductor manufacturer, VERITAS Software
Corp., a provider of data availability software solutions, and Wyeth, one of
the world's largest pharmaceutical and health care products companies.
Special Shareholder Notice
Effective April 29, 2004, Smith Barney Class L shares were renamed Class C
Shares. On February 2, 2004, initial sales charges on these shares were
eliminated.
Information About Your Fund
In recent months several issues in the mutual fund industry have come under the
scrutiny of federal and state regulators. The fund's Adviser and some of its
affiliates have received requests for information from various government
regulators regarding market timing, late trading, fees and other mutual fund
issues in connection with various investigations. The regulators appear to be
examining, among other things, the fund's response to market timing and
shareholder exchange activity, including compliance with prospectus disclosure
related to these subjects. The fund has been informed that the Adviser and its
affiliates are responding to those information requests, but are not in a
position to predict the outcome of these requests and investigations.
/1/Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the six-month period ended April 30, 2004, calculated
among the 1,052 funds in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any, and excluding sales
charges.
2 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
As always, thank you for your confidence in our stewardship of your assets. We
look forward to helping you continue to meet your financial goals.
Sincerely,
/s/ R. Jay Gerken
R. Jay Gerken, CFA
Chairman, President and Chief Executive Officer
May 24, 2004
The information provided is not intended to be a forecast of future events, a
guarantee of future results or investment advice. Views expressed may differ
from those of the firm as a whole.
Portfolio holdings and breakdowns are as of April 30, 2004 and are subject to
change and may not be representative of the portfolio manager's current or
future investments. The fund's top ten holdings as of this date were: Pfizer
Inc. (3.70%), Exxon Mobil Corp. (3.50%), Microsoft Corp. (3.50%), General
Electric Co. (3.00%), SLM Corp. (2.90%), American Express Co. (2.80%), Intel
Corp. (2.80%), Ambac Financial Group, Inc. (2.60%), InterActiveCorp. (2.60%),
and Teva Pharmaceuticals Industries Ltd. (2.50%). Please refer to pages 4
through 7 for a complete list and percentage breakdown of the fund's holdings.
RISKS: The fund is subject to certain risks of foreign investing including
currency fluctuations and changes in political and economic conditions, which
could result in significant market fluctuations. The fund may engage in active
and frequent trading, resulting in increased transaction costs, which could
detract from the fund's performance. The fund may use derivatives, such as
options and futures, which can be illiquid, may disproportionately increase
losses, and have a potentially large impact on fund performance.
All index performance reflects no deduction for fees, expenses or taxes.
/i/The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
/ii/The Consumer Price Index measures the average change in U.S. consumer
prices over time in a fixed market basket of goods and services determined
by the U.S. Bureau of Labor Statistics.
3 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
SHARES SECURITY VALUE
- ------------------------------------------------------------------
COMMON STOCK -- 100.0%
CONSUMER DISCRETIONARY -- 13.9%
Hotels Restaurants & Leisure -- 1.1%
795,700 Outback Steakhouse, Inc. $ 34,955,101
- ------------------------------------------------------------------
Internet & Catalog Retail -- 2.6%
2,546,600 InterActiveCorp* 81,160,142
- ------------------------------------------------------------------
Media -- 4.8%
1,451,890 Comcast Corp., Class A Shares* 43,701,889
552,900 The News Corp. Ltd., Preferred ADR Shares 18,660,375
2,466,550 Time Warner Inc.* 41,487,371
1,231,876 Viacom Inc., Class B Shares 47,612,007
- ------------------------------------------------------------------
151,461,642
- ------------------------------------------------------------------
Multi-Line Retail -- 3.0%
949,900 Target Corp. 41,197,163
936,000 Wal-Mart Stores, Inc. 53,352,000
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94,549,163
- ------------------------------------------------------------------
Specialty Retail -- 2.4%
370,125 Bed Bath and Beyond Inc.* 13,739,040
1,142,224 The Home Depot, Inc. 40,194,863
853,850 The TJX Cos., Inc. 20,979,094
- ------------------------------------------------------------------
74,912,997
- ------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY 437,039,045
- ------------------------------------------------------------------
CONSUMER STAPLES -- 6.6%
Beverages -- 2.1%
351,200 The Coca-Cola Co. 17,760,184
867,450 PepsiCo, Inc. 47,267,350
- ------------------------------------------------------------------
65,027,534
- ------------------------------------------------------------------
Food Products -- 1.4%
1,267,200 Archer-Daniels-Midland Co. 22,252,032
537,100 Kellogg Co. 23,041,590
- ------------------------------------------------------------------
45,293,622
- ------------------------------------------------------------------
Household Products -- 2.0%
582,750 The Procter & Gamble Co. 61,625,812
- ------------------------------------------------------------------
Personal Products -- 1.1%
747,750 The Estee Lauder Cos., Inc., Class A Shares 34,179,652
- ------------------------------------------------------------------
TOTAL CONSUMER STAPLES 206,126,620
- ------------------------------------------------------------------
ENERGY -- 6.6%
Energy Equipment & Services -- 1.9%
1,328,200 Halliburton Co. 39,580,360
498,150 Noble Corp.* 18,511,254
- ------------------------------------------------------------------
58,091,614
- ------------------------------------------------------------------
Oil & Gas -- 4.7%
2,611,010 Exxon Mobil Corp. 111,098,476
400,500 Total S.A., Sponsored ADR 36,894,060
- ------------------------------------------------------------------
147,992,536
- ------------------------------------------------------------------
TOTAL ENERGY 206,084,150
- ------------------------------------------------------------------
See Notes to Financial Statements.
