<PAGE>
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
SMITH BARNEY
SECTOR SERIES INC.
NATURAL RESOURCES Fund
RESEARCH SERIES
SEMI-ANNUAL REPORT
APRIL 30, 2000
[LOGO OF SMITH BARNEY MUTUAL FUNDS]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
Smith Barney
Natural Resources Fund
The Smith Barney Natural Resources Fund ("Portfolio") seeks long-term capital
appreciation by investing primarily in equity and debt securities of U.S. and
foreign issuers in natural resources industries.
Smith Barney Natural Resources Fund
Average Annual Total Returns
April 30, 2000
<TABLE>
<CAPTION>
Without Sales Charges(1)
---------------------------------------------------
Class A Class B Class L
================================================================================
<S> <C> <C> <C>
Six Months+ 7.85% 7.44% 7.47%
--------------------------------------------------------------------------------
One-Year 2.94 2.52 2.62
--------------------------------------------------------------------------------
Five-Year 2.11 1.48 1.54
--------------------------------------------------------------------------------
Ten-Year 3.29 N/A N/A
--------------------------------------------------------------------------------
Since Inception++ 2.88 5.41 (0.69)
================================================================================
<CAPTION>
With Sales Charges(2)
---------------------------------------------------
Class A Class B Class L
================================================================================
<S> <C> <C> <C>
Six Months+ 2.47% 2.44% 5.42%
--------------------------------------------------------------------------------
One-Year (2.21) (2.48) 0.61
--------------------------------------------------------------------------------
Five-Year 1.06 1.29 1.33
--------------------------------------------------------------------------------
Ten-Year 2.76 N/A N/A
--------------------------------------------------------------------------------
Since Inception++ 2.49 5.41 (0.88)
================================================================================
</TABLE>
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charges (CDSC) with respect to Class B and L
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively. Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase. Thereafter,
the CDSC declines by 1.00% per year until no CDSC is incurred. Class L
shares also reflect the deduction of a 1.00% CDSC, which applies if shares
are redeemed within the first year of purchase.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and
redemption value may be more or less than the original cost.
+ Total return is not annualized, as it may not be representative of the total
return for the year.
++ Inception dates for Class A, B and L shares are November 24, 1986,
November 6, 1992 and November 7, 1994, respectively.
--------------------------------------------------------------------------------
FUND HIGHLIGHT
--------------------------------------------------------------------------------
We believe that there is a compelling case for having a meaningful allocation to
natural resource stocks. In our opinion, the best days for inflation may be
over. As the U.S. labor markets remain tight and the worldwide economy continues
its expansion, some investors may begin to look more favorably on "hard assets",
also known as natural resources as an inflationary precaution.
--------------------------------------------------------------------------------
NASDAQ SYMBOL
--------------------------------------------------------------------------------
Class A SPMMX
Class B SPMBX
Class L SPMLX
--------------------------------------------------------------------------------
WHAT'S INSIDE
--------------------------------------------------------------------------------
A Message from the Chairman ............................................... 1
Shareholder Letter ........................................................ 2
Historical Performance .................................................... 6
Smith Barney Natural Resources Fund
at a Glance ............................................................... 9
Schedule of Investments ................................................... 10
Statement of Assets and Liabilities ....................................... 12
Statement of Operations ................................................... 13
Statements of Changes in Net Assets ....................................... 14
Notes to Financial Statements ............................................. 15
Financial Highlights ...................................................... 20
<PAGE>
--------------------------------------------------------------------------------
A Message from the Chairman
--------------------------------------------------------------------------------
[PHOTO]
HEATH B.
MCLENDON
Chairman
The U.S. economy has continued its rate of historic growth in the new
millennium. Unemployment is at an all-time low as consumer confidence reaches
all-time highs. However, the U.S. securities markets continue to be
characterized by record volatility, leaving many investors with no clear
indication of the future direction of share prices.
At SSB Citi Asset Management, we remain firmly committed to our belief that
individual company selection should continue to be the primary focus of any
investor in any market. We believe that those companies with superior products,
strong management and a sound business plan should be well-positioned to deliver
continued earnings growth in the evolving global economy.
We provide some 100 million people, businesses, governments and institutions in
over 100 countries with a broad range of financial products and services. SSB
Citi Asset Management, Citigroups asset management division, offers you access
to a broad range of products including equities, fixed income and money markets.
Our global resources are extensive, far-reaching and powerful, with a strong
presence in the U.S., Europe, Japan, Latin America, Asia Pacific and Australia.
We invite you to explore our capabilities as a market leader in areas such as
retirement, tax and estate planning. We encourage you to work closely with your
Salomon Smith Barney Financial Consultant to discuss the full range of services
we offer. He or she can further discuss the unique advantages of professional
investment management and how SSB Citi Asset Management can help you develop a
long-term disciplined plan to help you achieve your investment goals.
When you invest with Smith Barney Asset Management, you can do so with the
confidence that your interests come first, your investment success is paramount
and that the ultimate in resources is being committed to your financial future.
Thank you for investing with us.
Sincerely,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman
May 10, 2000
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 1
<PAGE>
--------------------------------------------------------------------------------
Shareholder Letter
--------------------------------------------------------------------------------
[PHOTO]
JOHN G.
GOODE
Vice President and
Investment Officer
Dear Shareholder
We are pleased to provide the semi- annual report for the Smith Barney Sector
Series Inc. Smith Barney Natural Resources Fund (Portfolio) for the period ended
April 30, 2000. In this report we have summarized the periods prevailing
economic and market conditions and outlined the Portfolios investment
strategy.(1)Please refer to pages 10 and 11 for a list of the Portfolios
holdings. We hope you find this report useful and informative.
Performance Update
For the six months ended April 30, 2000, the Portfolios Class A, Class B and
Class L shares returned 7.85%, 7.44% and 7.47%, without sales charges,
respectively. The Portfolios Class A, Class B and Class L shares, with sales
charges, returned 2.47%, 2.44% and 5.42%, respectively, for the same period. In
comparison, the Portfolios Lipper, Inc. peer group of natural resources funds
returned 13.01%. (Lipper, Inc. is an independent mutual fund-tracking
organization.)
For much of the last six months, the New Economy and Old Economy debate favored
the former and many Old Economy stocks were sold because of the desire by many
investors to focus on so-called New Economy stocks. (The New Economy represents
those companies in the technology, telecommunications and Internet sectors. The
Old Economy represents more established, blue-chip companies.)
Many mutual funds experienced redemptions in the last six months, and many
investors often decided to sell Old Economy and natural resource stocks. In
addition, the Federal Reserve Board (Fed), under Alan Greenspans leadership, has
continued to raise interest rates in an effort to keep the U.S. economy from
overheating and causing a return of inflation. Generally speaking, tighter Fed
monetary policy is considered a negative for natural resources because reduced
economic activity means less demand for natural resources.
Investment Strategy
The Portfolio seeks long-term capital appreciation by investing primarily in
equity and debt securities of issuers in natural resources industries. The
Portfolio invests primarily in stocks of U.S. and foreign companies in natural
resources industries. Natural resources include gold and other precious metals,
base metals, minerals, water, timberland and forest products, agricultural
commodities, oil, gas, coal and other energy products.
