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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
INVESTMENT SERIES
- --------------------------------------------------------------------------------
SEMI-ANNUAL REPORT | APRIL 30, 2004
Smith Barney Premier Selections
All Cap Growth Portfolio
Smith Barney Large Cap Core Portfolio
Smith Barney Growth and Income Portfolio
SB Government Portfolio
[LOGO] Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed./R/
Your Serious Money. Professionally Managed./R/ is a registered service mark of
Citigroup Global Markets Inc.
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NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
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WHAT'S INSIDE
Letter from the Chairman............................................ 1
Schedules of Investments............................................ 6
Statements of Assets and Liabilities................................ 21
Statements of Operations............................................ 22
Statements of Changes in Net Assets................................. 23
Notes to Financial Statements....................................... 25
Financial Highlights................................................ 31
LETTER FROM THE CHAIRMAN
[PHOTO]
R. Jay Gerken
R. JAY GERKEN, CFA
Chairman, President and Chief Executive Officer
Dear Shareholder,
During the final two months of 2003, domestic economic growth began to show
clear signs of improvement. The economy continued to accelerate at a strong
pace compared with earlier in the year. The pick-up was reflected by real gross
domestic product ("GDP") growth of 4.1% and 4.2%/i/ over each of the past two
calendar quarters ended March 31, 2004, respectively. During the six-month
period covered by this report, there was a resurgence in capital spending by
corporations, and modest revenue increases translated into positive corporate
earnings surprises.
Investors' enthusiasm for the strong corporate earnings environment contributed
to the stock market's rally during much of the six-month period ended April 30,
2004. However, the stock market overall performed less favorably later in the
period. This was due in part to more pronounced concerns about inflation, which
in March reached its highest level of annualized growth since June 2001 amid
the pick-up in the economy. Even the tepid U.S. labor market grew significantly
by some measures that month./ii/
The combination of economic growth and recent comments from the Fed about the
economy exacerbated bond investors' concerns about the course of interest
rates. As a result the yields on bonds, which move opposite to their prices,
rose over the period following a sharp increase in April in anticipation of
still higher rates in coming months./iii/
Please see the chart on the following page for fund performance./1/
1 Smith Barney Investment Series | 2004 Semi-Annual Report
/1/Each fund is an underlying investment option of various variable annuity
products. A variable annuity product is a contract issued by an insurance
company where the annuity premium (a set amount of dollars) is immediately
turned into units of a portfolio of securities. Upon retirement, the
policyholder is paid according to accumulated units whose dollar value
varies according to the performance of the securities within the
sub-accounts. Its objective is to preserve, through investment, the
purchasing value of the annuity, which otherwise is subject to erosion
through inflation. The funds' performance returns do not reflect the
deduction of initial sales charges and expenses imposed in connection with
investing in variable annuity contracts such as administrative fees, account
charges and surrender charges, which if reflected, would reduce the
performance of the fund. Past performance is not indicative of future
results.
PERFORMANCE OF THE FUNDS
AS OF APRIL 30, 2004
6 Months
Smith Barney Premier Selections All Cap Growth Portfolio 0.17%
S&P MidCap 400 Index/1/ 6.93%
Russell 1000 Growth Index/2/ 4.14%
Russell 2000 Growth Index/3/ 4.01%
Lipper Multi-Cap Growth Variable Funds Category Average 3.22%
Smith Barney Large Cap Core Portfolio 3.41%
S&P 500 Index/4/ 6.27%
Lipper Large-Cap Core Variable Funds Category Average 4.46%
Smith Barney Growth and Income Portfolio 4.80%
S&P 500 Index/4/ 6.27%
Lipper Large-Cap Core Variable Funds Category Average 4.46%
SB Government Portfolio 0.09%
Lehman Brothers Government Bond Index/5/ 0.84%
Lipper General U.S. Government Variable Funds Category Average 0.37%
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.
The performance returns set forth above do not reflect the reduction of
initial charges and expenses imposed in connection with investing in variable
annuity contracts such as administrative fees, account charges and surrender
charges, which if reflected, would reduce the performance of the funds.
All index performance reflects no deduction for fees, expenses or taxes.
Please note that an investor cannot invest directly in an index.
/1/The S&P MidCap 400 Index is a market value weighted index, which consists of
400 domestic stocks chosen for market size, liquidity, and industry group
representation.
/2/The Russell 1000 Growth Index measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
/3/The Russell 2000 Growth Index measures the performance of those Russell 2000
companies with higher price-to-book ratios and higher forecasted growth
values.
/4/The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
/5/The Lehman Brothers Government Bond Index is a broad-based index of all
public debt obligations of the U.S. government and its agencies that have an
average maturity of roughly nine years.
Lipper, Inc. is a major independent mutual-fund tracking organization.
Returns are based on the six-month period ended April 30, 2004 and include
the reinvestment of dividends and capital gains, if any. Returns for the
Lipper multi-cap growth variable funds category were calculated among the
1270 funds in that category. Returns for the Lipper large-cap core variable
funds category were calculated among the 1864 funds in the category. Returns
for the Lipper general U.S. government variable funds category were
calculated among the 382 funds in the category.
2 Smith Barney Investment Series | 2004 Semi-Annual Report
Smith Barney Premier Selections All Cap Growth Portfolio
For the six months ended April 30, 2004, the fund returned 0.17%. These shares
underperformed the fund's unmanaged benchmarks, the S&P MidCap 400 Index,/iv/
Russell 1000 Growth Index/v/ and Russell 2000 Growth Index,/vi/ which returned
6.93%, 4.14% and 4.01%, respectively for the same period. They also lagged the
fund's Lipper multi-cap growth variable funds category average, which returned
3.22%./2/
The fund underperformed its benchmark indices due largely to poor stock
selection in the information technology sector, especially in the semiconductor
industry. Although the fund had less exposure to the poorly performing
technology sector overall, weak individual positions in this sector dragged
down performance versus the benchmarks. Stock selection in the consumer
discretionary, industrials and health care sectors also negatively impacted
fund performance. However, stock picks in the consumer staples and financials
sectors had a positive influence on fund performance in comparison to the
benchmarks./vii/
In terms of individual fund holdings, positive contributors to fund performance
included shares of gaming operator Station Casinos, Inc., consumer product
manufacturer The Gillette Co., and famed investor Warren Buffet's holding
company Berkshire Hathaway Inc., (which operates largely in the insurance
industry). Top detractors from performance included shares of internet retailer
Amazon.com, Inc. and several semiconductor producers including Texas
Instruments Inc., Intel Corp., and Cypress Semiconductor Corp./viii/
Smith Barney Large Cap Core Portfolio
For the six months ended April 30, 2004, the fund returned 3.41%. These shares
underperformed the fund's unmanaged benchmark, the S&P 500 Index,/ix/ which
returned 6.27%, for the same period. They also lagged the fund's Lipper
large-cap core variable funds category average, which returned 4.46%./3/
The fund's underperformance relative to its benchmark can be primarily
attributed to weak stock selection in the financials, information technology
and consumer discretionary sectors. However, the fund's performance was helped
by better stock selection in the industrials and health care sectors.
Among the biggest contributors to the fund's performance 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 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./x/
Smith Barney Growth and Income Portfolio
Special Shareholder Notice
Effective November 10, 2003, Kevin Caliendo took on the role of Co-Portfolio
Manager of the fund. Mr. Caliendo has been an investment officer with Smith
Barney Fund Management LLC (the "manager") and a Director of Citigroup Global
Markets Inc., an affiliate of the manager since 2002.
/2/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 1270 funds in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any.
/3/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 1864 funds in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any.
3 Smith Barney Investment Series | 2004 Semi-Annual Report
For the six months ended April 30, 2004, the fund returned 4.80%. These shares
underperformed the fund's unmanaged benchmark, the S&P 500 Index,/xi/ which
returned 6.27%, for the same period. However, they outperformed the fund's
Lipper large-cap core variable funds category average, which returned 4.46%./4/
The fund's performance was helped by select positions in the telecommunication
services, health care and industrial sectors. In particular, mobile service
provider AT&T Wireless Services Inc., biotechnology company Elan Corp. PLC and
manufacturing conglomerate Tyco International Ltd. contributed to positive
results.
Stock selection in the information technology and consumer discretionary
sectors hampered fund performance. Negatively impacting performance were
holdings in global telecommunications equipment maker Nortel Networks Corp,
semiconductor manufacturer Infineon Technologies AG, and consumer electronics
retailer Best Buy Co. Inc./xii/
SB Government Portfolio
For the six months ended April 30, 2004, the fund returned 0.09%. These shares
underperformed the fund's unmanaged benchmark, the Lehman Brothers Government
Bond Index,/xiii/ which returned 0.84% for the same period. They also lagged
the Lipper general U.S. government variable funds category average, which
returned 0.37%./5/
Given the recent uncertainty in the direction of interest rates, the portfolio
manager took a relatively cautious posture in managing the fund's exposure to
interest rate sensitivity versus prior years when the Fed was aggressively
cutting its interest rate targets. From a credit perspective, the manager
continued to strategically allocate assets among mortgage-backed securities,
which held up much better than comparable-maturity U.S. Treasury bonds during
April and the period,/xiv/ and it also remained diversified in government
agencies and asset-backed securities.
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 funds' 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 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.
As always, thank you for your continued 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
/4/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 1,864 funds in the fund's Lipper category including the
reinvestment of dividends and capital gains, if any.
/5/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 382 funds in the fund's Lipper category including the reinvestment
of dividends and capital gains, if any.
4 Smith Barney Investment Series | 2004 Semi-Annual Report
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. Please refer to pages 6 through 20 for a list and percentage breakdown
of the funds' holdings.
All index performance reflects no deduction for fees, expenses or taxes. Please
note that an investor cannot invest directly in an index.
RISKS:
Smith Barney Premier Selections All Cap Growth Portfolio: The fund may invest
in small- and mid-cap companies that may involve a higher degree of risk and
volatility than investments in large-cap companies. 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. Investing in foreign securities is subject to certain risks not
associated with domestic investing, such as currency fluctuations, and changes
in political and economic conditions. These risks are magnified in emerging or
developing markets.
Smith Barney Large Cap Core Portfolio: Investing in foreign securities is
subject to certain risks not associated with domestic investing, such as
currency fluctuations, and changes in political and economic conditions. 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 have a potentially
large impact on the fund's performance.
Smith Barney Growth and Income Portfolio: Investing in foreign securities is
subject to certain risks not associated with domestic investing, such as
currency fluctuations, and changes in political and economic conditions.
Lower-rated, higher-yielding bonds, known as "junk bonds" are subject to
greater credit risk, including the risk of default, than higher-rated
obligations. The fund may engage in short sales. Losses from short sales may be
unlimited. The fund may use derivatives, such as options and futures, which can
have a potentially large impact on the fund's performance.
SB Government Portfolio: Keep in mind, bond and mortgage-related securities are
subject to interest rate and market risks. The U.S. government guarantee of
principal and interest payments only applies to underlying securities in the
fund's portfolio. Please note that the fund's shares are not guaranteed by the
U.S. government or its agencies. The fund may use derivatives, such as options
and futures, which can have a potentially large impact on the fund's
performance.