4 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
SHARES SECURITY VALUE
- -------------------------------------------------------------------------
FINANCIALS -- 20.4%
Banks -- 5.4%
1,345,950 The Bank of New York Co., Inc. $ 39,220,983
604,400 Comerica Inc. 31,205,172
961,950 Fifth Third Bancorp 51,618,237
832,500 Wells Fargo & Co. 47,002,950
- -------------------------------------------------------------------------
169,047,342
- -------------------------------------------------------------------------
Diversified Financials -- 10.4%
1,774,450 American Express Co. 86,859,328
361,000 The Goldman Sachs Group, Inc. 34,926,750
678,600 J.P. Morgan Chase & Co. 25,515,360
1,766,000 MBNA Corp. 43,055,080
877,850 Merrill Lynch & Co., Inc. 47,605,806
2,340,700 SLM Corp. 89,672,217
- -------------------------------------------------------------------------
327,634,541
- -------------------------------------------------------------------------
Insurance -- 4.6%
1,179,150 Ambac Financial Group, Inc. 81,361,350
881,225 American International Group, Inc. 63,139,771
- -------------------------------------------------------------------------
144,501,121
- -------------------------------------------------------------------------
TOTAL FINANCIALS 641,183,004
- -------------------------------------------------------------------------
HEALTHCARE -- 16.2%
Biotechnology -- 3.5%
954,890 Amgen, Inc.* 53,731,660
929,775 Biogen Idec Inc.* 54,856,725
- -------------------------------------------------------------------------
108,588,385
- -------------------------------------------------------------------------
Healthcare Equipment & Supplies -- 1.9%
729,400 Medtronic, Inc. 36,805,524
314,500 St. Jude Medical, Inc.* 23,983,770
- -------------------------------------------------------------------------
60,789,294
- -------------------------------------------------------------------------
Healthcare Providers & Services -- 0.5%
196,500 Anthem, Inc.* 17,405,970
- -------------------------------------------------------------------------
Pharmaceuticals -- 10.3%
481,800 Johnson & Johnson 26,031,654
749,600 Merck & Co., Inc. 35,231,200
3,281,650 Pfizer Inc. 117,351,804
1,266,827 Teva Pharmaceutical Industries Ltd., Sponsored ADR 77,985,870
1,724,250 Wyeth 65,642,198
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322,242,726
- -------------------------------------------------------------------------
TOTAL HEALTHCARE 509,026,375
- -------------------------------------------------------------------------
INDUSTRIALS -- 12.3%
Aerospace & Defense -- 1.7%
247,700 General Dynamics Corp. 23,189,674
352,750 United Technologies Corp. 30,428,215
- -------------------------------------------------------------------------
53,617,889
- -------------------------------------------------------------------------
See Notes to Financial Statements.