Economic and Market Update
We believe the case for having a meaningful allocation to natural resource
stocks may be compelling. First, in our opinion, the best days for inflation are
most likely over. Labor markets in the U.S. are tight and the world economy is
expanding once again. Although no guarantees can be given, we believe inflation
should increase to 3%4% in the next 12 to 18 months. If this occurs, this
represents only a moderate increase but, at the margin, it probably would cause
some investors to look more favorably on hard assets or natural resources.
Prevailing conventional wisdom has it that inflation has been tamed and that the
Internet and technology, in general, make it very difficult for companies to
raise prices. It is true that the Internet can increase competition among
suppliers and many technology products themselves have a history of price
declines.
-----------------
1 The information provided represents the opinion of the manager and is not
intended to be a forecast of future events, a guarantee of future results nor
investment advice. Further, there is no assurance that certain securities will
remain in or out of the portfolio.
--------------------------------------------------------------------------------
2 2000 Semi-Annual Report to Shareholders
<PAGE>
Productivity improvement associated with the increasing use of technology
has permitted an increase in the "speed limit" for the U.S. economy. A few years
ago, a 2 1/2% to 3% growth rate was thought to be the fastest the U.S. economy
could grow without leading to an increase in inflation. Clearly, productivity
enhancements associated with the greater use of technology have made it possible
for the economy to grow for an extended period well above this range.
However, in our view, other factors are also at work in the U.S. economy that
suggest pricing power is returning to some sectors, including many natural
resource companies. In the mid-1990s, consulting firms and investors began
delivering the message to many companies, including those broadly defined as
natural resource in nature, that capacity additions destroyed wealth.
Specifically, it was pointed out that many companies and industries were earning
well below their cost of capital. Expanding capacity under these circumstances
made no sense and led to a boom-bust cycle.
These companies and industries were admonished not to build new facilities but
to merge with other companies if they wanted to increase in size. The recent
merger talks between International Paper and Champion International are but one
example of this new approach. From our viewpoint, it is rather remarkable how
many businesses took the above message to heart. Although it has taken several
years to work off existing excess capacity, we believe we may now be at the
point where the constraints placed on capital expenditures are in the process of
creating tight markets that could lead to price increases. Moreover, we think
many natural resources companies will regain some measure pricing power in the
next few years and that the business cycle for them will be much longer and
profits much greater than in the past.
What is the evidence that this is happening or in prospect? Natural gas prices
are now well in excess of $3.50 MCF (1,000 cubic feet). Usually at this time of
year, natural gas prices are declining, but instead they have been increasing.
In our opinion, one of the reasons is that many domestic producers have decided
to scale back on their drilling plans. Historically, current price levels would
have generated a much larger increase in drilling activity than has taken place
to date. At a recent energy conference, almost every company talked about its
cost of capital and the need to generate higher returns in the future.
Therefore, we think it is pricing power, not inflation per se, that is the major
story developing within the natural resource industry. This pricing power is one
reason why Procter & Gamble, recently announced disappointing numbers because of
higher energy and paper prices. The paper industry has been a leader in limiting
its capital expenditures and spending on new capacity.
The Federal Reserve Bank in Philadelphia recently announced that it was seeing
an increase in the number of companies raising prices. Its survey also indicated
that 35% of manufacturing companies were absorbing raw materials price increases
but the big news was their ability to pass them on. It has been more than five
years since there has been similar pressure on prices.
"Beam Me Up Scotty" or Do We Still Live in the Real World?
There is another key point that we think should be made. Most of us do not live
in cyberspace. Occasionally we need to eat to sustain ourselves. Most of us live
in houses, condominiums or apartments. We wear clothes and own and drive cars,
which still need gasoline from time to time. With technology and productivity
increasing the growth rate for the U.S. economy, the demand for these and other
essential goods and services has been increasing along with rising personal
incomes. The more rapid rate of economic growth and the limited increases in
producing capacity by many natural resource companies are principal reasons why
we believe pricing power is returning for many of them. Therefore, it may make
sense for investors to tilt their
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 3
<PAGE>
asset allocations in the direction of increased commitments to natural
resources.
Natural Resources -- A Winning Approach in the Next 3-5 Years?
Although no guarantees can be made, we believe natural resource investments, in
general, may outperform the Standard & Poors 500 Index (S&P 500)(2) by a wide
margin in the next few years. In addition, we feel the potential risks may be
lower with natural resource stocks, in part, because expectations are low and
the stocks are under-owned by institutions including many mutual funds. Even the
largest natural resources companies are small in comparison to the top 50
companies in the S&P 500. Moderate money flows in the direction of natural
resources could have a significant impact on their share prices. (Of course, no
assurances can be made that this will occur.)
Portfolio Update (3)
Included in the Portfolio Holdings Update section to the right are the companies
that performed well for the Fund as well as the laggards over the last six
months. Rostelecom is the leading phone and communications provider in Russia.
Russia is a major producer and exporter of natural resources, and improving
prices should benefit the country. This telecommunications stock, which is
traded on the New York Stock Exchange, was selected as the natural resource
benchmark for the country. It was purchased in October, 1998 and made up only a
small part of the Portfolio at that time. It has since become a meaningful
position in the portfolio because of price appreciation.
Many of the top performers in the last six months were in the energy area,
including oil services (Schlumberger) and natural gas production (Ocean Energy,
Anadarko Petroleum and Apache). Brush Wellman produces beryllium-based products
for many rapidly growing markets such as wireless telecommunications. MEMC
Electronic Materials produces the silicon that semiconductor companies use to
generate chips and microprocessors. Precision Castparts is a major supplier to
Boeing and aerospace markets. ALCOA is one of the best-managed natural resource
companies we know and represents one of the largest positions in the Portfolio.
We believe prospects are very positive for aluminum producers such as ALCOA.
Portfolio Holdings Update -- October 31, 1999
through April 30, 2000
Top Performers*
Rostelecom +414%
Nabors Industries +55
MEMC Electronic Materials +46
Ocean Energy +41
Schlumberger +37
Anadarko Petroleum +27
Brush Wellman +20
Precision Castparts +20
Apache Petroleum +15
ALCOA +13
Bottom Performers*
Smurfit Stone -22%
Engelhard -17
Archer Daniels -14
INCO -14
Phelps Dodge -14
DuPont -13
RTI International Metals -12
International Paper -11
Georgia Pacific -2
Deere & Company -2
* Source: Davis Skaggs Investment Management. Past performance is not indicative
of future results.
----------------
2 The S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks.
3 The following securities reflect the holdings of the Portfolio as of April
30, 2000. After such date this information may not reflect the current
Portfolios holdings. Stock information is for information purposes. It
should not be relied upon for current prices of shares or for trading
securities. Further, there is no assurance that securities will remain in
or out of the portfolio. Please refer to pages 10 and 11 for the percentage
breakdown of the Portfolios holdings.
--------------------------------------------------------------------------------
4 2000 Semi-Annual Report to Shareholders
<PAGE>
The stocks that underperformed in the last six months included some that we feel
have exceptional prospects. We believe that paper prices may increase
dramatically in the next year and yet three paper companies made our bottom ten
list. Companies involved in agriculture also performed poorly (Archer Daniels
and Deere) during the period under review.
Market Outlook
We have earlier commented that pricing power may return to many natural
resources companies. This development should become much more clearer in the
next few quarters. If earnings surprises are as important to stock performance
as many investment professionals believe, we think that natural resources stocks
may be one of the best-performing segments of the stock market over the next few
years. Many natural resources companies could consistently exceed Wall Streets
estimates for earnings going forward. We see tight markets leading to price
increases and surprisingly large earnings increases for many natural resource
companies. And we think investors may take notice. Carpe Diem! (Of course, our
expectations may not be realized.)