/i/Source: Based upon gross domestic product data from the Bureau of Economic
Analysis (January 30, 2004). Gross domestic product is a market value of
goods and services produced by labor and property in a given country.
Deflation data was also derived from this source.
/ii/Based upon data released on April 1, 2004 from the U.S. Department of Labor.
/iii/Source: Based upon Citigroup index data reflecting average total return on
fixed-income securities trading in each respective market.
/iv/The S&P MidCap 400 Index is a market value weighted index which consists of
400 domestic stocks chosen for market size, liquidity, and industry group
representation.
/v/The Russell 1000 Growth Index measures the performance of those Russell 1000
companies with higher price-to-book ratios and higher forecasted growth
values.
/vi/The Russell 2000 Growth Index measures the performance of those Russell
2000 companies with higher price-to-book ratios and higher forecasted
growth values.
/vii/The mention of sector breakdowns is for informational purposes only and
should not be construed as a recommendation to purchase or sell any
securities. The information provided regarding such sectors is not a
sufficient basis upon which to make an investment decision. Investors
seeking financial advice regarding the appropriateness of investing in any
securities or investment strategies discussed should consult their
financial professional. Portfolio holdings are subject to change at any
time and may not be representative of the portfolio manager's current or
future investments. The fund's top five sector holdings as of April 30,
2004 were: Consumer Discretionary (23.50%); Information Technology
(19.72%); Health care (16.71%); Financials (14.53%); Industrials (10.68%).
The fund's portfolio composition is subject to change at any time.
/viii/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: Amazon.com, Inc. (3.46%), Berkshire Hathaway, Inc.
(3.39%), Texas Instruments Inc. (3.14%), The Coca-Cola Co. (3.07%), The
Gillette Co. (2.76%), Microsoft Corp. (2.23%), American International
Group, Inc. (2.19%), Merck & Co. Inc. (2.17%), Station Casinos, Inc.
(2.12%), Amgen Inc. (1.96%). Please refer to pages 6 through 10 for a
list and percentage breakdown of the fund's holdings.
/ix/The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
/x/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:
Exxon Mobil Corp. (3.66%), Pfizer Inc. (3.40%), Microsoft Corp. (3.35%),
General Electric Co. (2.90%), Intel Corp. (2.71%), SLM Corp. (2.66%),
American Express Co. (2.53%), Ambac Financial Group, Inc. (2.41%),
InterActiveCorp (2.41%), Dell Inc. (2.40%). Please refer to pages 11 through
14 for a list and percentage breakdown of the fund's holdings.
/xi/The S&P 500 Index is a market capitalization-weighted index of 500 widely
held common stocks.
/xii/The mention of sector breakdowns is for informational purposes only and
should not be construed as a recommendation to purchase or sell any
securities. The information provided regarding such sectors is not a
sufficient basis upon which to make an investment decision. Investors
seeking financial advice regarding the appropriateness of investing in any
securities or investment strategies discussed should consult their
financial professional. Portfolio holdings are subject to change at any
time and may not be representative of the portfolio manager's current or
future investments. The fund's top five sector holdings as of April 30,
2004 were: Financials (18.9%), Industrials (14.8%), Health Care (14.4%),
Information Technology (13.4%) and Consumer Discretionary (11.7%). The
fund's portfolio composition is subject to change at any time.
Portfolioholdings 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: General Electric Co. (3.79%), Pfizer Inc. (3.71%), Exxon
Mobil Corp. (2.89%), Microsoft Corp. (2.73%), Bank of America Corp.
(2.68%), American International Group, Inc. (2.44%), PepsiCo Inc.
(2.33%), Teva Pharmaceutical Industries Ltd. (2.25%), Proctor and
Gamble Co. (2.12%) and Wells Fargo & Co. (1.97%). Please refer to
pages 15 through 18 for a list and percentage breakdown of the fund's
holdings.
/xiii/The Lehman Brothers Government Bond Index is a broad-based index of all
public debt obligations of the U.S. government and its agencies that have
an average maturity of roughly nine years.
/xiv/Based upon the performance of Citigroup indices reflecting each respective
categories of fixed-income securities.
5 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) APRIL 30, 2004
Smith Barney Premier Selections All Cap Growth Portfolio
SHARES SECURITY VALUE
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COMMON STOCK -- 97.8%
CONSUMER DISCRETIONARY -- 23.6%
Auto Components -- 0.6%
3,400 Lear Corp. $ 206,108
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Hotels, Restaurants and Leisure -- 3.8%
8,500 Alliance Gaming Corp.+ 212,245
6,300 Brinker International, Inc.+ 242,298
4,100 CBRL Group, Inc. 153,955
16,600 Station Casinos, Inc. 748,328
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1,356,826
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Internet and Catalog Retail -- 3.5%
28,100 Amazon.com, Inc.+ 1,221,226
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Leisure Equipment and Products -- 0.6%
11,850 Marvel Enterprises, Inc.+ 225,031
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Media -- 5.0%
2,200 The E.W. Scripps Co., Class A Shares 232,210
10,400 Harte-Hanks, Inc. 249,184
5,300 Meredith Corp. 269,982
1,700 Pixar, Inc.+ 116,110
26,000 Time Warner Inc.+ 437,320
19,300 The Walt Disney Co. 444,479
- -----------------------------------------------------------------------------
1,749,285
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Specialty Retail -- 7.2%
15,800 Chico's FAS, Inc.+ 643,534
9,000 Dick's Sporting Goods, Inc.+ 242,730
16,200 The Home Depot, Inc. 570,078
11,850 Hot Topic, Inc.+ 263,781
12,000 Pacific Sunwear of California, Inc.+ 257,640
5,549 PETsMART, Inc. 153,707
7,100 Tractor Supply Co.+ 277,326
3,400 Williams-Sonoma, Inc.+ 110,432
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2,519,228
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Textiles and Apparel -- 2.9%
15,000 Coach, Inc.+ 639,000
13,800 K-Swiss Inc., Class A Shares 269,238
6,900 Tommy Hilfiger Corp.+ 107,640
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1,015,878
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TOTAL CONSUMER DISCRETIONARY 8,293,582
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CONSUMER STAPLES -- 7.2%
Beverages -- 3.0%
21,400 The Coca-Cola Co. 1,082,198
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Food Products -- 1.4%
7,400 Hormel Foods Corp. 225,626
4,300 Wm. Wrigley Jr. Co. 265,310
- -----------------------------------------------------------------------------
490,936
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
6 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Premier Selections All Cap Growth Portfolio
SHARES SECURITY VALUE
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Personal Products -- 2.8%
23,800 The Gillette Co. $ 973,896
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TOTAL CONSUMER STAPLES 2,547,030
- -----------------------------------------------------------------------------
ENERGY -- 2.8%
Energy Equipment and Services -- 2.0%
9,800 FMC Technologies, Inc.+ 267,050
4,850 Nabors Industries, Ltd.+ 215,146
3,800 Smith International, Inc.+ 208,050
- -----------------------------------------------------------------------------
690,246
- -----------------------------------------------------------------------------
Oil and Gas -- 0.8%
3,900 Murphy Oil Corp. 267,150
- -----------------------------------------------------------------------------
TOTAL ENERGY 957,396
- -----------------------------------------------------------------------------
FINANCIALS -- 14.5%
Banks -- 2.6%
5,050 Banknorth Group, Inc. 154,681
4,500 Investors Financial Services Corp. 174,915
6,500 New York Community Bancorp, Inc. 162,955
4,300 Westamerica Bancorp. 208,980
3,800 Zion Bancorp. 214,776
- -----------------------------------------------------------------------------
916,307
- -----------------------------------------------------------------------------
Diversified Financials -- 3.6%
7,950 Affiliated Managers Group, Inc.+ 387,165
2,500 The Bear Stearns Cos. Inc. 200,350
10,200 Merrill Lynch & Co., Inc. 553,146
11,000 Providian Financial Corp.+ 133,430
- -----------------------------------------------------------------------------
1,274,091
- -----------------------------------------------------------------------------
Insurance -- 8.3%
3,667 Ambac Financial Group, Inc. 253,023
10,800 American International Group, Inc. 773,820
384 Berkshire Hathaway, Inc., Class B Shares+ 1,197,696
6,000 Hilb, Rogal and Hamilton Co. 215,100
5,000 Lincoln National Corp. 224,400
7,500 Willis Group Holdings Ltd. 272,325
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2,936,364
- -----------------------------------------------------------------------------
TOTAL FINANCIALS 5,126,762
- -----------------------------------------------------------------------------
HEALTH CARE -- 16.7%
Biotechnology -- 2.8%
12,300 Amgen Inc.+ 692,121
3,000 Gilead Sciences, Inc.+ 182,490
1,800 Martek Biosciences Corp.+ 114,282
- -----------------------------------------------------------------------------
988,893
- -----------------------------------------------------------------------------
Health Care Equipment and Supplies -- 2.1%
4,450 DENTSPLY International Inc. 215,647
5,600 ResMed Inc.+ 275,968
6,800 Wright Medical Group, Inc.+ 233,512
- -----------------------------------------------------------------------------
725,127
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
7 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Premier Selections All Cap Growth Portfolio
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------
Health Care Providers and Services -- 5.0%
14,400 Coventry Health Care, Inc.+ $ 602,496
7,500 Henry Schein, Inc.+ 528,525
13,400 Select Medical Corp.+ 253,930
7,400 Sierra Health Services, Inc.+ 274,910
2,550 Universal Health Services, Inc.+ 111,945
- -----------------------------------------------------------------------------
1,771,806
- -----------------------------------------------------------------------------
Pharmaceuticals -- 6.8%
11,500 Johnson & Johnson 621,345
7,000 Medicis Pharmaceutical Corp., Class A Shares 300,440
16,300 Merck & Co. Inc. 766,100
3,900 NPS Pharmaceuticals, Inc.+ 97,695
17,500 Pfizer Inc. 625,800
- -----------------------------------------------------------------------------
2,411,380
- -----------------------------------------------------------------------------
TOTAL HEALTH CARE 5,897,206
- -----------------------------------------------------------------------------
INDUSTRIALS -- 10.7%
Aerospace and Defense -- 1.1%
15,400 Aeroflex Inc.+ 193,732
3,085 Alliant Techsystems Inc.+ 182,910
- -----------------------------------------------------------------------------
376,642
- -----------------------------------------------------------------------------
Airlines -- 0.3%
5,600 SkyWest, Inc. 101,920
- -----------------------------------------------------------------------------
Building Products -- 0.6%
2,000 American Standard Cos. Inc.+ 210,380
- -----------------------------------------------------------------------------
Commercial Services and Supplies -- 2.7%
8,900 Alliance Data Systems Corp.+ 309,453
7,101 ARAMARK Corp., Class B Shares+ 203,089
5,600 DST Systems, Inc.+ 247,240
4,250 Manpower Inc. 199,325
- -----------------------------------------------------------------------------
959,107
- -----------------------------------------------------------------------------
Construction and Engineering -- 0.4%
3,800 Jacobs Engineering Group Inc.+ 158,498
- -----------------------------------------------------------------------------
Industrial Conglomerates -- 2.1%
4,400 Carlisle Cos. Inc. 260,700
16,000 General Electric Co. 479,200
- -----------------------------------------------------------------------------
739,900
- -----------------------------------------------------------------------------
Machinery -- 1.1%