5 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
SHARES SECURITY VALUE
- -------------------------------------------------------
Airlines -- 1.2%
2,530,800 Southwest Airlines Co. $ 36,139,824
- ------------------------------------------------------
Commercial Services & Supplies -- 0.6%
537,600 Paychex, Inc. 20,041,728
- ------------------------------------------------------
Industrial Conglomerates -- 5.1%
359,300 3M Co. 31,072,264
3,193,170 General Electric Co. 95,635,442
1,245,100 Tyco International Ltd. 34,177,995
- ------------------------------------------------------
160,885,701
- ------------------------------------------------------
Machinery -- 2.8%
451,300 AGCO Corp.* 8,687,525
429,500 Danaher Corp. 39,737,340
498,900 ITT Industries, Inc. 39,557,781
- ------------------------------------------------------
87,982,646
- ------------------------------------------------------
Road & Rail -- 0.9%
764,850 Canadian National Railway Co. 28,888,385
- ------------------------------------------------------
TOTAL INDUSTRIALS 387,556,173
- ------------------------------------------------------
INFORMATION TECHNOLOGY -- 18.3%
Communications Equipment -- 3.1%
1,349,750 Cisco Systems, Inc.* 28,169,282
990,000 Juniper Networks, Inc.* 21,661,200
1,320,600 Motorola, Inc. 24,100,950
1,782,400 Nokia Oyj, Sponsored ADR 24,971,424
- ------------------------------------------------------
98,902,856
- ------------------------------------------------------
Computers & Peripherals -- 3.1%
2,181,050 Dell Inc.* 75,704,246
1,909,950 EMC Corp.* 21,315,042
- ------------------------------------------------------
97,019,288
- ------------------------------------------------------
Electronic Equipment & Instruments -- 1.4%
1,084,800 Agilent Technologies, Inc.* 29,300,448
888,650 Flextronics International Ltd.* 14,307,265
- ------------------------------------------------------
43,607,713
- ------------------------------------------------------
IT Consulting & Services -- 0.2%
336,300 Accenture Ltd., Class A Shares* 7,993,851
- ------------------------------------------------------
Semiconductor Equipment & Products -- 2.8%
3,371,232 Intel Corp. 86,741,799
- ------------------------------------------------------
Software -- 7.7%
1,312,100 BEA Systems, Inc.* 14,971,061
124,700 Electronic Arts Inc.* 6,312,314
4,189,640 Microsoft Corp. 108,804,951
766,500 SAP AG, Sponsored ADR 28,575,120
2,253,850 Siebel Systems, Inc.* 23,169,578
2,207,848 VERITAS Software Corp.* 58,883,306
- ------------------------------------------------------
240,716,330
- ------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY 574,981,837
- ------------------------------------------------------
See Notes to Financial Statements.
6 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
SHARES SECURITY VALUE
- -------------------------------------------------------
MATERIALS -- 5.0%
Chemicals -- 1.9%
586,400 Air Products & Chemicals, Inc. $ 29,208,584
675,000 E.I. du Pont de Nemours & Co. 28,991,250
- -------------------------------------------------------
58,199,834
- -------------------------------------------------------
Metals & Mining -- 1.8%
1,185,150 Alcoa Inc. 36,443,362
528,300 Newmont Mining Corp. 19,758,420
- -------------------------------------------------------
56,201,782
- -------------------------------------------------------
Paper & Forest Products -- 1.3%
1,012,700 Bowater Inc. 42,482,765
- -------------------------------------------------------
TOTAL MATERIALS 156,884,381
- -------------------------------------------------------
UTILITIES -- 0.7%
Electric Utilities -- 0.7%
325,500 Exelon Corp. 21,788,970
- -------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $2,576,348,979**) $3,140,670,555
- -------------------------------------------------------
* Non-income producing security.
**Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
See Notes to Financial Statements.
7 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2004
ASSETS:
Investments, at value (Cost -- $2,576,348,979) $3,140,670,555
Receivable for securities sold 59,880,200
Dividends and interest receivable 1,737,073
Receivable for Fund shares sold 234,483
- ----------------------------------------------------------------------------
Total Assets 3,202,522,311
- ----------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 51,976,838
Bank overdraft 4,669,544
Payable for Fund shares reacquired 1,630,308
Management fee payable 1,580,149
Trustees' retirement plan 420,752
Service plan fees payable 175,538
Accrued expenses 2,978,566
- ----------------------------------------------------------------------------
Total Liabilities 63,431,695
- ----------------------------------------------------------------------------
Total Net Assets $3,139,090,616
- ----------------------------------------------------------------------------
NET ASSETS:
Par value of shares of beneficial interest $ 1,877
Capital paid in excess of par value 2,732,744,027
Undistributed net investment income 102,729
Accumulated net realized loss from investment transactions (158,079,593)
Net unrealized appreciation of investments 564,321,576
- ----------------------------------------------------------------------------
Total Net Assets $3,139,090,616
- ----------------------------------------------------------------------------
Shares Outstanding:
Class 1 142,456,823
- ----------------------------------------------------------------------------
Class A 25,454,776
- ----------------------------------------------------------------------------
Class B 19,426,685
- ----------------------------------------------------------------------------
Class C 352,854
- ----------------------------------------------------------------------------
Net Asset Value:
Class 1 (and redemption price) $16.90
- ----------------------------------------------------------------------------
Class A (and redemption price) $16.54
- ----------------------------------------------------------------------------
Class B * $15.68
- ----------------------------------------------------------------------------
Class C * $16.47
- ----------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class 1 (net asset value plus 9.29% of net asset value
per share) $18.47
- ----------------------------------------------------------------------------
Class A (net asset value plus 5.26% of net asset value
per share) $17.41
- ----------------------------------------------------------------------------
* Redemption price is NAV of Class B and C 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.