Thank you for investing in the Smith Barney Sector Series Inc. -- Smith Barney
Natural Resources Fund. We look forward to helping you pursue your financial
goals in the new century.
Sincerely,
/s/ John G. Goode
John G. Goode
Vice President and
Investment Officer
May 10, 2000
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 5
<PAGE>
--------------------------------------------------------------------------------
Historical Performance -- Class A Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
4/30/00 $18.85 $20.33 $0.00 $0.00 $0.00 7.85%
--------------------------------------------------------------------------------------------------------------
10/31/99 16.56 18.85 0.00 0.00 0.00 13.83
--------------------------------------------------------------------------------------------------------------
10/31/98 23.23 16.56 0.00 0.16 0.00 (28.13)
--------------------------------------------------------------------------------------------------------------
10/31/97 22.95 23.23 0.33 0.00 0.00 2.67
--------------------------------------------------------------------------------------------------------------
10/31/96 16.50 22.95 0.00 0.00 0.00 39.09
--------------------------------------------------------------------------------------------------------------
10/31/95 21.44 16.50 0.00 0.00 0.00 (23.04)
--------------------------------------------------------------------------------------------------------------
10/31/94 18.89 21.44 0.00 0.00 0.00 13.50
--------------------------------------------------------------------------------------------------------------
10/31/93 13.27 18.89 0.00 0.00 0.00 42.35
--------------------------------------------------------------------------------------------------------------
10/31/92 13.93 13.27 0.06 0.00 0.03 (4.09)
--------------------------------------------------------------------------------------------------------------
10/31/91 13.63 13.93 0.00 0.00 0.00 2.20
--------------------------------------------------------------------------------------------------------------
10/31/90 16.96 13.63 0.21 0.00 0.11 (18.18)
==============================================================================================================
Total $0.60 $0.16 $0.14
==============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Historical Performance - Class B Shares
--------------------------------------------------------------------------------------------------------------
Net Asset Value
------------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
4/30/00 $18.15 $19.50 $0.00 $0.00 $0.00 7.44%+
--------------------------------------------------------------------------------------------------------------
10/31/99 16.00 18.15 0.00 0.00 0.00 13.44
--------------------------------------------------------------------------------------------------------------
10/31/98 22.60 16.00 0.00 0.16 0.00 (28.61)
--------------------------------------------------------------------------------------------------------------
10/31/97 22.32 22.60 0.15 0.00 0.00 1.95
--------------------------------------------------------------------------------------------------------------
10/31/96 16.15 22.32 0.00 0.00 0.00 38.20
--------------------------------------------------------------------------------------------------------------
10/31/95 21.14 16.15 0.00 0.00 0.00 (23.60)
--------------------------------------------------------------------------------------------------------------
10/31/94 18.75 21.14 0.00 0.00 0.00 12.75
--------------------------------------------------------------------------------------------------------------
Inception* -- 10/31/93 13.35 18.75 0.00 0.00 0.00 40.45+
==============================================================================================================
Total $0.15 $0.16 $0.00
==============================================================================================================
</TABLE>
--------------------------------------------------------------------------------
6 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Historical Performance -- Class L Shares
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Net Asset Value
---------------------
Beginning End Income Capital Gain Return Total
Period Ended of Period of Period Dividends Distributions of Capital Returns(1)
=================================================================================================
<S> <C> <C> <C> <C> <C> <C>
4/30/00 $18.20 $19.56 $0.00 $0.00 $0.00 7.47%+
-------------------------------------------------------------------------------------------------
10/31/99 16.03 18.20 0.00 0.00 0.00 13.54
-------------------------------------------------------------------------------------------------
10/31/98 22.62 16.03 0.00 0.16 0.00 (28.54)
-------------------------------------------------------------------------------------------------
10/31/97 22.32 22.62 0.15 0.00 0.00 2.04
------------------------------------------------------------------------------------------------
10/31/96 16.16 22.32 0.00 0.00 0.00 38.12
-------------------------------------------------------------------------------------------------
Inception* -- 10/31/95 20.63 16.16 0.00 0.00 0.00 (21.67)+
=================================================================================================
Total $0.15 $0.16 $0.00
=================================================================================================
</TABLE>
It is the Funds policy to distribute dividends monthly and capital gains, if
any, annually.
--------------------------------------------------------------------------------
Average Annual Total Returns
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Without Sales Charges(1)
--------------------------------
Class A Class B Class L
===================================================================================
<S> <C> <C> <C>
Six Months Ended 4/30/00+ 7.85% 7.44% 7.47%
-----------------------------------------------------------------------------------
Year Ended 4/30/00 2.94 2.52 2.62
-----------------------------------------------------------------------------------
Five Years Ended 4/30/00 2.11 1.48 1.54
-----------------------------------------------------------------------------------
Ten Years Ended 4/30/00 3.29 N/A N/A
-----------------------------------------------------------------------------------
Inception* through 4/30/00 2.88 5.41 (0.69)
===================================================================================
<CAPTION>
With Sales Charges(2)
--------------------------------
Class A Class B Class L
===================================================================================
<S> <C> <C> <C>
Six Months Ended 4/30/00+ 2.47% 2.44% 5.42%
-----------------------------------------------------------------------------------
Year Ended 4/30/00 (2.21) (2.48) 0.61
-----------------------------------------------------------------------------------
Five Years Ended 4/30/00 1.06 1.29 1.33
-----------------------------------------------------------------------------------
Ten Years Ended 4/30/00 2.76 N/A N/A
-----------------------------------------------------------------------------------
Inception* through 4/30/00 2.49 5.41 (0.88)
===================================================================================
</TABLE>
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 7
<PAGE>
--------------------------------------------------------------------------------
Cumulative Total Returns
--------------------------------------------------------------------------------
Without Sales Charges(1)
================================================================================
Class A (4/30/90 through 4/30/00) 38.24%
--------------------------------------------------------------------------------
Class B (Inception* through 4/30/00) 48.30
--------------------------------------------------------------------------------
Class L (Inception* through 4/30/00) (3.74)
================================================================================
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges (CDSC) with respect to Class B
and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charge of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from initial purchase and
declines thereafter by 1.00% per year until no CDSC is incurred. Class L
shares also reflect the deduction of a 1.00% CDSC, which applies if shares
are redeemed within the first year of purchase.
+ Total return is not annualized, as it may not be representative of the
total return for the year.
* Inception dates for Class A, B and L shares are November 24, 1986,
November 6, 1992 and November 7, 1994, respectively.