3,900 Kennametal Inc. 168,324
4,600 Navistar International Corp.+ 207,690
- -----------------------------------------------------------------------------
376,014
- -----------------------------------------------------------------------------
Road and Rail -- 0.7%
10,100 Heartland Express, Inc. 247,955
- -----------------------------------------------------------------------------
Trading Companies and Distributors -- 1.7%
4,600 Fastenal Co. 252,402
12,100 MSC Industrial Direct Co., Class A Shares 346,786
- -----------------------------------------------------------------------------
599,188
- -----------------------------------------------------------------------------
TOTAL INDUSTRIALS 3,769,604
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
8 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Premier Selections All Cap Growth Portfolio
SHARES SECURITY VALUE
- -----------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 19.7%
Communications Equipment -- 3.3%
8,700 Advanced Fibre Communications, Inc.+ $ 145,290
13,100 Cisco Systems, Inc.+ 273,397
27,600 Motorola, Inc. 503,700
14,700 Tekelec+ 245,049
- -----------------------------------------------------------------------------
1,167,436
- -----------------------------------------------------------------------------
Computers and Peripherals -- 1.6%
9,400 Dell Inc.+ 326,274
9,600 Electronics for Imaging, Inc.+ 243,648
- -----------------------------------------------------------------------------
569,922
- -----------------------------------------------------------------------------
Electronic Equipment and Instruments -- 2.5%
8,400 Benchmark Electronics, Inc.+ 227,052
7,700 Celestica, Inc.+ 135,366
4,300 Diebold, Inc. 198,187
3,700 Jabil Circuit, Inc.+ 97,643
8,000 Thermo Electron Corp.+ 233,600
- -----------------------------------------------------------------------------
891,848
- -----------------------------------------------------------------------------
Semiconductor Equipment and Products -- 7.2%
4,600 Cymer, Inc.+ 147,108
15,700 Cypress Semiconductor Corp.+ 219,329
13,800 Integrated Device Technology, Inc.+ 185,610
20,300 Intel Corp. 522,319
18,400 Micrel, Inc.+ 224,848
11,400 Microsemi Corp.+ 123,918
44,100 Texas Instruments Inc. 1,106,910
- -----------------------------------------------------------------------------
2,530,042
- -----------------------------------------------------------------------------
Software -- 5.1%
4,850 Mercury Interactive Corp.+ 206,368
30,300 Microsoft Corp. 786,891
36,000 Quest Software, Inc.+ 405,000
15,600 Siebel Systems, Inc.+ 160,368
5,600 Synopsys, Inc.+ 149,688
3,400 VERITAS Software Corp.+ 90,678
- -----------------------------------------------------------------------------
1,798,993
- -----------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY 6,958,241
- -----------------------------------------------------------------------------
MATERIALS -- 2.6%
Containers and Packaging -- 1.4%
6,500 Jarden Corp.+ 241,800
13,500 Smurfit-Stone Container Corp.+ 232,065
- -----------------------------------------------------------------------------
473,865
- -----------------------------------------------------------------------------
Metals and Mining -- 0.6%
15,100 Glamis Gold Ltd.+ 217,440
- -----------------------------------------------------------------------------
Paper and Forest Products -- 0.6%
5,100 Bowater Inc. 213,945
- -----------------------------------------------------------------------------
TOTAL MATERIALS 905,250
- -----------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $30,873,591) 34,455,071
- -----------------------------------------------------------------------------
See Notes to Financial Statements.
9 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Premier Selections All Cap Growth Portfolio
FACE
AMOUNT SECURITY VALUE
- ----------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 2.2%
$760,000 UBS Warburg LLC dated 4/30/04, 0.920% due 5/3/04; Proceeds at maturity -- $760,058;
(Fully collateralized by U.S. Treasury Inflation Indexed Notes, 3.000% due 7/15/12;
Market value -- $775,205) (Cost -- $760,000) $ 760,000
- ----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $31,633,591*) $35,215,071
- ----------------------------------------------------------------------------------------------------------
+ Non-income producing security.
* Aggregate cost for Federal income tax purposes is substantially the same.
See Notes to Financial Statements.
10 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Large Cap Core Portfolio
SHARES SECURITY VALUE
- ------------------------------------------------------------
COMMON STOCK -- 95.0%
CONSUMER DISCRETIONARY -- 13.2%
Hotels, Restaurants and Leisure -- 1.0%
18,350 Outback Steakhouse, Inc. $ 806,116
- ------------------------------------------------------------
Internet and Catalog Retail -- 2.4%
59,725 InterActiveCorp+ 1,903,436
- ------------------------------------------------------------
Media -- 4.6%
33,332 Comcast Corp., Class A Shares+ 1,003,293
12,700 The News Corp. Ltd., Preferred ADR Shares 428,625
56,625 Time Warner Inc.+ 952,433
32,031 Viacom Inc., Class B Shares 1,237,998
- ------------------------------------------------------------
3,622,349
- ------------------------------------------------------------
Multiline Retail -- 3.0%
21,900 Target Corp. 949,803
25,125 Wal-Mart Stores, Inc. 1,432,125
- ------------------------------------------------------------
2,381,928
- ------------------------------------------------------------
Specialty Retail -- 2.2%
9,050 Bed Bath and Beyond Inc.+ 335,936
26,226 The Home Depot, Inc. 922,893
20,550 The TJX Cos., Inc. 504,914
- ------------------------------------------------------------
1,763,743
- ------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY 10,477,572
- ------------------------------------------------------------
CONSUMER STAPLES -- 6.2%
Beverages -- 2.0%
8,100 The Coca-Cola Co. 409,617
21,755 PepsiCo, Inc. 1,185,430
- ------------------------------------------------------------
1,595,047
- ------------------------------------------------------------
Food Products -- 1.4%
30,700 Archer-Daniels-Midland Co. 539,092
13,250 Kellogg Co. 568,425
- ------------------------------------------------------------
1,107,517
- ------------------------------------------------------------
Household Products -- 1.8%
13,375 The Procter & Gamble Co. 1,414,406
- ------------------------------------------------------------
Personal Products -- 1.0%
18,375 The Estee Lauder Cos. Inc. 839,921
- ------------------------------------------------------------
TOTAL CONSUMER STAPLES 4,956,891
- ------------------------------------------------------------
ENERGY -- 6.4%
Energy Equipment and Services -- 1.7%
30,700 Halliburton Co. 914,860
11,450 Noble Corp.+ 425,482
- ------------------------------------------------------------
1,340,342
- ------------------------------------------------------------
See Notes to Financial Statements.
11 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Large Cap Core Portfolio
SHARES SECURITY VALUE
- ---------------------------------------------------------------------
Oil and Gas -- 4.7%
68,056 Exxon Mobil Corp. $ 2,895,783
9,200 Total SA, Sponsored ADR 847,504
- ---------------------------------------------------------------------
3,743,287
- ---------------------------------------------------------------------
TOTAL ENERGY 5,083,629
- ---------------------------------------------------------------------
FINANCIALS -- 18.8%
Banks -- 5.1%
30,900 The Bank of New York Co., Inc. 900,426
14,200 Comerica Inc. 733,146
22,950 Fifth Third Bancorp 1,231,497
20,050 Wells Fargo & Co. 1,132,023
- ---------------------------------------------------------------------
3,997,092
- ---------------------------------------------------------------------
Diversified Financials -- 9.5%
40,875 American Express Co. 2,000,831
8,400 The Goldman Sachs Group, Inc. 812,700
15,575 J.P. Morgan Chase & Co. 585,620
40,550 MBNA Corp. 988,609
19,800 Merrill Lynch & Co., Inc. 1,073,754
54,900 SLM Corp. 2,103,219
- ---------------------------------------------------------------------
7,564,733
- ---------------------------------------------------------------------
Insurance -- 4.2%
27,625 Ambac Financial Group, Inc. 1,906,125
20,225 American International Group, Inc. 1,449,121
- ---------------------------------------------------------------------
3,355,246
- ---------------------------------------------------------------------
TOTAL FINANCIALS 14,917,071
- ---------------------------------------------------------------------
HEALTH CARE -- 15.4%
Biotechnology -- 3.2%
22,535 Amgen Inc.+ 1,268,044
21,320 Biogen Idec Inc.+ 1,257,880
- ---------------------------------------------------------------------
2,525,924
- ---------------------------------------------------------------------
Health Care Equipment and Supplies -- 2.2%
17,275 Medtronic, Inc. 871,696
11,200 St. Jude Medical, Inc.+ 854,112
- ---------------------------------------------------------------------
1,725,808
- ---------------------------------------------------------------------
Health Care Providers and Services -- 0.5%
4,375 Anthem, Inc.+ 387,538
- ---------------------------------------------------------------------
Pharmaceuticals -- 9.5%
10,975 Johnson & Johnson 592,979
17,200 Merck & Co. Inc. 808,400
75,140 Pfizer Inc. 2,687,006
30,250 Teva Pharmaceutical Industries Ltd., Sponsored ADR 1,862,190
43,225 Wyeth 1,645,576
- ---------------------------------------------------------------------
7,596,151
- ---------------------------------------------------------------------
TOTAL HEALTH CARE 12,235,421
- ---------------------------------------------------------------------
See Notes to Financial Statements.
12 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Large Cap Core Portfolio
SHARES SECURITY VALUE
- --------------------------------------------------------
INDUSTRIALS -- 11.7%
Aerospace and Defense -- 1.6%
5,900 General Dynamics Corp. $ 552,358
8,100 United Technologies Corp. 698,706
- --------------------------------------------------------
1,251,064
- --------------------------------------------------------
Airlines -- 1.1%
62,300 Southwest Airlines Co. 889,644
- --------------------------------------------------------
Commercial Services and Supplies -- 0.7%
14,125 Paychex, Inc. 526,580
- --------------------------------------------------------
Industrial Conglomerates -- 4.9%
8,850 3M Co. 765,348
76,555 General Electric Co. 2,292,822
29,900 Tyco International Ltd. 820,755
- --------------------------------------------------------
3,878,925
- --------------------------------------------------------
Machinery -- 2.6%
10,900 AGCO Corp.+ 209,825
10,450 Danaher Corp. 966,834
11,800 ITT Industries, Inc. 935,622
- --------------------------------------------------------
2,112,281
- --------------------------------------------------------
Road and Rail -- 0.8%
17,550 Canadian National Railway Co. 662,864
- --------------------------------------------------------
TOTAL INDUSTRIALS 9,321,358
- --------------------------------------------------------
INFORMATION TECHNOLOGY -- 17.9%
Communications Equipment -- 3.2%
39,300 Cisco Systems, Inc.+ 820,191
24,200 Juniper Networks, Inc.+ 529,496
30,300 Motorola, Inc. 552,975
44,500 Nokia Oyj, Sponsored ADR 623,445
- --------------------------------------------------------
2,526,107
- --------------------------------------------------------
Computers and Peripherals -- 3.0%
54,675 Dell Inc.+ 1,897,769
43,825 EMC Corp.+ 489,087
- --------------------------------------------------------
2,386,856
- --------------------------------------------------------
Electronic Equipment and Instruments -- 1.4%
27,200 Agilent Technologies, Inc.+ 734,672
21,575 Flextronics International Ltd.+ 347,358
- --------------------------------------------------------
1,082,030
- --------------------------------------------------------
IT Consulting and Services -- 0.2%
8,700 Accenture Ltd., Class A Shares+ 206,799
- --------------------------------------------------------
Semiconductor Equipment and Products -- 2.7%
83,193 Intel Corp. 2,140,556
- --------------------------------------------------------
See Notes to Financial Statements.