8 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2004
INVESTMENT INCOME:
Dividends $ 19,161,493
Interest 76,519
Less: Foreign withholding tax (73,114)
- -------------------------------------------------------------------------
Total Investment Income 19,164,898
- -------------------------------------------------------------------------
EXPENSES:
Management fee (Note 2) 9,578,105
Transfer agency services (Note 5) 6,356,213
Service plan fees (Note 5) 2,127,307
Shareholder communications (Note 5) 149,987
Custody 63,238
Trustees' fees 54,362
Audit and legal 42,133
Registration fees 35,648
Other 19,684
- -------------------------------------------------------------------------
Total Expenses 18,426,677
- -------------------------------------------------------------------------
Net Investment Income 738,221
- -------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From:
Proceeds from sales 809,565,735
Cost of securities sold 664,221,837
- -------------------------------------------------------------------------
Net Realized Gain 145,343,898
- -------------------------------------------------------------------------
Change in Net Unrealized Appreciation of Investments:
Beginning of period 601,044,405
End of period 564,321,576
- -------------------------------------------------------------------------
Decrease in Net Unrealized Appreciation (36,722,829)
- -------------------------------------------------------------------------
Net Gain on Investments 108,621,069
- -------------------------------------------------------------------------
Increase in Net Assets From Operations $109,359,290
- -------------------------------------------------------------------------
See Notes to Financial Statements.
9 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
STATEMENTS OF CHANGES IN NET ASSETS
For the Six Months Ended April 30, 2004 (unaudited) and the Year Ended October
31, 2003
2004 2003
- ----------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 738,221 $ 3,633,324
Net realized gain (loss) 145,343,898 (22,409,639)
Increase (decrease) in net unrealized
appreciation (36,722,829) 450,229,091
- ----------------------------------------------------------------------------------
Increase in Net Assets From Operations 109,359,290 431,452,776
- ----------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (NOTE 6):
Net investment income (4,094,419) --
- ----------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders (4,094,419) --
- ----------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 7):
Net proceeds from sale of shares 85,629,564 187,397,917
Net asset value of shares issued for
reinvestment of dividends 4,094,419 --
Cost of shares reacquired (215,800,241) (409,292,153)
- ----------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share
Transactions (126,076,258) (221,894,236)
- ----------------------------------------------------------------------------------
Increase (Decrease) in Net Assets (20,811,387) 209,558,540
NET ASSETS:
Beginning of period 3,159,902,003 2,950,343,463
- ----------------------------------------------------------------------------------
End of period* $3,139,090,616 $3,159,902,003
- ----------------------------------------------------------------------------------
* Includes undistributed net investment income of: $102,729 $3,458,927
- ----------------------------------------------------------------------------------
See Notes to Financial Statements.
10 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Significant Accounting Policies
The Smith Barney Large Cap Core Fund ("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. This Trust consists of
this Fund and six other separate investment funds: Smith Barney International
Fund, SB 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. The financial statements and
financial highlights for the other portfolios are presented in separate
shareholder reports.
The following are significant accounting policies consistently followed by the
Fund and are in conformity with generally accepted accounting principles
("GAAP"): (a) security transactions are accounted for on trade date; (b)
securities traded on national securities markets are valued at the closing
prices 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 occurence, 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 ask 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
determine the existence of a dividend declaration after exercising reasonable
due diligence; (g) gains or losses on the sale of securities are calculated by
using the specific identification method; (h) dividends and distributions to
shareholders are recorded by the Fund on the ex-dividend date; the Fund
distributes dividends and capital gains, if any, at least annually; (i) 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;
( j) realized gain and loss on foreign currency includes the net realized
amount from the sale of currency and the amount realized between trade date and
settlement date on security transactions; (k) 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; (l) the character of income and gains to be distributed is determined in
accordance with income tax regulations which may differ from U.S. generally
accepted accounting principles; (m) the Fund intends to comply with the
applicable provisions of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all federal income
and excise taxes; and (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.
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
11 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled or offset by entering into another
forward exchange contract. The Fund from time to time may also enter into
options and/or futures contracts typically to hedge market or currency risk.
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 are
paid by CTB. For the six months ended April 30, 2004, the Fund paid transfer
agent fees of $4,750,923 to CTB.
Citigroup Global Markets Inc. ("CGM") and PFS Distributors, Inc., both of which
are subsidiaries of Citigroup, act as the Fund's distributors.
On April 29, 2004, the Fund's Class L shares were renamed as Class C shares. On
February 2, 2004, initial sales charges on these shares were eliminated.
There are maximum initial sales charges of 8.50% and 5.00% for Class 1 and A
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. This CDSC declines thereafter by 1.00% per year until no
CDSC is incurred. Class C shares 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 six months ended April 30, 2004, CGM and its affiliates received sales
charges of approximately $2,548,000, $985,000 and $3,000 on sales of the Fund's
Class 1, A and C shares, respectively. In addition, CDSCs paid to CGM and its
affiliates for the six months ended April 30, 2004 were approximately $336,000
for Class B shares.