--------------------------------------------------------------------------------
8 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund at a Glance (unaudited)
--------------------------------------------------------------------------------
Growth of $10,000 Invested in Class A Shares of the Smith Barney Natural
Resources Fund vs. MSCI World Index and Standard & Poor's 500 Index+
--------------------------------------------------------------------------------
April 1990 - April 2000
[GRAPH]
Natural Resources
Fund Inc. MSCI World Index S&P 500 Index
Apr-90 9,079 9,881
Oct-90 7,774 8,923 9,252
Oct-91 7,945 10,389 12,343
Oct-92 7,620 9,903 13,571
Oct-93 10,847 12,645 15,594
Oct-94 12,311 13,678 16,197
Oct-95 9,475 15,049 20,474
Oct-96 13,178 17,583 25,406
Oct-97 13,530 20,617 33,562
Oct-98 9,723 23,851 40,948
Oct-99 11,068 29,856 51,456
+ Hypothetical illustration of $10,000 invested in Class A shares on April 30,
1990, assuming deduction of the maximum 5.00% sales charge at the time of
investment and the reinvestment of dividends and capital gains, if any, at net
asset value through April 30, 2000. The Morgan Stanley Capital International
World Index ("MSCI World Index") is an arithmetic average weighted by the
market value performance of 1,468 securities listed on the stock exchanges of
the USA, Europe, Canada, Australia, New Zealand and the Far East. The Standard
& Poor's 500 Index is an index composed of widely held common stocks listed on
the New York Stock Exchange, American Stock Exchange and the over-the-counter
market. Figures for the index include the reinvestment of dividends. The
indexes are unmanaged and not subject to the same management and trading
expenses as a mutual fund. An investor cannot invest directly in an index. The
performance of the Portfolio's other classes may be greater or less than the
Class A shares' performance indicated on this chart, depending on whether
greater or lesser sales charges and fees were incurred by shareholders
investing in the other classes.
All figures represent past performance and are not a guarantee of future
results. Investment returns and principal value will fluctuate, and redemption
values may be more or less than the original cost. No adjustment has been made
for shareholder tax liability on dividends or capital gains.
Exposure by Country*
--------------------------------------------------------------------------------
United States 93.8%
United Kingdom 2.3
Russia 3.9
Top Ten Common Stock Holdings*
--------------------------------------------------------------------------------
Apache Corp. 5.5%
Alcoa Inc. 4.0
Anadarko Petroleum Corp. 3.8
Rio Tinto PLC 3.6
Nucor Corp. 3.6
Weyerhaeuser Co. 3.4
Georgia Pacific Group 3.0
Archer-Daniels-Midland Co. 3.0
Smurfit-Stone Container Corp. 2.7
International Paper Co. 2.6
* As a percentage of total investments.
Portfolio Breakdown*
[GRAPH]
Chemicals - Specialty 3.2%
Steel 7.6%
Basic Materials - Agricultural 6.4%
Telephone - Long Distance 3.9%
Aluminum 4.7%
Metals 15.9%
Chemicals 3.1%
Energy Service & Equipment 8.0%
Other 7.3%
Oil Exploration & Products 18.1%
Capital Goods 6.1%
Paper Products 15.7%
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 9
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) April 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 100.0%
Aluminum -- 4.7%
26,200 Alcoa Inc. $1,699,725
80,000 Kaiser Aluminum Corp. 340,000
--------------------------------------------------------------------------------
2,039,725
--------------------------------------------------------------------------------
Basic Materials - Agricultural -- 6.4%
131,000 Archer-Daniels-Midland Co. 1,301,813
93,600 IMC Global Inc. 1,444,950
--------------------------------------------------------------------------------
2,746,763
--------------------------------------------------------------------------------
Capital Goods -- 6.1%
32,800 Deere & Co. 1,324,300
31,000 Precision Castparts Corp. 1,294,250
--------------------------------------------------------------------------------
2,618,550
--------------------------------------------------------------------------------
Chemicals -- 3.1%
11,700 The Dow Chemical Co. 1,322,100
--------------------------------------------------------------------------------
Chemicals - Specialty -- 3.2%
78,100 Engelhard Corp. 1,371,632
--------------------------------------------------------------------------------
Electronics - Semiconductor -- 3.0%
74,900 MEMC Electronic Materials, Inc.* 1,301,389
--------------------------------------------------------------------------------
Energy Service & Equipment -- 8.0%
51,500 Baker Hughes Inc. 1,638,345
23,200 Schlumberger Ltd. 1,776,250
--------------------------------------------------------------------------------
3,414,595
--------------------------------------------------------------------------------
Metals -- 15.9%
63,800 Brush Wellman Inc. 1,180,300
95,100 Cameco Corp.+ 1,176,864
68,600 Inco Ltd.* 1,071,875
19,400 Phelps Dodge Corp. 897,250
100,000 Rio Tinto PLC 1,560,886
89,600 RTI International Metals, Inc.* 946,400
--------------------------------------------------------------------------------
6,833,575
--------------------------------------------------------------------------------
Oil & Gas -- 2.7%
29,400 Nabors Industries, Inc.* 1,159,463
--------------------------------------------------------------------------------
Oil Exploration & Products -- 18.1%
26,000 Abacan Resource Corp., Canada* 468
1,375,000 Abacan Resource Corp., United States* 24,750
37,400 Anadarko Petroleum Corp. 1,624,563
48,500 Apache Corp. 2,349,219
51,500 Burlington Resources Inc. 2,024,594
135,800 Ocean Energy Inc.*+ 1,756,913
--------------------------------------------------------------------------------
7,780,507
--------------------------------------------------------------------------------
Other -- 1.6%
28,100 Granite Construction Inc. 667,375
--------------------------------------------------------------------------------
See Notes to Financial Statements.
--------------------------------------------------------------------------------
10 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Schedule of Investments (unaudited) (continued) April 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
Paper Products -- 15.7%
367,500 Asia Pacific Resources International Holdings Ltd.,
Class A Shares* $ 459,375
35,500 Georgia Pacific Group 1,304,625
30,800 International Paper Co. 1,131,900
34,300 Mead Corp. 1,194,069
135,200 PT Inti Indorayon Utama Tbk ADR 13,520
77,200 Smurfit-Stone Container Corp.* 1,177,300
27,000 Weyerhaeuser Co. 1,442,813
--------------------------------------------------------------------------------
6,723,602
--------------------------------------------------------------------------------
Steel -- 7.6%
51,900 Allegheny Technologies Inc. 1,255,331
35,500 Nucor Corp. 1,526,500
20,000 USX-U.S. Steel Group 501,250
--------------------------------------------------------------------------------
3,283,081
--------------------------------------------------------------------------------
Telephone - Long-Distance -- 3.9%
86,800 Rostelecom - Sponsored ADR+ 1,687,175
--------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost -- $41,303,093**) $42,949,532
================================================================================
* 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.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 11
<PAGE>
--------------------------------------------------------------------------------
Statement of Assets and Liabilities (unaudited) April 30, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $41,303,093) $ 42,949,532
Collateral for securities loaned (Note 6) 4,063,820
Cash 979,396
Receivable for securities sold 139,732
Receivable for Fund shares sold 12,251
Dividends and interest receivable 16,759
--------------------------------------------------------------------------------
Total Assets 48,161,490
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 4,063,820
Payable for securities purchased 135,700
Distribution fees payable 37,260
Management fees payable 25,807
Payable for Fund shares purchased 1,187
Accrued expenses 81,949
--------------------------------------------------------------------------------
Total Liabilities 4,345,723
--------------------------------------------------------------------------------
Total Net Assets $ 43,815,767
================================================================================
NET ASSETS:
Par value of capital shares $ 2,204
Capital paid in excess of par value 56,845,477
Accumulated net investment loss (67,738)
Accumulated net realized loss from security
transactions and foreign currencies (14,610,615)
Net unrealized appreciation of investments 1,646,439
--------------------------------------------------------------------------------
Total Net Assets $ 43,815,767
================================================================================
Shares Outstanding:
Class A 984,537
--------------------------------------------------------------------------------
Class B 1,065,653
--------------------------------------------------------------------------------
Class L 154,134
--------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $20.33
--------------------------------------------------------------------------------
Class B * $19.50
--------------------------------------------------------------------------------
Class L ** $19.56
--------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $21.40
--------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $19.76
================================================================================
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed less than one year from initial purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
See Notes to Financial Statements.