13 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Large Cap Core Portfolio
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
Software -- 7.4%
29,400 BEA Systems, Inc.+ $ 335,454
4,600 Electronic Arts Inc.+ 232,852
101,885 Microsoft Corp. 2,645,953
17,600 SAP AG, Sponsored ADR 656,128
54,050 Siebel Systems, Inc.+ 555,634
55,395 VERITAS Software Corp.+ 1,477,385
- ------------------------------------------------------------------------------------------------------------
5,903,406
- ------------------------------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY 14,245,754
- ------------------------------------------------------------------------------------------------------------
MATERIALS -- 4.8%
Chemicals -- 1.7%
13,700 Air Products & Chemicals, Inc. 682,397
15,500 E.I. du Pont de Nemours & Co. 665,725
- ------------------------------------------------------------------------------------------------------------
1,348,122
- ------------------------------------------------------------------------------------------------------------
Metals and Mining -- 1.7%
27,225 Alcoa Inc. 837,169
12,700 Newmont Mining Corp. 474,980
- ------------------------------------------------------------------------------------------------------------
1,312,149
- ------------------------------------------------------------------------------------------------------------
Paper and Forest Products -- 1.4%
26,600 Bowater Inc. 1,115,870
- ------------------------------------------------------------------------------------------------------------
TOTAL MATERIALS 3,776,141
- ------------------------------------------------------------------------------------------------------------
UTILITIES -- 0.6%
Electric Utilities -- 0.6%
7,475 Exelon Corp. 500,376
- ------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $69,678,536) 75,514,213
- ------------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 5.0%
$3,935,000 UBS Warburg LLC dated 4/30/04, 0.920% due 5/3/04; Proceeds at maturity -- $3,935,302;
(Fully collateralized by U.S. Treasury Inflation Indexed Notes, 3.000% due 7/15/12;
Market value -- $4,013,725) (Cost -- $3,935,000) 3,935,000
- ------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $73,613,536*) $79,449,213
- ------------------------------------------------------------------------------------------------------------
+ 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.
14 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Growth and Income Portfolio
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
COMMON STOCK -- 96.7%
CONSUMER DISCRETIONARY -- 11.7%
Hotels, Restaurants and Leisure -- 0.8%
18,880 McDonald's Corp. $ 514,102
- -------------------------------------------------------------------------------------------------------
Household Durables -- 1.0%
28,910 Newell Rubbermaid Inc. 683,432
- -------------------------------------------------------------------------------------------------------
Internet and Catalog Retail -- 1.2%
25,260 InterActiveCorp+ 805,036
- -------------------------------------------------------------------------------------------------------
Leisure Equipment and Products -- 0.7%
25,710 Mattel, Inc. 436,042
- -------------------------------------------------------------------------------------------------------
Media -- 4.4%
21,420 Comcast Corp., Class A Shares+ 644,742
7,210 Comcast Corp., Special Class A Shares+ 209,018
56,054 Liberty Media Corp., Class A Shares+ 613,231
15,920 The News Corp. Ltd., Preferred Shares ADR 537,300
22,170 Viacom Inc., Class B Shares 856,870
- -------------------------------------------------------------------------------------------------------
2,861,161
- -------------------------------------------------------------------------------------------------------
Multiline Retail -- 1.2%
19,990 Costco Wholesale Corp. 748,625
- -------------------------------------------------------------------------------------------------------
Specialty Retail -- 2.4%
19,190 Best Buy Co., Inc. 1,041,057
14,340 The Home Depot, Inc. 504,625
- -------------------------------------------------------------------------------------------------------
1,545,682
- -------------------------------------------------------------------------------------------------------
TOTAL CONSUMER DISCRETIONARY 7,594,080
- -------------------------------------------------------------------------------------------------------
CONSUMER STAPLES -- 8.5%
Beverages -- 2.3%
27,730 PepsiCo, Inc. 1,511,008
- -------------------------------------------------------------------------------------------------------
Food Products -- 1.2%
17,920 Kellogg Co. 768,768
- -------------------------------------------------------------------------------------------------------
Household Products -- 3.9%
18,030 Kimberly-Clark Corp. 1,180,064
13,000 The Procter & Gamble Co. 1,374,750
- -------------------------------------------------------------------------------------------------------
2,554,814
- -------------------------------------------------------------------------------------------------------
Personal Products -- 1.1%
14,880 The Estee Lauder Cos. Inc. 680,165
- -------------------------------------------------------------------------------------------------------
TOTAL CONSUMER STAPLES 5,514,755
- -------------------------------------------------------------------------------------------------------
ENERGY -- 7.3%
Energy Equipment and Services -- 1.8%
24,540 ENSCO International Inc. 671,660
18,310 GlobalSantaFe Corp. 482,835
- -------------------------------------------------------------------------------------------------------
1,154,495
- -------------------------------------------------------------------------------------------------------
Oil and Gas -- 5.5%
6,080 ChevronTexaco Corp. 556,320
44,130 Exxon Mobil Corp. 1,877,731
12,780 Total SA, Sponsored ADR* 1,177,294
- -------------------------------------------------------------------------------------------------------
3,611,345
- -------------------------------------------------------------------------------------------------------
TOTAL ENERGY 4,765,840
- -------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
15 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Growth and Income Portfolio
SHARES SECURITY VALUE
- --------------------------------------------------------------------------------------------------------
FINANCIALS -- 18.9%
Banks -- 9.5%
21,588 Bank of America Corp. $ 1,737,618
16,290 The Bank of New York Co., Inc. 474,691
17,960 Bank One Corp. 886,685
8,700 Comerica Inc. 449,181
10,040 Fifth Third Bancorp 538,746
18,120 U.S. Bancorp 464,597
7,180 Wachovia Corp. 328,485
22,680 Wells Fargo & Co. 1,280,513
- -------------------------------------------------------------------------------------------------------
6,160,516
- -------------------------------------------------------------------------------------------------------
Diversified Financials -- 5.3%
16,260 American Express Co. 795,927
5,710 Freddie Mac 333,464
8,500 The Goldman Sachs Group, Inc. 822,375
11,380 J.P. Morgan Chase & Co. 427,888
18,480 MBNA Corp. 450,542
10,850 Merrill Lynch & Co., Inc. 588,396
- -------------------------------------------------------------------------------------------------------
3,418,592
- -------------------------------------------------------------------------------------------------------
Insurance -- 4.1%
22,160 American International Group, Inc. 1,587,764
6 Berkshire Hathaway Inc., Class A Shares+ 560,340
7,500 The Chubb Corp. 517,500
- -------------------------------------------------------------------------------------------------------
2,665,604
- -------------------------------------------------------------------------------------------------------
TOTAL FINANCIALS 12,244,712
- -------------------------------------------------------------------------------------------------------
HEALTH CARE -- 14.4%
Biotechnology -- 1.9%
13,580 Amgen Inc.+ 764,147
6,200 OSI Pharmaceuticals, Inc.+* 457,498
- -------------------------------------------------------------------------------------------------------
1,221,645
- -------------------------------------------------------------------------------------------------------
Health Care Equipment and Supplies -- 2.2%
8,500 Fisher Scientific International+ 497,675
14,820 Guidant Corp. 933,808
- -------------------------------------------------------------------------------------------------------
1,431,483
- -------------------------------------------------------------------------------------------------------
Health Care Providers and Services -- 1.0%
7,550 Anthem, Inc.+ 668,779
- -------------------------------------------------------------------------------------------------------
Pharmaceuticals -- 9.3%
21,770 GlaxoSmithKline PLC, Sponsored ADR 914,340
9,450 Johnson & Johnson 510,584
67,400 Pfizer Inc. 2,410,224
42,570 Schering-Plough Corp. 712,196
23,690 Teva Pharmaceutical Industries Ltd., Sponsored ADR* 1,458,356
- -------------------------------------------------------------------------------------------------------
6,005,700
- -------------------------------------------------------------------------------------------------------
TOTAL HEALTH CARE 9,327,607
- -------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
16 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Growth and Income Portfolio
SHARES SECURITY VALUE
- ---------------------------------------------------------------------------------------------------------
INDUSTRIALS -- 14.8%
Aerospace and Defense -- 2.7%
29,180 The Boeing Co. $ 1,245,694
10,850 Lockheed Martin Corp. 517,545
- --------------------------------------------------------------------------------------------------------
1,763,239
- --------------------------------------------------------------------------------------------------------
Building Products -- 1.0%
6,360 American Standard Cos. Inc.+ 669,008
- --------------------------------------------------------------------------------------------------------
Commercial Services and Supplies -- 2.6%
9,790 Avery Dennison Corp. 628,812
20,010 Paychex, Inc. 745,973
10,840 Waste Management, Inc. 307,856
- --------------------------------------------------------------------------------------------------------
1,682,641
- --------------------------------------------------------------------------------------------------------
Industrial Conglomerates -- 6.1%
82,280 General Electric Co. 2,464,286
21,140 Honeywell International Inc. 731,021
28,930 Tyco International Ltd. 794,128
- --------------------------------------------------------------------------------------------------------
3,989,435
- --------------------------------------------------------------------------------------------------------
Machinery -- 1.6%
8,580 Eaton Corp. 509,480
11,490 Navistar International Corp.+ 518,774
- --------------------------------------------------------------------------------------------------------
1,028,254
- --------------------------------------------------------------------------------------------------------
Road and Rail -- 0.8%
13,335 Canadian National Railway Co. 503,663
- --------------------------------------------------------------------------------------------------------
TOTAL INDUSTRIALS 9,636,240
- --------------------------------------------------------------------------------------------------------
INFORMATION TECHNOLOGY -- 13.4%
Communications Equipment -- 2.6%
226,980 ADC Telecommunications, Inc.+ 567,450
21,850 Cisco Systems, Inc.+ 456,009
3,400 Motorola, Inc. 62,050
163,110 Nortel Networks Corp.+ 610,031
- --------------------------------------------------------------------------------------------------------
1,695,540
- --------------------------------------------------------------------------------------------------------
Computers and Peripherals -- 3.2%
26,190 Dell Inc.+ 909,055
36,150 Hewlett-Packard Co. 712,155
5,200 International Business Machines Corp. 458,484
- --------------------------------------------------------------------------------------------------------
2,079,694
- --------------------------------------------------------------------------------------------------------
Semiconductor Equipment and Products -- 3.6%
54,160 Infineon Technologies AG, Sponsored ADR* 683,499
44,910 Intel Corp. 1,155,534
16,980 Microchip Technology Inc. 475,780
- --------------------------------------------------------------------------------------------------------
2,314,813
- --------------------------------------------------------------------------------------------------------
Software -- 4.0%
30,190 BMC Software, Inc.+ 522,287
68,160 Microsoft Corp. 1,770,115
26,980 Oracle Corp.+ 302,716
- --------------------------------------------------------------------------------------------------------
2,595,118
- --------------------------------------------------------------------------------------------------------
TOTAL INFORMATION TECHNOLOGY 8,685,165
- --------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
17 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
Smith Barney Growth and Income Portfolio
SHARES SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
MATERIALS -- 3.7%
Containers and Packaging -- 0.5%
18,690 Smurfit-Stone Container Corp.+ $ 321,281
- -----------------------------------------------------------------------------------------------------------
Metals and Mining -- 2.0%
28,060 Alcoa Inc. 862,845
21,950 Barrick Gold Corp. 422,098
- -----------------------------------------------------------------------------------------------------------
1,284,943
- -----------------------------------------------------------------------------------------------------------
Paper and Forest Products -- 1.2%
19,930 International Paper Co. 803,578
- -----------------------------------------------------------------------------------------------------------
TOTAL MATERIALS 2,409,802
- -----------------------------------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES -- 1.4%
Wireless Telecommunication Services -- 1.4%
64,690 AT&T Wireless Services Inc.+ 893,369
- -----------------------------------------------------------------------------------------------------------
UTILITIES -- 2.6%
Electric Utilities -- 0.8%
14,480 FirstEnergy Corp. 566,168
- -----------------------------------------------------------------------------------------------------------
Gas Utilities -- 0.9%
82,290 El Paso Corp. 576,853
- -----------------------------------------------------------------------------------------------------------
Multi-Utilities -- 0.9%
28,160 NiSource Inc. 567,706
- -----------------------------------------------------------------------------------------------------------
TOTAL UTILITIES 1,710,727
- -----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Cost -- $55,686,010) 62,782,297
- -----------------------------------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 3.3%
$2,154,000 UBS Financial Services Inc. dated 4/30/04, 0.920% due 5/3/04; Proceeds at
maturity -- $2,154,165; (Fully collateralized by U.S. Treasury Inflation Indexed
Notes, 3.000% due 7/15/12; Market value -- $2,197,094) (Cost -- $2,154,000) 2,154,000
- -----------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0% (Cost -- $57,840,010**) $64,936,297
- -----------------------------------------------------------------------------------------------------------
LOANED SECURITIES COLLATERAL
2,860,377 State Street Navigator Securities Lending Trust Prime Portfolio (Cost -- $2,860,377) $ 2,860,377
- -----------------------------------------------------------------------------------------------------------
+ Non-income producing security.