For the six months ended April 30, 2004, CGM and its affiliates received
brokerage commission of $49,575.
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
12 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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. In addition, two other Trustees elected to receive a
lump sum payment from this Plan during this period. The amount of benefits to
be paid under the Plan cannot currently be determined for current Trustees.
Messrs. Carlton, Cocanougher, Gross, Merten and Pettit also are covered by a
prior retirement plan. Under the prior plan, retirement benefits are payable
for a ten-year period following retirement, with the annual payment to be based
upon the Trustee's compensation from the Trust during calendar year 2000.
Trustees with more than five but less than ten years of service at retirement
will receive a prorated benefit. In order to receive benefits under the current
Plan, a Trustee must waive all rights under the prior plan prior to receiving
payment under either plan. Total aggregate retirement benefits accrued under
the prior plan for the six months ended April 30, 2004, were $48,579. The
amount of benefits to be paid under the prior plan cannot currently be
determined for these Trustees.
3. Investments
During the six months ended April 30, 2004, the aggregate cost of purchases and
proceeds from sales of investments (including maturities of long-term
investments, but excluding short-term investments) were as follows:
- -----------------------------------------------
Purchases $748,294,054
- -----------------------------------------------
Sales 809,565,735
- -----------------------------------------------
At April 30, 2004, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
- ------------------------------------------------
Gross unrealized appreciation $615,854,284
Gross unrealized depreciation (51,532,708)
- ------------------------------------------------
Net unrealized appreciation $564,321,576
- ------------------------------------------------
4. Repurchase Agreements
When entering into repurchase agreements, it is the Fund's policy that a
custodian takes possession of the underlying collateral securities, the value
of which at least equals the principal amount of the repurchase transaction,
including accrued interest. To the extent that any repurchase transaction
exceeds one business day, the value of the collateral is marked-to-market to
ensure the adequacy of the collateral. If the seller defaults and the value of
the collateral declines or if bankruptcy proceedings are commenced with respect
to the seller of the security, realization of the collateral by the Fund may be
delayed or limited.
5. Class Specific Expenses
Pursuant to a Service Plan, the Fund pays a service fee with respect to its
Class A, B and C shares calculated at the annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a service fee
with respect to its Class B and C shares calculated at the annual rate of 1.00%
of the average daily net assets. For the six months ended April 30, 2004, total
Service Plan fees, which are accrued daily and paid monthly, were as follows:
Class A Class B Class C
- -----------------------------------------------------------------
Service Plan Fees $537,368 $1,558,720 $31,219
- ----------------------------------------------------------------
13 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
For the six months ended April 30,
2004, total Transfer Agency Service
expenses were as follows:
Class 1 Class A Class B Class C
- ----------------------------------------------------------------------------
Transfer Agency Service Expenses $3,566,420 $1,519,821 $1,265,843 $4,129
- ---------------------------------------------------------------------------
For the six months ended April 30, 2004, total Shareholder Communication
expenses were as follows:
Class 1 Class A Class B Class C
- ----------------------------------------------------------------------------
Shareholder Communication Expenses $86,035 $35,313 $28,330 $309
- ---------------------------------------------------------------------------
6. Distributions Paid to Shareholders by Class
Six Months Ended Year Ended
April 30, 2004 October 31, 2003
- ------------------------------------------------------------------------------
Class 1
Net investment income $4,094,419 --
- -----------------------------------------------------------------------------
Total $4,094,419 --
- -----------------------------------------------------------------------------
7. Shares of Beneficial Interest
At April 30, 2004, the Fund had five classes of beneficial interest, 1, A, B, C
and Y, of which four classes are outstanding, each with a par value of $0.00001
per share. There are an unlimited number of shares authorized. Effective April
29, 2004, the Fund renamed Class L shares as Class C shares.