--------------------------------------------------------------------------------
12 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Statement of Operations (unaudited) For the Six Months Ended April 30, 2000
--------------------------------------------------------------------------------
INVESTMENT INCOME:
Dividends $ 411,722
Interest 14,264
Less: Foreign withholding tax (6,189)
--------------------------------------------------------------------------------
Total Investment Income 419,797
--------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 174,549
Distribution fees (Note 2) 153,384
Shareholder and system servicing fees 59,670
Registration fees 32,411
Audit and legal 28,329
Shareholder communications 18,528
Directors' fees 13,126
Custody 9,541
Other 2,893
--------------------------------------------------------------------------------
Total Expenses 492,431
--------------------------------------------------------------------------------
Net Investment Loss (72,634)
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCIES (NOTE 3):
Realized Gain From:
Security transactions (excluding short-term securities) 705,602
Foreign currency transactions 591
--------------------------------------------------------------------------------
Net Realized Gain 706,193
--------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation)
of Investments:
Beginning of period (1,281,749)
End of period 1,646,439
--------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 2,928,188
--------------------------------------------------------------------------------
Net Gain on Investments 3,634,381
--------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 3,561,747
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 13
<PAGE>
--------------------------------------------------------------------------------
Statements of Changes in Net Assets
--------------------------------------------------------------------------------
For the Six Months Ended April 30, 2000 (unaudited)
and the Year Ended October 31, 1999
2000 1999
================================================================================
OPERATIONS:
Net investment income (loss) $ (72,634) $ 18,905
Net realized gain (loss) 706,193 (318,093)
Increase in net unrealized appreciation 2,928,188 7,443,234
--------------------------------------------------------------------------------
Increase in Net Assets From Operations 3,561,747 7,144,046
--------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 50,793,128 195,787,393
Cost of shares reacquired (58,526,261) (214,496,322)
--------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share
Transactions (7,733,133) (18,708,929)
--------------------------------------------------------------------------------
Decrease in Net Assets (4,171,386) (11,564,883)
NET ASSETS:
Beginning of period 47,987,153 59,552,036
--------------------------------------------------------------------------------
End of period* $43,815,767 $47,987,153
================================================================================
* Includes accumulated net investment income
(loss) of: $(67,738) $4,896
================================================================================
See Notes to Financial Statements.
--------------------------------------------------------------------------------
14 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited)
--------------------------------------------------------------------------------
1. Significant Accounting Policies
Smith Barney Natural Resources Fund (Portfolio), a separate diversified,
open-end investment Portfolio of Smith Barney Sector Series Inc. ("Fund"), a
Maryland corporation, is registered under the Investment Company Act of 1940, as
amended. The Fund consists of this Portfolio and three other separate investment
portfolios: Smith Barney Financial Services Fund, Smith Barney Health Sciences
Fund and Smith Barney Technology Fund. The financial statements and financial
highlights for the other portfolios are presented in a separate shareholder
reports.
The significant accounting policies followed by the Portfolio are: (a) security
transactions are accounted for on trade date; (b) securities traded in national
securities markets are valued at the closing prices in the primary exchange on
which they are traded; securities listed or traded on certain foreign exchanges
or other markets whose operations are similar to the U.S. over-the-counter
market (including securities listed on exchanges where the primary market is
believed to be over-the-counter) and securities for which no sale was reported
on that date are valued at the mean between the bid and ask prices. Securities
which are listed or traded on more than one exchange or market are valued at the
quotations on the exchange or market determined to be the primary market for
such securities. Gold bullion is valued at the daily London afternoon fixing;
(c) securities for which market quotations are not available will be valued in
good faith at fair market value by or under the direction of the Board of
Directors; (d) securities maturing within 60 days are valued at cost plus
accreted discount, or minus amortized premium, which approximates value; (e) the
accounting records of the Portfolio 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 or expense
amounts recorded and collected or paid are adjusted when reported by the
custodian; (f) interest income, adjusted for amortization of premium and
accretion of discount, is recorded on an accrual basis; (g) dividend income is
recorded on the ex-dividend date; foreign dividends are recorded on the
ex-dividend date or as soon as practical after the Portfolio determines the
existence of a dividend declaration after exercising reasonable due diligence;
(h) dividends and distributions to shareholders are recorded on the ex-dividend
date; (i) gains or losses on the sale of securities are calculated by using the
specific identification method; (j) direct expenses are charged to each class;
management fees and general expenses are allocated on the basis of relative net
assets; (k) the character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. At October 31, 1999, reclassifications were made
to the Portfolios capital accounts to reflect permanent book/tax differences and
income and gains available for distributions under income tax regulations.
Accordingly, a portion of accumulated net realized loss amounting to $999,727
was reclassified to paid-in capital. Net investment income, net realized gains
and net assets were not affected by this adjustment; (l) the Portfolio 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.
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 15
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
In addition, the 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.
2. Management Agreement and Other Transactions
SSB Citi Fund Management LLC (SSBC), a subsidiary of Salomon Smith Barney
Holdings Inc. (SSBH) which in turn is a subsidiary of Citigroup Inc.
(Citigroup), acts as investment manager to the Portfolio. The Portfolio pays
SSBC a management fee calculated at an annual rate of 0.75% of the average daily
net assets. This fee is calculated daily and paid monthly.
Citi Fiduciary Trust Company (CFTC), another subsidiary of Citigroup, acts as
the Portfolios transfer agent and PFPC Global Fund Services (PFPC) acts as the
Portfolios sub-transfer agent. CFTC receives fees and asset-based fees that vary
according to the account size and type of account. PFPC is responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and is paid by CFTC. During the six months ended April 30, 2000, the Portfolio
paid transfer agent fees of $50,185 to CFTC.
CFBDS, Inc. (CFBDS) acts as the Portfolios distributor. Salomon Smith Barney
Inc. (SSB), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
SSB acts as the primary broker for its portfolio agency transactions. For the
six months ended April 30, 2000, SSB received brokerage commissions of $2,022.
There are maximum initial sales charges of 5.00% and 1.00% for Class A and L
shares, respectively. There is a contingent deferred sales charge (CDSC) of
5.00% on Class B shares, which applies if redemption occurs within one year from
initial purchase and declines thereafter by 1.00% per year until no CDSC is
incurred. Class L shares are being sold at net asset value plus a maximum
initial sales charge of 1.00%. Class L shares also have a 1.00% CDSC, which
applies if redemption occurs within the first year of purchase. In certain
cases, Class A shares have a 1.00% CDSC, which applies if redemption occurs
within the first year of purchase. This CDSC only applies to those purchases of
Class A shares, which, when combined with current holdings of Class A shares,
equal or exceed $500,000 in the aggregate. These purchases do not incur an
initial sales charge.
For the six months ended April 30, 2000, CDSCs paid to CFBDS and sales charges
received by SSB and CFBDS were approximately:
Class A Class B Class L
================================================================================
CDSCs -- $35,000 --
--------------------------------------------------------------------------------
Sales Charges $4,000 -- $5,000
================================================================================
Pursuant to a Distribution Plan, the Portfolio pays a service fee with respect
to Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets of each respective class. The Portfolio also pays a
distribution fee with respect to Class B and L shares calculated at an annual
rate of 0.75% of the average daily net assets for each class, respectively.