* All or a portion of this security is on loan (See Note 6).
**Aggregate cost for Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
ADR -- American Depositary Receipt
See Notes to Financial Statements.
18 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
SB Government Portfolio
FACE
AMOUNT SECURITY VALUE
- -------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS -- 23.8%
U.S. Treasury Notes:
$11,000,000 3.250% due 8/15/07 (a)(b) $ 11,094,534
10,000,000 3.000% due 2/15/08 (a) 9,931,650
5,000,000 3.125% due 4/15/09 (a) 4,891,605
1,500,000 4.875% due 2/15/12 (a) 1,559,883
5,000,000 4.000% due 11/15/12 (a) 4,871,485
5,000,000 4.000% due 2/15/14 (a) 4,804,690
U.S. Treasury Bonds:
300,000 7.250% due 5/15/16 (a) 365,578
200,000 9.000% due 11/15/18 (a)(b) 281,414
700,000 7.625% due 2/15/25 (a) 902,043
1,350,000 U.S. Treasury Strip, due 5/15/05 1,327,679
- -------------------------------------------------------------------------------
TOTAL U.S. TREASURY OBLIGATIONS
(Cost -- $40,403,243) 40,030,561
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 2.1%
Fannie Mae:
1,700,000 5.250% due 1/15/09 (a) 1,798,660
1,000,000 3.066% due 2/17/09 (a) 990,510
700,000 Federal Home Loan Bank (FHLB), 6.500% due 11/15/05 (a) 746,544
- -------------------------------------------------------------------------------
TOTAL U.S. GOVERNMENT AGENCIES
(Cost -- $3,381,988) 3,535,714
- -------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 37.8%
Federal Home Loan Mortgage Corp. (FHLMC), Gold:
549,713 5.000% due 2/15/26 (a) 551,524
494,616 6.500% due 9/1/31 (a) 515,258
259,754 6.000% due 12/1/31 (a) 265,878
734,384 4.500% due 4/15/32 (a) 726,519
1,482,390 6.000% due 4/15/34 (a) 1,484,243
3,000,000 5.000% due 5/13/34 (c)(d) 2,909,064
8,000,000 6.000% due 5/13/34 (c)(d) 8,185,000
Federal National Mortgage Association (FNMA):
108,509 6.000% due 8/1/16 (a) 113,278
1,000,000 6.000% due 5/18/19 (c)(d) 1,043,125
1,000,000 6.500% due 5/18/19 (c)(d) 1,059,062
43,755 6.500% due 4/1/29 (a) 45,614
219,661 7.000% due 11/1/31 (a) 232,275
26,564 7.500% due 3/1/32 (a) 28,424
205,769 7.500% due 4/1/32 (a) 220,176
233,298 6.500% due 5/1/32 (a) 242,944
486,886 6.000% due 6/1/32 (a) 498,468
131,306 7.500% due 12/1/32 (a) 140,499
3,662,357 6.000% due 1/1/33 (a) 3,749,475
25,000,000 5.500% due 5/13/34 (c)(d) 24,945,300
6,000,000 6.500% due 5/13/34 (c)(d) 6,245,628
1,000,000 7.000% due 5/13/34 (c)(d) 1,057,500
See Notes to Financial Statements.
19 Smith Barney Investment Series | 2004 Semi-Annual Report
SCHEDULES OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2004
SB Government Portfolio
FACE
AMOUNT SECURITY VALUE
- ------------------------------------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- 37.8% (continued)
Government National Mortgage Association (GNMA):
$ 134,544 6.500% due 6/15/31 (a) $ 140,614
172,438 7.000% due 9/15/31 (a) 183,513
8,913,273 6.000% due 3/15/33 (a) 9,146,360
- ------------------------------------------------------------------------------------------------------------------------
TOTAL MORTGAGE-BACKED SECURITIES
(Cost -- $63,933,675) 63,729,741
- ------------------------------------------------------------------------------------------------------------------------
PAC IOs -- 0.3%
5,000,000 Federal Home Loan Mortgage Corp., yield to maturity 5.500% due 1/15/23 (a) (Cost -- $457,121) 533,721
- ------------------------------------------------------------------------------------------------------------------------
SUB-TOTAL INVESTMENTS
(Cost -- $108,176,027) 107,829,737
- ------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 36.0%
U.S. GOVERNMENT AGENCY DISCOUNT NOTES -- 14.8%
25,000,000 Federal Home Loan Bank (FHLB), Discount Notes, zero coupon due 5/12/04 (Cost -- $24,992,399) 24,992,399
- ------------------------------------------------------------------------------------------------------------------------
U.S. TREASURY BILLS -- 20.8%
35,000,000 U.S. Treasury Bills, due 5/13/04 (Cost -- $34,989,150) 34,989,150
- ------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT -- 0.4%
609,000 UBS Financial Services Inc. dated 4/30/04, 0.920% due 5/3/04; Proceeds at maturity -- $609,047;
(Fully collateralized by U.S. Treasury Inflation Indexed Notes, 3.000% due 7/15/12;
Market value -- $621,184) (Cost -- $609,000) 609,000
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHORT-TERM INVESTMENTS
(Cost -- $60,590,549) 60,590,549
- ------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100.0%
(Cost -- $168,766,576*) $168,420,286
- ------------------------------------------------------------------------------------------------------------------------
(a)All or a portion of this security is segregated for "to-be-announced"
securities and open futures contracts.
(b)All or a portion of this security is held as collateral for open futures
contracts.
(c)Security acquired under mortgage dollar roll agreement (See Note 8).
(d)Security is traded on a "to-be-announced" basis (See Note 7).
* Aggregate cost of Federal income tax purposes is substantially the same.
Abbreviation used in this schedule:
PAC IO -- Planned Amortization Class - Interest Only
See Notes to Financial Statements.