Transactions in shares of each class were as follows:
Six Months Ended Year Ended
April 30, 2004 October 31, 2003
------------------------- --------------------------
Shares Amount Shares Amount
- -------------------------------------------------------------------------------------
Class 1
Shares sold 2,298,934 $ 39,443,003 5,191,779 $ 75,863,431
Shares issued on reinvestment 240,001 4,094,419 -- --
Shares reacquired (8,962,408) (154,155,881) (19,635,110) (283,537,780)
- ------------------------------------------------------------------------------------
Net Decrease (6,423,473) $(110,618,459) (14,443,331) $(207,674,349)
- ------------------------------------------------------------------------------------
Class A
Shares sold 1,645,559 $ 27,493,956 4,762,832 $ 68,607,615
Shares reacquired (2,003,064) (33,732,541) (4,237,240) (60,363,852)
- ------------------------------------------------------------------------------------
Net Increase (Decrease) (357,505) $ (6,238,585) 525,592 $ 8,243,763
- ------------------------------------------------------------------------------------
Class B
Shares sold 1,144,900 $ 18,260,969 2,968,621 $ 40,777,367
Shares reacquired (1,682,452) (26,781,409) (4,689,891) (64,100,603)
- ------------------------------------------------------------------------------------
Net Decrease (537,552) $ (8,520,440) (1,721,270) $ (23,323,236)
- ------------------------------------------------------------------------------------
Class C*
Shares sold 25,724 $ 431,636 151,984 $ 2,149,504
Shares reacquired (66,992) (1,130,410) (93,791) (1,289,918)
- ------------------------------------------------------------------------------------
Net Increase (Decrease) (41,268) $ (698,774) 58,193 $ 859,586
- ------------------------------------------------------------------------------------
*On April 29, 2004, Class L shares were renamed as Class C shares.
14 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. Additional Information
The Fund has received the following information from Citigroup Asset Management
("CAM"), the Citigroup business unit which includes the Fund's Investment
Manager and other investment advisory companies, all of which are indirect,
wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry, through an
affiliate, into the transfer agent business in the period 1997-1999. As CAM
currently understands the facts, at the time CAM decided to enter the transfer
agent business, CAM sub-contracted for a period of five years certain of the
transfer agency services to a third party and also concluded a revenue
guarantee agreement with this sub-contractor providing that the sub-contractor
would guarantee certain benefits to CAM or its affiliates (the "Revenue
Guarantee Agreement"). In connection with the subsequent purchase of the
sub-contractor's business by an affiliate of the current sub-transfer agent
(PFPC Inc.) used by CAM on many of the funds it manages, this Revenue Guarantee
Agreement was amended eliminating those benefits in exchange for arrangements
that included a one-time payment from the sub-contractor.
The Boards of CAM-managed funds (the "Boards") were not informed of the Revenue
Guarantee Agreement with the sub-contractor at the time the Boards considered
and approved the transfer agent arrangements. Nor were the Boards informed of
the subsequent amendment to the Revenue Guarantee Agreement when that occurred.
CAM has begun to take corrective actions. CAM will pay to the applicable funds
approximately $17 million (plus interest) that CAM and its affiliates received
from the Revenue Guarantee Agreement and its amendment. CAM also plans an
independent review to verify that the transfer agency fees charged by CAM were
fairly priced as compared to competitive alternatives. CAM is instituting new
procedures and making changes designed to ensure no similar arrangements are
entered into in the future.
CAM has briefed the SEC, the New York State Attorney General and other
regulators with respect to this matter, as well as the U.S. Attorney who is
investigating the matter. CAM is cooperating with governmental authorities on
this matter, the ultimate outcome of which is not yet determinable.
9. Legal Matters
Class action lawsuits have been filed against Citigroup Global Markets Inc.
(the "Distributor") and a number of its affiliates, including Smith Barney Fund
Management LLC and Salomon Brothers Asset Management Inc (the "Advisers"),
substantially all of the mutual funds managed by the Advisers (the "Funds"),
and directors or trustees of the Funds. The complaints allege, among other
things, that the Distributor created various undisclosed incentives for its
brokers to sell Smith Barney and Salomon Brothers funds. In addition, according
to the complaints, the Advisers caused the Funds to pay excessive brokerage
commissions to the Distributor for steering clients towards proprietary funds.
The complaints also allege that the defendants breached their fiduciary duty to
the Funds by improperly charging Rule 12b-1 fees and by drawing on Fund assets
to make undisclosed payments of soft dollars and excessive brokerage
commissions. The complaints seek injunctive relief and compensatory and
punitive damages, rescission of the Funds' contracts with the Advisers,
recovery of all fees paid to the Advisers pursuant to such contracts and an
award of attorneys' fees and litigation expenses. Citigroup Asset Management
believes that the suits are without merit and intends to defend the cases
vigorously.
Additional lawsuits arising out of these circumstances and presenting similar
allegations and requests for relief may be filed against the defendants in the
future. Neither Citigroup Asset Management nor the Funds believe that any of
the pending actions will have a material adverse effect on the Funds or the
ability of the Distributor or the Advisers to perform under their respective
contracts with the Funds.