For the six months ended April 30, 2000, total Distribution Plan fees incurred
were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $26,449 $112,445 $14,490
================================================================================
All officers and one Director of the Fund are employees of SSB.
--------------------------------------------------------------------------------
16 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
3. Investments
During the six months ended April 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ 8,794,469
--------------------------------------------------------------------------------
Sales 17,086,788
================================================================================
At April 30, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 8,815,483
Gross unrealized depreciation (7,169,044)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 1,646,439
================================================================================
4. Futures Contracts
Initial margin deposits made upon entering into futures contracts are recognized
as assets. Securities equal to the initial margin amount are segregated by the
custodian in the name of the broker. Additional securities are also segregated
up to the current market value of the futures contract. During the period the
futures contract is open, changes in the value of the contract are recognized as
unrealized gains or losses by marking to market on a daily basis to reflect the
market value of the contract at the end of each days 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 Portfolio records a realized gain or loss equal
to the difference between the proceeds from (or cost of) the closing transaction
and the Funds basis in the contract.
The Portfolio enters into such contracts to hedge a portion of its portfolio.
The Portfolio bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At April 30, 2000, there were no open futures contracts.
5. Options Contracts
Premiums paid when put or call options are purchased by the Portfolio, represent
investments, which are marked-to-market daily and are included in the schedule
of investments. When a purchased option expires, the Portfolio will realize a
loss in the amount of the premium paid. When the Portfolio enters into a closing
sales transaction, the Portfolio will realize a gain or loss depending on
whether the proceeds from the closing sales transaction are greater or less than
the premium paid for the option. When the Portfolio exercises a put option, it
will realize a gain or loss from the sale of the underlying security and the
proceeds from such sale will be decreased by the premium originally paid. When
the Portfolio exercises a call option, the cost of the security which the
Portfolio purchases upon exercise will be increased by the premium originally
paid.
At April 30, 2000, the Portfolio had no open purchased call or put option
contracts.
When the Portfolio writes a covered call or put option, an amount equal to the
premium received by the Portfolio is recorded as a liability, the value of which
is marked-to-market daily. When a written option expires, the Portfolio realizes
a gain equal to the amount of the premium received. When the Portfolio enters
into a closing purchase transaction, the Portfolio realizes a gain or loss
depending upon whether the cost of the closing transaction is greater or less
than the premium originally received, without regard to any unrealized gain or
loss on the underlying security, and the liability related to such
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 17
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
option is eliminated. When a written call option is exercised, the cost of the
security sold will be decreased by the premium originally received. When a
written put option is exercised, the amount of the premium originally received
will reduce the cost of the security which the Portfolio purchased upon
exercise. When written index options are exercised, settlement is made in cash.
The risk associated with purchasing options is limited to the premium originally
paid. The Portfolio enters into options for hedging purposes. The risk in
writing a covered call option is that the Portfolio gives up the opportunity to
participate in any increase in the price of the underlying security beyond the
exercise price. The risk in writing a put option is that the Portfolio is
exposed to the risk of loss if the market price of the underlying security
declines.
During the six months ended April 30, 2000, the Portfolio did not write any
covered call or put options.
6. Lending of Portfolio Securities
The Portfolio has an agreement with its custodian whereby the custodian may lend
securities owned by the Portfolio to brokers, dealers and other financial
organizations. Fees earned by the Portfolio on securities lending are recorded
as interest income. Loans of securities by the Portfolio are collateralized by
cash, U.S. government securities or high quality money market instruments that
are maintained at all times in an amount at least equal to the current market
value of the loaned securities, plus a margin depending on the type of
securities loaned. The custodian establishes and maintains the collateral in a
segregated account. The Portfolio maintains exposure for the risk of any losses
in the investment of amounts received as collateral.
At April 30, 2000, the Portfolio loaned common stock having a value of
$3,930,705 and holds the following collateral for loaned securities.
Security Description Value
================================================================================
Time Deposits:
Abbey National, London, 6.080% due 5/2/00 $ 205,072
ABN AMRO Bank, London, 6.080% due 5/2/00 205,072
Allied Irish, London, 6.080% due 5/2/00 205,072
Banco Bilbao Viz Argentaria, Milan, 6.080% due 5/2/00 205,072
Banco Santander CH SA-London, 6.063% due 5/1/00 205,072
Bayerische Hypo-Und Vereinsbk, GC., 6.06% due 5/1/00 205,072
Bayerische Landesbank, London, 6.080% due 5/2/00 205,072
Caisse de Depots et Consign., Paris, 6.063% due 5/1/00 205,072
Commerzbank AG, Frankfurt, 6.080% due 5/2/00 205,072
Credit Commerciale, London, 6.120% due 5/2/00 205,071
Credit Communal de Belgique, 6.063% due 5/1/00 205,071
Dresdner Bank, 6.080% due 5/1/00 205,071
Fortis Bank, London, 6.080% due 5/2/00 205,071
Halifax, 6.080% due 5/2/00 205,071
National Bank of Australia, London, 6.080% due 5/2/00 205,071
Rabobank, London, 6.080% due 5/2/00 205,071
Societe Generale, 6.094% due 5/2/00 205,071
Toronto Dominion-London, 6.080% due 5/2/00 205,071
Unibank G.C., 6.063% due 5/1/00 106,365
Union Bank of Switzerland, G.C., 6.063% due 5/1/00 61,097
Westdeutsche Landesbank, London, 6.063% due 5/1/00 205,071
--------------------------------------------------------------------------------
Total $4,063,820
================================================================================
Income earned from securities lending for the six months ended April 30, 2000
was $3,927.
7. Repurchase Agreements
The Portfolio purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Portfolio requires continual
maintenance of the market value of the collateral in amounts at least equal to
the repurchase price.
8. Concentration of Risk
The Portfolio also intends to invest at least 65% of its assets in natural
resource-related investments. As a result of this concentration policy, which is
a fundamental policy of the Portfolio, the Portfolios investment may be subject
to greater risk and market fluctuation than a fund that invests in securities
representing a broader range of investment alternatives.
--------------------------------------------------------------------------------
18 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Notes to Financial Statements (unaudited) (continued)
--------------------------------------------------------------------------------
The Portfolios investments in foreign securities may involve risks not present
in domestic investments. Since securities may be denominated in a foreign
currency and may require settlement in foreign currencies and pay interest or
dividends in foreign currencies, changes in the relationship of these foreign
currencies to the U.S. dollar can significantly affect the value of these
investments and earnings of the Portfolio. Foreign investments may also subject
the Fund to foreign government exchange restrictions, expropriation, taxation or
other political, social or economic developments, all of which could affect the
market and/or credit risk of the investments.
9. Capital Loss Carryforward
At October 31, 1999, the Portfolio had, for Federal income tax purposes,
approximately $15,076,000 of capital loss carryforwards available to offset any
future realized capital gains. To the extent that these carryforward losses are
used to offset capital gains, it is probable that the gains so offset will not
be distributed. The amount and year of the expiration for each carryforward loss
is indicated below:
2000 2006 2007
================================================================================
Carryforward Amounts $1,320,000 $12,873,000 $883,000
================================================================================
10. Capital Shares
At April 30, 2000, the Fund had three billion shares of capital stock authorized
with a par value of $0.001 per share. The Portfolio has the ability to issue
multiple classes of shares. Each share of a class represents an identical
interest in the Portfolio and has the same rights, except that each class bears
certain expenses specifically related to the distribution of its shares.