20 Smith Barney Investment Series | 2004 Semi-Annual Report
STATEMENTS OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2004
Smith Barney
Premier Selections Smith Barney Smith Barney SB
All Cap Large Cap Growth and Government
Growth Portfolio Core Portfolio Income Portfolio Portfolio
- ----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost $ 30,873,591 $ 69,678,536 $ 55,686,010 $108,176,027
Short-term investments, at cost 760,000 3,935,000 2,154,000 60,590,549
Loaned securities collateral, at cost (Note 6) -- -- 2,860,377 --
- ----------------------------------------------------------------------------------------------------------------------------
Investments, at value $ 34,455,071 $ 75,514,213 $ 62,782,297 $107,829,737
Short-term investments, at value 760,000 3,935,000 2,154,000 60,590,549
Loaned securities collateral, at value (Note 6) -- -- 2,860,377 --
Cash 703 678 821 209
Receivable for securities sold 109,216 1,108,693 370,236 --
Dividends and interest receivable 11,942 35,907 35,350 567,981
Receivable for Fund shares sold 1,569 741 -- --
Prepaid assets 65 73 -- --
Receivable from broker -- variation margin -- -- -- 26,281
- ----------------------------------------------------------------------------------------------------------------------------
Total Assets 35,338,566 80,595,305 68,203,081 169,014,757
- ----------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Management fees payable 22,618 50,046 40,803 60,831
Payable for Fund shares reacquired 10,738 19,826 12,703 17,612
Trustees' Retirement Plan 3,537 6,503 6,073 2,053
Payable for securities purchased -- 1,485,754 321,713 46,317,444
Payable for loaned securities collateral (Note 6) -- -- 2,860,377 --
Accrued expenses 13,364 16,426 15,006 28,619
- ----------------------------------------------------------------------------------------------------------------------------
Total Liabilities 50,257 1,578,555 3,256,675 46,426,559
- ----------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 35,288,309 $ 79,016,750 $ 64,946,406 $122,588,198
- ----------------------------------------------------------------------------------------------------------------------------
NET ASSETS:
Par value of shares of beneficial interest $ 31 $ 92 $ 74 $ 108
Capital paid in excess of par value 42,488,900 101,519,209 67,799,823 124,794,340
Undistributed net investment income -- 69,003 114,991 1,684,184
Accumulated net investment loss (45,875) -- -- --
Accumulated net realized loss from investment transactions
and futures contracts (10,736,227) (28,407,231) (10,064,769) (2,376,104)
Net unrealized appreciation (depreciation) of investments
and futures contracts 3,581,480 5,835,677 7,096,287 (1,514,330)
- ----------------------------------------------------------------------------------------------------------------------------
Total Net Assets $ 35,288,309 $ 79,016,750 $ 64,946,406 $122,588,198
- ----------------------------------------------------------------------------------------------------------------------------
Shares Outstanding 3,076,688 9,212,775 7,376,245 10,824,698
- ----------------------------------------------------------------------------------------------------------------------------
Net Asset Value $11.47 $8.58 $8.80 $11.32
- ----------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
21 Smith Barney Investment Series | 2004 Semi-Annual Report
STATEMENTS OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED APRIL 30, 2004
Smith Barney
Premier Selections Smith Barney Smith Barney SB
All Cap Large Cap Growth and Government
Growth Portfolio Core Portfolio Income Portfolio Portfolio
- -----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 119,774 $ 442,332 $ 441,824 --
Interest 3,896 16,129 11,521 $ 2,644,256
Less: Foreign withholding tax -- (3,862) (1,906) --
- ---------------------------------------------------------------------------------------------------------------------------
Total Investment Income 123,670 454,599 451,439 2,644,256
- ---------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 135,703 293,624 230,313 372,239
Audit and legal 14,508 16,370 16,105 25,514
Custody 7,358 8,313 12,629 12,411
Shareholder communications 5,738 9,039 11,035 14,981
Transfer agency services 2,494 2,494 2,501 2,501
Trustees' fees 769 2,374 737 1,057
Other 2,975 4,789 3,406 4,039
- ---------------------------------------------------------------------------------------------------------------------------
Total Expenses 169,545 337,003 276,726 432,742
- ---------------------------------------------------------------------------------------------------------------------------
Net Investment Income (Loss) (45,875) 117,596 174,713 2,211,514
- ---------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND
FUTURES CONTRACTS (NOTES 3 AND 5):
Realized Gain (Loss) From:
Investment transactions 940,683 2,185,951 1,062,656 557,374
Futures contracts -- -- -- (36,277)
- ---------------------------------------------------------------------------------------------------------------------------
Net Realized Gain 940,683 2,185,951 1,062,656 521,097
- ---------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of
Investments and Futures Contracts:
Beginning of period 4,440,709 5,674,766 5,768,154 1,028,110
End of period 3,581,480 5,835,677 7,096,287 (1,514,330)
- ---------------------------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) (859,229) 160,911 1,328,133 (2,542,440)
- ---------------------------------------------------------------------------------------------------------------------------
Net Gain (Loss) on Investments and Futures Contracts 81,454 2,346,862 2,390,789 (2,021,343)
- ---------------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 35,579 $2,464,458 $2,565,502 $ 190,171
- ---------------------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
22 Smith Barney Investment Series | 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
Smith Barney
Premier Selections Smith Barney Large Cap
All Cap Growth Portfolio Core Portfolio
------------------------ ------------------------
2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income (loss) $ (45,875) $ (24,214) $ 117,596 $ 305,604
Net realized gain (loss) 940,683 (2,703,066) 2,185,951 (5,178,360)
Increase (decrease) in net unrealized
appreciation (859,229) 10,184,045 160,911 14,387,227
- -----------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 35,579 7,456,765 2,464,458 9,514,471
- -----------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income -- -- (307,814) (214,782)
- -----------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders -- -- (307,814) (214,782)
- -----------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 2,199,677 3,413,153 5,743,290 8,969,468
Net asset value of shares issued for
reinvestment of dividends -- -- 307,814 214,782
Cost of shares reacquired (1,830,962) (4,613,714) (2,907,806) (5,906,321)
- -----------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Fund
Share Transactions 368,715 (1,200,561) 3,143,298 3,277,929
- -----------------------------------------------------------------------------------------------------
Increase in Net Assets 404,294 6,256,204 5,299,942 12,577,618
NET ASSETS:
Beginning of period 34,884,015 28,627,811 73,716,808 61,139,190
- -----------------------------------------------------------------------------------------------------
End of period* $35,288,309 $34,884,015 $79,016,750 $73,716,808
- -----------------------------------------------------------------------------------------------------
* Note:
Includes undistributed net investment income
of: -- -- $69,003 $259,221
Includes accumulated net investment loss of: $(45,875) -- -- --
- -----------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
23 Smith Barney Investment Series | 2004 Semi-Annual Report
STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
For the Six Months Ended April 30, 2004 (unaudited)
and the Year Ended October 31, 2003
Smith Barney Growth SB Government
and Income Portfolio Portfolio
-------------------------- ----------------------------
2004 2003 2004 2003
- ------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 174,713 $ 292,848 $ 2,211,514 $ 3,623,645
Net realized gain (loss) 1,062,656 (3,819,725) 521,097 (2,603,777)
Change in net unrealized appreciation
(depreciation) 1,328,133 12,488,900 (2,542,440) (455,785)
- ------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,565,502 8,962,023 190,171 564,083
- ------------------------------------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net investment income (305,096) (198,672) (3,949,420) (1,371,678)
- ------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Distributions to
Shareholders (305,096) (198,672) (3,949,420) (1,371,678)
- ------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 8,981,203 11,668,435 8,856,492 66,440,163
Net asset value of shares issued for
reinvestment of dividends 305,096 198,672 3,949,420 1,371,678
Cost of shares reacquired (934,318) (3,026,552) (13,836,795) (23,729,838)
- ------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets From Fund
Share Transactions 8,351,981 8,840,555 (1,030,883) 44,082,003
- ------------------------------------------------------------------------------------------------------------
Increase (Decrease) in Net Assets 10,612,387 17,603,906 (4,790,132) 43,274,408
NET ASSETS:
Beginning of period 54,334,019 36,730,113 127,378,330 84,103,922
- ------------------------------------------------------------------------------------------------------------
End of period* $64,946,406 $54,334,019 $122,588,198 $127,378,330
- ------------------------------------------------------------------------------------------------------------
* Includes undistributed net investment income of: $114,991 $245,374 $1,684,184 $3,422,090
- ------------------------------------------------------------------------------------------------------------
See Notes to Financial Statements.
24 Smith Barney Investment Series | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
1. Significant Accounting Policies
Smith Barney Premier Selections All Cap Growth Portfolio, Smith Barney Large
Cap Core Portfolio, Smith Barney Growth and Income Portfolio and SB Government
Portfolio ("Funds") are separate investment funds of the Smith Barney
Investment Series ("Trust"). The Trust, a Massachusetts business trust, is
registered under the Investment Company Act of 1940, as amended, ("1940 Act")
as a diversified open-end management investment company and consists of these
Funds and three other separate retail investment funds: Smith Barney Large Cap
Core Fund, SB Growth and Income Fund and Smith Barney International Fund. The
financial statements and financial highlights for the other funds are presented
in separate shareholder reports. The Trust is offered exclusively for use with
certain variable annuity and variable life insurance contracts offered through
the separate accounts of various life insurance companies and qualified pension
and retirement plans.
The following are significant accounting policies consistently followed by the
Funds 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 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 at the mean between the bid and asked prices; U.S.
government and agency obligations are valued at the average between bid and
asked prices in the over-the-counter market; securities listed on the NASDAQ
National Market System for which market quotations are available are valued at
the official closing price or, if there is no official closing price on that
day, at the last sale price; (c) securities maturing within 60 days are valued
at cost plus accreted discount or minus amortized premium, which approximates
value; (d) securities for which market quotations are not available will be
valued in good faith at fair value by or under the direction of the Board of
Trustees; (e) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on the accrual basis; (f ) dividend income
is recorded on the ex-dividend date; foreign dividend income is recorded on the
ex-dividend date or as soon as practical after the Funds determine the
existence of a dividend declaration after exercising reasonable due diligence;
(g) gains or losses on the sale of securities are calculated by using the
specific identification method; (h) dividends and distributions to shareholders
are recorded by the Funds on the ex-dividend date; the Funds distribute
dividends and capital gains, if any, at least annually; (i) the accounting
records of the Funds are maintained in U.S. dollars. All assets and liabilities
denominated in foreign currencies are translated into U.S. dollars based on the
rate of exchange of such currencies against U.S. dollars on the date of
valuation. Purchases and sales of securities, and income and expenses are
translated at the rate of exchange quoted on the respective date that such
transactions are recorded. Differences between income and expense amounts
recorded and collected or paid are adjusted when reported by the custodian
bank; ( j) realized gain and loss on foreign currency includes the net realized
amount from the sale of currency and the amount realized between trade date and
settlement date on security transactions; (k) the character of income and gains
to be distributed is determined in accordance with income tax regulations which
may differ from U.S. generally accepted accounting principles; ( l) each Fund
intends to comply with the requirements of the Internal Revenue Code of 1986,
as amended, pertaining to regulated investment companies and to make
distributions of taxable income sufficient to relieve it from substantially all
Federal income and excise taxes; and (m) estimates and assumptions are required
to be made regarding assets, liabilities and changes in net assets resulting
from operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
25 Smith Barney Investment Series | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
In addition, the Smith Barney Premier Selections All Cap Growth Portfolio may
enter into forward exchange contracts in order to hedge against foreign
currency risk. These contracts are marked-to-market daily, by recognizing the
difference between the contract exchange rate and the current market rate as an
unrealized gain or loss. Realized gains or losses are recognized when contracts
are settled or offset by entering into another forward exchange contract. The
Funds may from time to time enter into options and/or futures contracts in
order to hedge market or currency risk.
2. Investment Management Agreement and Other Transactions
Smith Barney Fund Management LLC ("SBFM"), an indirect wholly-owned subsidiary
of Citigroup Inc. ("Citigroup"), acts as investment manager to the Funds. Smith
Barney Premier Selections All Cap Growth, Smith Barney Large Cap Core and Smith
Barney Growth and Income Portfolios each pay SBFM a management fee calculated
at an annual rate of 0.75% of the average daily net assets of each Fund,
respectively, and SB Government Portfolio pays SBFM a management fee calculated
at an annual rate of 0.60% of the Fund's average daily net assets. These fees
are calculated daily and paid monthly.
Citicorp Trust Bank, fsb. ("CTB"), another subsidiary of Citigroup, acts as the
Funds' transfer agent. PFPC Inc. ("PFPC") acts as the Funds' sub-transfer
agent. CTB receives account fees and asset-based fees that vary according to
the size and type of account. PFPC is responsible for shareholder recordkeeping
and financial processing for all shareholder accounts and is paid by CTB. For
the six months ended April 30, 2004, each Fund paid transfer agent fees of
$2,500 to CTB.
Citigroup Global Markets Inc. ("CGM"), another indirect wholly-owned subsidiary
of Citigroup, acts as the Funds' distributor.
For the six months ended April 30, 2004, CGM and its affiliates received $2,382
in brokerage commissions for the Funds' agency transactions.
All officers and one Trustee of the Trust are employees of Citigroup or its
affiliates.
The Trustees of the Funds have adopted a Retirement Plan ("Plan") for all
Trustees who are not "interested persons" of the Funds, within the meaning of
the 1940 Act. Under the Plan, all Trustees are required to retire from the
Board as of the last day of the calendar year in which the applicable Trustee
attains age 75 (certain Trustees who had already attained age 75 when the Plan
was adopted were 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. In addition, two other Trustees elected to
receive a lump sum payment from this plan during the 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 $2,159. The amount
of benefits to be paid under the prior plan cannot currently be determined for
these Trustees.