15 Smith Barney Large Cap Core Fund | 2004 Semi-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 2004/(1)(2)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- -----------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $16.36 $14.10 $17.55 $26.52 $24.36 $19.59
- -----------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income 0.02 0.06 0.05 0.11 0.07 0.08
Net realized and unrealized gain (loss) 0.55 2.20 (3.39) (6.70) 3.74 6.62
- -----------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.57 2.26 (3.34) (6.59) 3.81 6.70
- -----------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) -- (0.09) (0.06) (0.07) (0.11)
Net realized gains -- -- (0.01) (2.32) (1.58) (1.82)
Capital -- -- (0.01) -- -- --
- -----------------------------------------------------------------------------------------------------------
Total Distributions (0.03) -- (0.11) (2.38) (1.65) (1.93)
- -----------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.90 $16.36 $14.10 $17.55 $26.52 $24.36
- -----------------------------------------------------------------------------------------------------------
Total Return 3.47%++ 16.03% (19.20)% (26.67)% 16.12% 35.60%
- -----------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $2,408 $2,435 $2,303 $3,177 $4,691 $4,475
- -----------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 0.90%+ 1.00% 0.90% 0.73% 0.70% 0.76%
Net investment income 0.29+ 0.39 0.31 0.55 0.26 0.34
- -----------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23% 69% 38% 27% 34% 37%
- -----------------------------------------------------------------------------------------------------------
(1)For the six months ended April 30, 2004 (unaudited).
(2)Per share amounts have been calculated using the monthly average shares
method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
16 Smith Barney Large Cap Core Fund. | 2004 Semi-Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout each
year ended October 31, unless otherwise noted:
Class A Shares 2004/(1)(2)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $16.03 $13.93 $17.41 $26.41 $24.29 $19.54
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.03) (0.06) (0.10) (0.01) (0.02) 0.02
Net realized and unrealized gain (loss) 0.54 2.16 (3.37) (6.67) 3.73 6.60
- -------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.51 2.10 (3.47) (6.68) 3.71 6.62
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- -- (0.01) (0.05)
Net realized gains -- -- (0.01) (2.32) (1.58) (1.82)
- -------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.01) (2.32) (1.59) (1.87)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.54 $16.03 $13.93 $17.41 $26.41 $24.29
- -------------------------------------------------------------------------------------------------------
Total Return 3.18%++ 15.08% (19.94)% (27.12)% 15.69% 35.24%
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $421 $414 $352 $425 $510 $344
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.58%+ 1.80% 1.80% 1.34% 1.04% 1.01%
Net investment income (loss) (0.40)+ (0.42) (0.59) (0.06) (0.07) 0.09
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23% 69% 38% 27% 34% 37%
- -------------------------------------------------------------------------------------------------------
(1)For the six months ended April 30, 2004 (unaudited).
(2)Per share amounts have been calculated using the monthly average shares
method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
17 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout each
year ended October 31, unless otherwise noted:
Class B Shares 2004/(1)(2)/ 2003/(2)/ 2002/(2)/ 2001/(2)/ 2000/(2)/ 1999/(2)/
- -------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $15.26 $13.38 $16.86 $25.81 $23.95 $19.37
- -------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.10) (0.18) (0.22) (0.15) (0.23) (0.14)
Net realized and unrealized gain (loss) 0.52 2.06 (3.25) (6.48) 3.67 6.54
- -------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.42 1.88 (3.47) (6.63) 3.44 6.40
- -------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- (0.01) (2.32) (1.58) (1.82)
- -------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.01) (2.32) (1.58) (1.82)
- -------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $15.68 $15.26 $13.38 $16.86 $25.81 $23.95
- -------------------------------------------------------------------------------------------------------
Total Return 2.75%++ 14.05% (20.59)% (27.59)% 14.76% 34.31%
- -------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $304 $305 $290 $393 $524 $357
- -------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.44%+ 2.66% 2.59% 2.01% 1.83% 1.76%
Net investment loss (1.25)+ (1.27) (1.39) (0.73) (0.86) (0.65)
- -------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23% 69% 38% 27% 34% 37%
- -------------------------------------------------------------------------------------------------------
(1)For the six months ended April 30, 2004 (unaudited).
(2)Per share amounts have been calculated using the monthly average shares
method.
++Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
18 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout each
year ended October 31, unless otherwise noted:
Class C Shares/(1)/ 2004/(2)(3)/ 2003/(3)/ 2002/(3)/ 2001/(3)/ 2000/(3)(4)/
- ------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $15.98 $13.87 $17.36 $26.41 $27.33
- ---------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.05) (0.04) (0.13) (0.07) (0.01)
Net realized and unrealized gain (loss) 0.54 2.15 (3.35) (6.66) (0.91)
- ---------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.49 2.11 (3.48) (6.73) (0.92)
- ------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net realized gains -- -- (0.01) (2.32) --
- ---------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.01) (2.32) --
- ---------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $16.47 $15.98 $13.87 $17.36 $26.41
- ---------------------------------------------------------------------------------------------------------
Total Return 3.07%++ 15.21% (20.05)% (27.32)% (3.37)%++
- ---------------------------------------------------------------------------------------------------------
Net Assets, End of Period (millions) $6 $6 $5 $5 $0*
- ---------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.75%+ 1.67% 2.00% 1.65% 1.54%+
Net investment loss (0.56)+ (0.29) (0.80) (0.37) (0.46)+
- ---------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 23% 69% 38% 27 % 34%
- ---------------------------------------------------------------------------------------------------------
(1) On April 29, 2004, Class L shares were renamed as Class C shares.