At April 30, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L
================================================================================
Total Paid-in Capital $36,138,653 $17,577,366 $3,131,662
================================================================================
Transactions in shares of each class were as follows:
Six Months Ended Year Ended
April 30, 2000 October 31, 1999
-------------------------- -------------------------
Shares Amount Shares Amount
================================================================================
Class A
Shares sold 2,319,024 $ 45,637,821 9,164,942 $ 173,366,391
Shares reacquired (2,451,885) (48,444,998) (9,687,078) (183,016,775)
--------------------------------------------------------------------------------
Net Decrease (132,861) $ (2,807,177) (522,136) $ (9,650,384)
================================================================================
Class B
Shares sold 175,681 $ 3,383,217 1,093,758 $ 20,260,718
Shares reacquired (428,981) (8,137,425) (1,606,176) (28,799,467)
--------------------------------------------------------------------------------
Net Decrease (253,300) $ (4,754,208) (512,418) $ (8,538,749)
================================================================================
Class L
Shares sold 95,308 $ 1,772,090 119,290 $ 2,160,284
Shares reacquired (105,019) (1,943,838) (148,607) (2,680,080)
--------------------------------------------------------------------------------
Net Decrease (9,711) $ (171,748) (29,317) $ (519,796)
================================================================================
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 19
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31, except where noted:
<TABLE>
<CAPTION>
Class A Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996(2) 1995
=================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $18.85 $16.56 $23.23 $22.95 $16.50 $21.44
--------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) 0.00* 0.05 (0.01) (0.12) 0.08 (0.23)#
Net realized and unrealized gain (loss) 1.48 2.24 (6.50) 0.73 6.37 (4.71)
--------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.48 2.29 (6.51) 0.61 6.45 (4.94)
--------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.33) -- --
Net realized gains -- -- (0.16) -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.16) (0.33) -- --
--------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $20.33 $18.85 $16.56 $23.23 $22.95 $16.50
--------------------------------------------------------------------------------------------------------------------------------
Total Return 7.85%++ 13.83% (28.13)% 2.67% 39.09% (23.04)%
--------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $20,016 $21,069 $27,147 $45,488 $50,521 $27,884
--------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.76%+ 1.73% 1.57% 1.51% 1.62% 1.99%
Net investment income (loss) 0.04+ 0.27 (0.05) (0.32) 0.15 (1.46)
--------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 133% 151% 101% 120% 40%
=================================================================================================================================
</TABLE>
(1) For the six months ended April 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* Amount represents less than $0.01 per share.
# Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
20 2000 Semi-Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31, except where noted:
<TABLE>
<CAPTION>
Class B Shares 2000(1)(2) 1999(2) 1998(2) 1997 1996(2) 1995
==================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $18.15 $16.00 $22.60 $22.32 $16.15 $21.14
----------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.06) (0.03) (0.13) (0.27) (0.09) (0.22)*
Net realized and unrealized gain (loss) 1.41 2.18 (6.31) 0.70 6.26 (4.77)
----------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.35 2.15 (6.44) 0.43 6.17 (4.99)
----------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.15) -- --
Net realized gains -- -- (0.16) -- -- --
----------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.16) (0.15) -- --
----------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $ 19.50 $ 18.15 $ 16.00 $ 22.60 $ 22.32 $ 16.15
----------------------------------------------------------------------------------------------------------------------------------
Total Return 7.44% 13.44% (28.61)% 1.95% 38.20% (23.60)%
----------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $20,784 $23,937 $29,309 $66,819 $73,969 $25,747
----------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.43% 2.42% 2.23% 2.18% 2.29% 2.62%
Net investment loss (0.61) (0.17) (0.71) (0.99) (0.83) (2.11)
----------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 133% 151% 101% 120% 40%
==================================================================================================================================
</TABLE>
(1) For the six months ended April 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 21
<PAGE>
--------------------------------------------------------------------------------
Financial Highlights (continued)
--------------------------------------------------------------------------------
For a share of each class of capital stock outstanding throughout each year
ended October 31, except where noted:
<TABLE>
<CAPTION>
Class L Shares 2000(1)(2) 1999(2) 1998(2)(3) 1997 1996(2) 1995(4)
================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $18.20 $16.03 $22.62 $22.32 $16.16 $20.63
--------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.05) (0.02) (0.12) (0.23) 0.05 (0.29)*
Net realized and unrealized gain (loss) 1.41 2.19 (6.31) 0.68 6.11 (4.18)
--------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 1.36 2.17 (6.43) 0.45 6.16 (4.47)
--------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.15) -- --
Net realized gains -- -- (0.16) -- -- --
--------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.16) (0.15) -- --
--------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Period $19.56 $18.20 $16.03 $22.62 $22.32 $16.16
--------------------------------------------------------------------------------------------------------------------------------
Total Return 7.47%++ 13.54% (28.54)% 2.04% 38.12% (21.67)%++
--------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Period (000s) $3,016 $2,981 $3,096 $6,393 $7,602 $572
--------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.35%+ 2.33% 2.17% 2.12% 2.25% 2.69%+
Net investment loss (0.56)+ (0.09) (0.63) (0.92) (0.21) (1.97)+
--------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 19% 133% 151% 101% 120% 40%
================================================================================================================================
</TABLE>
(1) For the six months ended April 30, 2000 (unaudited).
(2) Per share amounts have been calculated using the monthly average shares
method.
(3) On June 12, 1998, Class C shares were renamed Class L shares.
(4) For the period from November 7, 1994 (inception date) to October 31, 1995.
* Includes realized gains and losses from foreign currency transactions.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
22 2000 Semi-Annual Report to Shareholders
<PAGE>
(This page intentionally left blank.)
<PAGE>
(This page intentionally left blank.)
<PAGE>
Smith Barney
Natural Resources Fund
Directors
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr.
James J. Crisona, Emeritus
Officers
Heath B. McLendon
President and Chief Executive Officer
Lewis E. Daidone
Senior Vice President and Treasurer
John G. Goode
Vice President and Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
Investment Manager
SSB Citi Fund Management LLC
Distributor
CFBDS, Inc.
Custodian
The Chase Manhattan Bank, N.A.
Transfer Agent
Citi Fiduciary Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
Sub-Transfer Agent
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of shareholders of Smith
Barney Sector Series Inc. Smith Barney Natural Resources Fund, but it may also
be used as sales literature when proceeded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Portfolio. If used as sales material after July
31, 2000, this report must be accompanied by performance information for the
most recently completed calendar quarter.
[LOGO OF SALOMON SMITH BARNEY]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
Smith Barney Natural
Resources Fund
388 Greenwich Street, MF-2
New York, New York 10013
www.smithbarney.com/mutual funds
FD0299 6/00
<PAGE>
[LOGO]
SMITH BARNEY
SECTOR SERIES INC.
TECHNOLOGY
FUND
RESEARCH SERIES
SEMI-ANNUAL REPORT
APRIL 30, 2000
[LOGO]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
SMITH BARNEY
SECTOR SERIES INC. --
TECHNOLOGY FUND
================================================================================
The Smith Barney Technology Fund seeks long-term capital appreciation by
investing primarily in common stocks of companies principally engaged in
offering, using or developing products, processes or services that will provide
or will benefit significantly from technological advances and improvements.