26 Smith Barney Investment Series | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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 and mortgage dollar rolls)
were as follows:
Purchases Sales
- -----------------------------------------------------------
Smith Barney Premier Selections
All Cap Growth Portfolio $ 8,484,535 $ 8,652,713
- ----------------------------------------------------------
Smith Barney Large Cap Core
Portfolio 18,840,419 16,849,770
- ----------------------------------------------------------
Smith Barney Growth and Income
Portfolio 21,673,299 14,493,323
- ----------------------------------------------------------
SB Government Portfolio 33,950,336 49,797,813
- ----------------------------------------------------------
At April 30, 2004, the aggregate gross unrealized appreciation and depreciation
of investments for Federal income tax purposes were substantially as follows:
Net Unrealized
Appreciation
Appreciation Depreciation (Depreciation)
- ----------------------------------------------------------------------------
Smith Barney Premier Selections
All Cap Growth Portfolio $6,008,472 $(2,426,992) $3,581,480
- ---------------------------------------------------------------------------
Smith Barney Large Cap Core
Portfolio 8,315,845 (2,480,168) 5,835,677
- ---------------------------------------------------------------------------
Smith Barney Growth and Income
Portfolio 8,342,589 (1,246,302) 7,096,287
- ---------------------------------------------------------------------------
SB Government Portfolio 834,910 (1,181,200) (346,290)
- ---------------------------------------------------------------------------
4. Repurchase Agreements
When entering into repurchase agreements, it is the Funds' 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 Funds may
be delayed or limited.
5. Futures Contracts
The Funds may from time to time enter into futures contracts. Securities or
cash equal to the initial margin amount are either deposited with the broker or
segregated by the custodian upon entering into the futures contract. Additional
securities are also segregated up to the current market value of the futures
contracts. During the period the futures contract is open, changes in the value
of the contract are recognized as unrealized gains or losses by "marking to
market" on a daily basis to reflect the market value of the contract at the end
of each day's trading. Variation margin payments are received or made and
recognized as assets due from or liabilities due to broker, depending upon
whether unrealized gains or losses are incurred. When the contract is closed,
the Fund records a realized gain or loss equal to the difference between the
proceeds from (and cost of) the closing transaction and the Fund's basis in the
contract. The Fund enters into such contracts typically to hedge a portion of
its portfolio. The Fund bears the market risk that arises from changes in the
value of the financial instruments and securities indices.
27 Smith Barney Investment Series | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
At April 30, 2004, SB Government Portfolio had the following open futures
contracts:
Number of Market Unrealized
Contracts Expiration Basis Value Value Loss
- ---------------------------------------------------------------------------------------------
Contracts to Sell:
U.S. Treasury Notes 330 6/04 $36,248,569 $36,279,375 $ (30,806)
- --------------------------------------------------------------------------------------------
Contracts to Buy:
U.S. Treasury Bonds 100 6/04 11,432,536 10,709,375 (723,161)
U.S. Treasury Notes 132 6/04 15,000,073 14,586,000 (414,073)
- --------------------------------------------------------------------------------------------
(1,137,234)
- --------------------------------------------------------------------------------------------
Net Unrealized Loss on Open
Futures Contracts $(1,168,040)
- --------------------------------------------------------------------------------------------
At April 30, 2004, Smith Barney Premier Selections All Cap Growth, Smith Barney
Large Cap Core and Smith Barney Growth and Income Portfolios did not have any
open futures contracts.
6. Lending of Portfolio Securities
The Funds have an agreement with their custodian whereby the custodian may lend
securities owned by the Funds to brokers, dealers and other financial
organizations. Fees earned by the Funds on securities lending are recorded as
interest income. Loans of securities by the Funds are collateralized by cash,
U.S. government securities, high quality money market instruments or other
securities that are maintained at all times in an amount at least equal to the
current market value of the loaned securities, plus a margin which may vary
depending on the type of securities loaned. The Funds maintain exposure for the
risk of any loss in the investment of amounts received as collateral.
At April 30, 2004, Smith Barney Growth and Income Portfolio had loaned
securities having a market value of $2,765,392. Smith Barney Growth and Income
Portfolio received cash collateral amounting to $2,860,377 which was invested
in the State Street Navigator Securities Lending Trust Prime Portfolio.
Income earned by Smith Barney Growth and Income Portfolio from securities
lending for the six months ended April 30, 2004 was $1,485.
At April 30, 2004, Smith Barney Premier Selections All Cap Growth, Smith Barney
Large Cap Core and SB Government Portfolios did not have any securities on loan.
7. Securities Traded on a To-Be-Announced Basis
The Funds may trade securities on a to-be-announced ("TBA") basis. In a TBA
transaction, the Funds commit to purchasing or selling securities for which
specific information is not yet known at the time of the trade, particularly
the face amount and maturity date in Government National Mortgage Association
("GNMA") transactions. Securities purchased on a TBA basis are not settled
until they are delivered to the Funds, normally 15 to 45 days later. Beginning
on the date the Funds enter into a TBA transaction, cash, U.S. government
securities or other liquid high grade debt obligations are segregated in an
amount equal in value to the purchase price of the TBA security. These
transactions are subject to market fluctuations and their current value is
determined in the same manner as for other securities.
At April 30, 2004, SB Government Portfolio held TBA securities with a total
cost of $45,481,094.
28 Smith Barney Investment Series | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
8. Mortgage Dollar Rolls
SB Government Portfolio may enter into mortgage dollar roll transactions. A
mortgage dollar roll transaction involves a sale by the Fund of mortgage
related securities that it holds with an agreement by the Fund to repurchase
similar securities at an agreed upon price and date. The securities repurchased
will bear the same interest rate as those sold, but generally will be
collateralized by pools of mortgages with different prepayment histories than
those securities sold. Proceeds from the sale will be reinvested and the income
from these investments, together with any additional income received on the
sale, is included in investment income. Losses may arise due to changes in the
value of the securities or if the counterparty does not perform under the terms
of the agreement. If the counterparty files for bankruptcy or becomes
insolvent, the Fund's right to repurchase the securities may be limited.
During the six months ended April 30, 2004, SB Government Portfolio entered
into mortgage dollar roll transactions in the aggregate amount of $431,300,000.
At April 30, 2004, SB Government Portfolio had outstanding mortgage dollar
rolls with a total cost of $45,481,094.
9. Shares of Beneficial Interest
At April 30, 2004, the Trust had an unlimited number of shares authorized with
a par value of $0.00001 per share.
Transactions in shares of each Fund were as follows:
Six Months Ended Year Ended
April 30, 2004 October 31, 2003
- -----------------------------------------------------
Smith Barney
Premier Selections
All Cap Growth
Portfolio
Shares sold 186,197 344,878
Shares reacquired (154,911) (495,589)
- -----------------------------------------------------
Net Increase
(Decrease) 31,286 (150,711)
- -----------------------------------------------------
Smith Barney Large
Cap Core Portfolio
Shares sold 660,274 1,178,419
Shares issued on
reinvestment 35,544 30,596
Shares reacquired (330,756) (801,697)
- -----------------------------------------------------
Net Increase 365,062 407,318
- -----------------------------------------------------
Smith Barney Growth
and Income
Portfolio
Shares sold 1,009,297 1,542,017
Shares issued on
reinvestment 34,319 29,088
Shares reacquired (105,344) (420,814)
- -----------------------------------------------------
Net Increase 938,272 1,150,291
- -----------------------------------------------------
SB Government
Portfolio
Shares sold 763,073 5,651,429
Shares issued on
reinvestment 345,833 117,038
Shares reacquired (1,189,949) (2,029,223)
- -----------------------------------------------------
Net Increase
(Decrease) (81,043) 3,739,244
- -----------------------------------------------------
10.Additional Information
The Funds have received the following information from Citigroup Asset
Management ("CAM"), the Citigroup business unit which includes the Funds'
Investment Manager and other investment advisory companies, all of which are
indirect, wholly-owned subsidiaries of Citigroup. CAM is reviewing its entry,
through an affiliate, into the transfer agent business in the period 1997-1999.
As CAM currently understands the facts, at the time CAM decided to enter the
transfer agent business, CAM sub-contracted for a period of five years certain
of the transfer agency services to a third party and also
29 Smith Barney Investment Series | 2004 Semi-Annual Report
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
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.
30 Smith Barney Investment Series | 2004 Semi-Annual Report
FINANCIAL HIGHLIGHTS
For a share of each class of beneficial interest outstanding throughout the
year ended October 31, unless otherwise noted:
Smith Barney Premier Selections
All Cap Growth Portfolio 2004/(1)/ 2003 2002 2001 2000/(2)/ 1999/(3)/
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 11.45 $ 8.96 $ 10.73 $ 14.48 $ 10.11 $ 10.00
- ---------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss)/(4)/ (0.01) (0.01) (0.03) 0.02 0.09 0.01
Net realized and unrealized gain (loss) 0.03 2.50 (1.73) (3.69) 4.30 0.10
- ---------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.02 2.49 (1.76) (3.67) 4.39 0.11
- ---------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- (0.01) (0.04) (0.02) --
Net realized gains -- -- -- (0.04) -- --
- ---------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.01) (0.08) (0.02) --
- ---------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 11.47 $ 11.45 $ 8.96 $ 10.73 $ 14.48 $ 10.11
- ---------------------------------------------------------------------------------------------------------------
Total Return/(5)/ 0.17%++ 27.79% (16.44)% (25.45)% 43.43% 1.10%++
- ---------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $35,288 $34,884 $28,628 $34,384 $21,419 $3,032
- ---------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(4)(6)/ 0.94%+ 0.90% 0.95% 0.95% 0.95% 0.95%+
Net investment income (loss) (0.25)+ (0.08) (0.25) 0.16 0.72 1.00+
- ---------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 66% 58% 116% 58% 8%
- ---------------------------------------------------------------------------------------------------------------
(1) For the six months ended April 30, 2004 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period September 15, 1999 (commencement of operations) to October
31, 1999.
(4) The Manager agreed to waive all or a portion of its fees for the years
ended October 31, 2002, 2001 and 2000 and the period ended October 31,
1999. In addition, the Manager also reimbursed expenses of $45,159, $30,419
and $13,182 for the years ended October 31, 2001 and 2000, and the period
ended October 31, 1999, respectively. If such fees were not waived and
expenses not reimbursed, the per share effect on net investment income
(loss) and the actual expense ratios would have been as follows:
Expense Ratios
Per Share (Increases) Decreases to Without Fee Waivers and/or
Net Investment Income (Loss) Expense Reimbursements
---------------------------------- ----------------------
2002 2001 2000 1999 2002 2001 2000 1999
------ ----- ----- ----- ---- ---- ---- ----
Smith Barney Premier Selections All Cap Growth Portfolio $(0.02) $0.02 $0.15 $0.05 1.11% 1.08% 2.14% 5.35%+
(5)Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown.