(2) For the six months ended April 30, 2004 (unaudited).
(3) Per share amounts have been calculated using the monthly average shares
method.
(4) For the period September 19, 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.
* Amount represents less than $0.5 million.
19 Smith Barney Large Cap Core Fund | 2004 Semi-Annual Report
SMITH BARNEY
LARGE CAP CORE FUND
TRUSTEES INVESTMENT MANAGER
Elliott J. Berv Smith Barney Fund
Donald M. Carlton Management LLC
A. Benton Cocanougher
Mark T. Finn DISTRIBUTORS
R. Jay Gerken, CFA Citigroup Global Markets Inc.
Chairman PFS Distributors, Inc.
Stephen Randolph Gross
Diana R. Harrington CUSTODIAN
Susan B. Kerley State Street Bank and
Alan G. Merten Trust Company
R. Richardson Pettit
TRANSFER AGENT
OFFICERS Citicorp Trust Bank, fsb.
R. Jay Gerken, CFA 125 Broad Street, 11th Floor
President and New York, New York 10004
Chief Executive Officer
SUB-TRANSFER AGENTS
Andrew B. Shoup PFPC Inc.
Senior Vice President and P.O. Box 9699
Chief Administrative Officer Providence, Rhode Island
02940-9699
Lawrence B. Weissman, CFA
Vice President and Primerica Shareholder Services
Investment Officer P.O. Box 9662
Providence, Rhode Island
Andrew Beagley 02940-9662
Chief Anti-Money Laundering
Compliance Officer
Kaprel Ozsolak
Controller
Robert I. Frenkel
Secretary and
Chief Legal Officer
Smith Barney Investment Series
Smith Barney Large Cap Core Fund
The Fund is a separate investment fund of the Smith Barney Investment
Series, a Massachusetts business trust.
A description of the policies and procedures that the Fund uses to determine
how to vote proxies relating to portfolio securities is available without
charge, upon request, by telephoning the Fund (toll-free) at 1-800-451-2010
and by visiting the SEC's website at www.sec.gov.
This report is submitted for the general information of the shareholders of
the Smith Barney Investment Series -- Smith Barney Large Cap Core Fund, but it
may also be used as sales literature when preceded or accompanied by the
current Prospectus.
SMITH BARNEY LARGE CAP CORE FUND
Smith Barney Mutual Funds
3120 Breckinridge Boulevard
Duluth, Georgia 30099-0001
This document must be preceded or accompanied by a free prospectus. Investors
should consider the fund's investment objectives, risks, charges and expenses
carefully before investing. The prospectus contains this and other important
information about the fund. Please read the prospectus carefully before you
invest or send money.
www.smithbarneymutualfunds.com
(C)2004 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02328 6/04 04-6773
ITEM 2. CODE OF ETHICS.
Not Applicable.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not Applicable.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR
CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and
principal financial officer have concluded that the
registrant's disclosure controls and procedures (as
defined in Rule 30a- 3(c) under the Investment Company
Act of 1940, as amended (the "1940 Act")) are effective
as of a date within 90 days of the filing date of this
report that includes the disclosure required by this
paragraph, based on their evaluation of the disclosure
controls and procedures required by Rule 30a-3(b) under
the 1940 Act and 15d-15(b) under the Securities Exchange
Act of 1934.
(b) There were no changes in the registrant's internal
control over financial reporting (as defined in Rule
30a-3(d) under the 1940 Act) that occurred during the
registrant's last fiscal half-year (the registrant's
second fiscal half-year in the case of an annual report)
that have materially affected, or are likely to
materially affect the registrant's internal control over
financial reporting.
ITEM 10. EXHIBITS.
(a) Not applicable.
(b) Attached hereto.
Exhibit 99.CERT Certifications pursuant to section 302
of the Sarbanes-Oxley Act of 2002
Exhibit 99.906CERT Certifications pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this Report
to be signed on its behalf by the undersigned, there unto duly authorized.
SMITH BARNEY INVESTMENT SERIES
By: /s/ R. Jay Gerken
------------------------------
R. Jay Gerken
Chief Executive Officer of
Smith Barney Investment Series
Date: June 30, 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: June 30, 2004
By: /s/ Andrew B. Shoup
------------------------------
Andrew B. Shoup
Chief Administrative Officer of
Smith Barney Investment Series
Date: June 30, 2004