(6) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
31 Smith Barney Investment Series | 2004 Semi-Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout the
year ended October 31, unless otherwise noted:
Smith Barney Large Cap Core Portfolio 2004/(1)/ 2003 2002 2001 2000/(2)/ 1999/(3)/
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 8.33 $ 7.24 $ 8.96 $ 12.14 $ 10.51 $ 10.00
- ------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(4)/ 0.01 0.03 0.02 0.04 0.05 0.01
Net realized and unrealized gain (loss) 0.27 1.09 (1.72) (3.19) 1.59 0.50
- ------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.28 1.12 (1.70) (3.15) 1.64 0.51
- ------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.03) (0.03) (0.02) (0.03) (0.01) --
- ------------------------------------------------------------------------------------------------------------------
Total Distributions (0.03) (0.03) (0.02) (0.03) (0.01) --
- ------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 8.58 $ 8.33 $ 7.24 $ 8.96 $ 12.14 $ 10.51
- ------------------------------------------------------------------------------------------------------------------
Total Return/(5)/ 3.41%++ 15.47% (18.94)% (26.03)% 15.61% 5.10%++
- ------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $79,017 $73,717 $61,139 $67,093 $49,630 $5,274
- ------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(4)(6)/ 0.86%+ 0.91% 0.93% 0.93% 0.95% 0.95%+
Net investment income 0.30+ 0.47 0.24 0.42 0.42 0.67+
- ------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 22% 77% 45% 26% 30% 6%
- ------------------------------------------------------------------------------------------------------------------
(1) For the six months ended April 30, 2004 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period September 15, 1999 (commencement of operations) to October
31, 1999.
(4) The Manager agreed to waive all or a portion of its fees for the year ended
October 31, 2000 and the period ended October 31, 1999. In addition, the
Manager also reimbursed expenses of $20,272 for the period ended October
31, 1999. If such fees were not waived and expenses not reimbursed, the per
share decreases to net investment income and the actual expense ratios
would have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers and/or
Net Investment Income Expense Reimbursements
---------------------- ------------------------
2000 1999 2000 1999
-------- ------- ---- ----
Smith Barney Large Cap Core Portfolio $0.07 $0.05 1.55% 5.00%+
(5)Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown.
(6) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
32 Smith Barney Investment Series | 2004 Semi-Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout the
year ended October 31, unless otherwise noted:
Smith Barney Growth and Income
Portfolio 2004/(1)/ 2003 2002 2001 2000/(2)/ 1999/(3)/
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $8.44 $ 6.95 $ 8.15 $ 10.77 $ 10.10 $ 10.00
- ---------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(4)/ 0.02 0.05 0.02 0.05 0.16 0.01
Net realized and unrealized gain (loss) 0.39 1.48 (1.20) (2.58) 0.53 0.09
- ---------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.41 1.53 (1.18) (2.53) 0.69 0.10
- ---------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.05) (0.04) (0.02) (0.05) (0.02) --
Net realized gains -- -- -- (0.04) -- --
- ---------------------------------------------------------------------------------------------------------------------
Total Distributions (0.05) (0.04) (0.02) (0.09) (0.02) --
- ---------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $8.80 $ 8.44 $ 6.95 $ 8.15 $ 10.77 $ 10.10
- ---------------------------------------------------------------------------------------------------------------------
Total Return/(5)/ 4.80%++ 22.09% (14.47)% (23.63)% 6.86% 1.00%++
- ---------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $64,946 $54,334 $36,730 $31,576 $18,089 $3,045
- ---------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(4)(6)/ 0.90%+ 0.87% 0.95% 0.95% 0.95% 0.95%+
Net investment income 0.57+ 0.68 0.40 0.53 1.54 0.69+
- ---------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 24% 65% 48% 68% 72% 1%
- ---------------------------------------------------------------------------------------------------------------------
(1) For the six months ended April 30, 2004 (unaudited).
(2)Per share amounts have been calculated using the monthly average shares
method.
(3)For the period September 15, 1999 (commencement of operations) to October
31, 1999.
(4)The Manager agreed to waive all or a portion of its fees for the years ended
October 31, 2002, 2001 and 2000 and the period ended October 31, 1999. In
addition, the Manager also reimbursed expenses of $61,498, $21,016 and
$12,636 for the years ended October 31, 2001 and 2000, and the period ended
October 31, 1999, respectively. If such fees were not waived and expenses
not reimbursed, the per share decreases to net investment income and the
expense ratios would have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers and/or
Net Investment Income Expense Reimbursements
----------------------- ----------------------
2002 2001 2000 1999 2002 2001 2000 1999
----- ----- ----- ----- ---- ---- ---- ----
Smith Barney Growth and Income Portfolio $0.01 $0.02 $0.12 $0.05 1.09% 1.18% 2.05% 5.22%+
(5)Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown.
(6) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.95%.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
33 Smith Barney Investment Series | 2004 Semi-Annual Report
FINANCIAL HIGHLIGHTS (CONTINUED)
For a share of each class of beneficial interest outstanding throughout the
year ended October 31, unless otherwise noted:
SB Government Portfolio 2004/(1)/ 2003 2002/(2)/ 2001 2000/(2)/ 1999/(3)/
- ----------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $11.68 $11.74 $11.44 $10.62 $10.13 $10.00
- --------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income/(4)(5)/ 0.22 0.33 0.35 0.52 0.53 0.05
Net realized and unrealized gain (loss)/(5)/ (0.21) (0.23) 0.13 0.87 0.12 0.08
- --------------------------------------------------------------------------------------------------------------
Total Income From Operations 0.01 0.10 0.48 1.39 0.65 0.13
- --------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income (0.37) (0.16) (0.11) (0.57) (0.16) --
Net realized gains -- -- (0.07) -- -- --
- --------------------------------------------------------------------------------------------------------------
Total Distributions (0.37) (0.16) (0.18) (0.57) (0.16) --
- --------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $11.32 $11.68 $11.74 $11.44 $10.62 $10.13
- --------------------------------------------------------------------------------------------------------------
Total Return/(6)/ 0.09%++ 0.87% 4.20% 13.56% 6.55% 1.30%++
- --------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $122,588 $127,378 $84,104 $13,410 $4,996 $5,066
- --------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses/(4)(7)/ 0.70%+ 0.68 % 0.80% 0.80% 0.80% 0.80%+
Net investment income/(5)/ 3.56+ 2.91 3.17 4.47 5.19 4.36+
- --------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate// 28%* 83%* 145% 90% 0% 0%
- --------------------------------------------------------------------------------------------------------------
(1) For the six months ended April 30, 2004 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) For the period September 15, 1999 (commencement of operations) to October
31, 1999.
(4) The Manager agreed to waive all or a portion of its fees for the years
ended October 31, 2002, 2001 and 2000 and the period ended October 31,
1999. In addition, the Manager also reimbursed expenses of $57,022, $33,010
and $14,291 for the years ended October 31, 2001 and 2000, and the period
ended October 31, 1999, respectively. If such fees were not waived and
expenses not reimbursed, the per share decreases to net investment income
and the actual expense ratios would have been as follows:
Expense Ratios
Per Share Decreases to Without Fee Waivers and/or
Net Investment Income Expense Reimbursements
----------------------- ----------------------
2002 2001 2000 1999 2002 2001 2000 1999
----- ----- ----- ----- ---- ---- ---- ----
SB Government
Portfolio $0.02 $0.06 $0.13 $0.04 1.00% 1.30% 2.06% 3.73%+
(5) Effective November 1, 2001, the Fund adopted a change in the accounting
method that requires the Fund to amortize premiums and accrete all
discounts. Without the adoption of this change, for the year ended October
31, 2002, net investment income, net realized and unrealized gain and the
ratio of net investment income to average net assets would have been $0.36,
$0.12 and 3.32%, respectively. Per share information, ratios and
supplemental data for the periods prior to November 1, 2001 have not been
restated to reflect this change in presentation.
(6)Performance figures may reflect fee waivers and/or expense reimbursements.
Past performance is no guarantee of future results. In the absence of fee
waivers and/or expense reimbursements, the total return would be reduced.
Total returns do not reflect expenses associated with the separate account
such as administrative fees, account charges and surrender charges which, if
reflected, would reduce the total returns for all periods shown.
(7) As a result of a voluntary expense limitation, the ratio of expenses to
average net assets will not exceed 0.80%.
* Excluding mortgage dollar roll transactions. If mortgage dollar roll
transactions had been included, the portfolio turnover rate would have been
389% and 429% for the six months ended April 30, 2004 and the year ended
October 31, 2003, respectively.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
34 Smith Barney Investment Series | 2004 Semi-Annual Report
SMITH BARNEY
INVESTMENT SERIES
TRUSTEES OFFICERS (Cont'd.)
Elliott J. Berv Lawrence B. Weissman, CFA
Donald M. Carlton Vice President and
A. Benton Cocanougher Investment Officer
Mark T. Finn
R. Jay Gerken, CFA Timothy Woods, CFA
Chairman Vice President and
Stephen Randolph Gross Investment Officer
Diana R. Harrington
Susan B. Kerley Andrew Beagley
Alan G. Merten Chief Anti-Money Laundering
R. Richardson Pettit Compliance Officer
OFFICERS Kaprel Ozsolak
R. Jay Gerken, CFA Controller
President and
Chief Executive Officer Robert I. Frenkel
Secretary and
Andrew B. Shoup Chief Legal Officer
Senior Vice President and
Chief Administrative Officer INVESTMENT MANAGER
Smith Barney Fund Management LLC
Alan J. Blake
Vice President and CUSTODIAN
Investment Officer State Street Bank and
Trust Company
Kevin Caliendo
Vice President and TRANSFER AGENT
Investment Officer Citicorp Trust Bank, fsb.
125 Broad Street, 11th Floor
Michael A. Kagan New York, New York 10004
Vice President and
Investment Officer SUB-TRANSFER AGENT
PFPC Inc.
Roger M. Lavan, CFA P.O. Box 9699
Vice President and Providence, Rhode Island
Investment Officer 02940-9699
Francis L. Mustaro
Vice President and
Investment Officer
Smith Barney Investment Series
Smith Barney Premier Selections
All Cap Growth Portfolio
Smith Barney Large Cap Core Portfolio
Smith Barney Growth and Income Portfolio
SB Government Portfolio
The Funds are separate investment funds of the Smith Barney
Investment Series, a Massachusetts business trust.
A description of the policies and procedures that the Funds use to determine
how to vote proxies relating to portfolio securities is available without
charge, upon request, by telephoning the Funds (toll free) at 1-800-451-2010
and by visiting the SEC's web site at www.sec.gov.
This report is submitted for general information of the shareholders of the
Smith Barney Investment Series -- Smith Barney Premier Selections All Cap
Growth, Smith Barney Large Cap Core, Smith Barney Growth and Income and SB
Government Portfolios.
SMITH BARNEY INVESTMENT SERIES
Smith Barney Mutual Funds
125 Broad Street
10th Floor, MF-2
New York, New York 10004
(C)2004 Citigroup Global Markets Inc.
Member NASD, SIPC
FD02334 6/04 04-6778
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: July 8, 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: July 8, 2004
By: /s/ Andrew B. Shoup
--------------------------------
(Andrew B. Shoup)
Chief Administrative Officer of
Smith Barney Investment Series
Date: July 8, 2004