SMITH BARNEY TECHNOLOGY FUND*
TOTAL RETURNS APRIL 30, 2000 (UNAUDITED)
WITHOUT SALES CHARGES(1)
--------------------------------------------------------------------------------
CLASS A CLASS B CLASS L
================================================================================
Since Inception (1.93)% (2.02)% (2.02)%
(February 28, 2000)**
================================================================================
WITH SALES CHARGES(2)
--------------------------------------------------------------------------------
CLASS A CLASS B CLASS L
================================================================================
Since Inception (6.83)% (6.92)% (3.00)%
(February 28, 2000)**
================================================================================
* Since the fund focuses its investments on companies involved in technology,
an investment in the fund may involve a greater degree of risk than an
investment in other mutual funds with greater diversification.
** Not Annualized.
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the
applicable sales charges with respect to Class A and L shares or the
applicable contingent deferred sales charges ("CDSC") with respect to Class
B and L shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and L shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase. This CDSC
declines by 1.00% the first year after purchase and thereafter by 1.00% per
year until no CDSC occurs after 5 years. Class L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
--------------------------------------------------------------------------------
FUND HIGHLIGHT
--------------------------------------------------------------------------------
THE SMITH BARNEY SECTOR SERIES INC. MAY BE AN OPPORTUNE WAY TO EXTEND YOUR CORE
PORTFOLIO AND TO PARTICIPATE IN EXCITING SECTOR INVESTING OPPORTUNITIES. AS PART
OF A WELL-DIVERSIFIED PORTFOLIO OF INVESTMENTS, SMITH BARNEY TECHNOLOGY FUND
GIVES YOU ACCESS TO A BROAD RANGE OF COMPANIES WITHIN THE DYNAMIC TECHNOLOGY
SECTOR.
--------------------------------------------------------------------------------
NASDAQ Symbols
--------------------------------------------------------------------------------
CLASS A SBTAX
CLASS B SBTBX
CLASS L SBQLX
--------------------------------------------------------------------------------
WHAT'S INSIDE
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER LETTER........................................ 1
FUND AT A GLANCE.......................................... 4
SCHEDULE OF INVESTMENTS................................... 5
STATEMENT OF ASSETS AND LIABILITIES....................... 8
STATEMENT OF OPERATIONS................................... 9
STATEMENT OF CHANGES IN NET ASSETS........................ 10
NOTES TO FINANCIAL STATEMENTS............................. 11
FINANCIAL HIGHLIGHTS...................................... 14
</TABLE>
<PAGE>
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
[PHOTO]
HEATH B. MCLENDON
Chairman
DEAR SHAREHOLDER:
We are pleased to provide the inaugural semi-annual report for the Smith Barney
Sector Series Inc. -- Smith Barney Technology Fund ("Fund") for the period from
February 28, 2000 through April 30, 2000. In this report, we have described the
Portfolio Manage-ment team's philosophy and investment approach, as well as
outlined the Fund's investment strategy during this brief period. A detailed
summary of performance and current holdings can be found in the sections that
follow. We hope you find this report useful and informative.
PERFORMANCE UPDATE*
Since its inception (February 28, 2000) through April 30, 2000, the Fund's Class
A, B and L shares generated negative returns of 1.93%, 2.02% and 2.02%,
respectively, without the effects of sales charges. In comparison, the Goldman
Sachs Technology Index** returned a negative 4.69% for the same time period.
A RIGOROUS, RESEARCH-BASED INVESTMENT APPROACH
Citibank N.A., through its Citibank Global Asset Management ("CGAM") division,
an affiliate of SSB Citi Fund Management LLC, is the subadviser of the Fund.
CGAM, with its affiliates, currently manages more than $351 billion in assets
worldwide, as of March 31, 2000, for high-net-worth individuals, mutual funds
and other major institutional clients.
--------------------------------------------------------------------------------
* Past performance is not indicative of future results.
** The Goldman Sachs Technology Index is a broad-based measure of U.S.-traded
technology stocks. The Index is comprised of six subindexes -- hardware,
computer software, services, semi-conductors, Internet and multimedia
networking.
The Fund's management team is made up of a high-quality, seasoned group of
investment and research professionals who follow a systematic and rigorous
investment approach designed to provide appropriate exposure to various
industries within the financial services sector. CGAM's exhaustive fundamental
research evaluates a global universe of businesses in its quest to identify
attractive investment opportunities.
A THREE-STEP RESEARCH PROCESS
--------------------------------------------------------------------------------
FUNDAMENTAL ------ QUANTITATIVE ------ ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
--------------------------------------------------------------------------------
CGAM applies a proprietary, systematic, risk-conscious approach to investing.
The team's investment process combines fundamental research, quantitative
research and active portfolio management to create portfolios that they think
should generate competitive returns while helping to moderate risk.
In their view, there is no substitute for in-depth analysis, which can provide a
significant edge in understanding company fundamentals. (Of course, no
assurances can be made that CGAM's approach will ultimately be successful.) CGAM
is committed to thorough fundamental analysis and careful quantitative research
in their global search for investment opportunities.
The team's fundamental, proprietary research adds value to their active
portfolio management by providing timely and unbiased information to their
decision-making processes. The Fund's team conducts on-site company visits and
exhaustive research to uncover the companies that they think possess:
. superior products or services
. outstanding managements
. solid balance sheets
. market leadership
. driving innovation
In the management team's opinion, these are the strengths that can create value
and lead to earnings and sales growth, which drive stock prices.
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 1
<PAGE>
THE CGAM RESEARCH PROCESS
CGAM differentiates itself from the traditional approach to investment
management in a number of ways that they think can add value to clients'
portfolios. Their management style can best be described as disciplined, yet
flexible. Their formidable global presence enables them to maintain localized
research teams with direct access to the regions and industries where they
conduct business. The CGAM Research organization is centered on a team-approach
to stock -research and selection-with approximately 73 industry analysts-located
worldwide in New York, London, Tokyo, Singapore and Melbourne, covering hundreds
of companies and working closely together both within and across industry teams
in a seamless fashion.
Each equity analyst builds intensive, detailed company models from the ground up
that anticipate a particular company's financial performance. These models are
based on the company's competitive position in the industry, product offerings,
costs and risk position. These intensive models detail the analyst's assumptions
for potential profitability for the company going forward and provides some of
the necessary inputs to forecast company fundamentals and make stock
recommendations. The research team looks to ensure consistency in industry and
accounting assumptions which allows for better comparisons of earnings
forecasts.
A common valuation framework-based on the Dividend Discount Model ("DDM") allows
for estimation of returns to fair value. Simply stated, the DDM compares a
company's future discounted dividend stream to its current stock price. CGAM
believes this is a valuable and consistent method to provide current valuations
to securities. The DDM-based valuation process, in their view, provides a common
yardstick that helps analysts and portfolio managers compare the relative
valuation of one company's stock to another. The equity analyst then combines
the DDM valuation together with other fundamental factors such as earnings
surprises to come up with the investment rating on a company's stock.
The chart below shows CGAM's research process for this Fund.
CGAM'S RESEARCH PROCESS AT A GLANCE
--------------------------------
UNIVERSE OF STOCKS
Global Research Coverage
--------------------------------
|
|
--------------------------------
COMPOSITE SIGNAL
Analysts' Ratings
Valuation Models
Momentum/Growth Models
--------------------------------
|
|
--------------------------------
RANKINGS
Determine candidates for
portfolio construction
--------------------------------
================================
Style-neutral, unbiased research
is the management team's primary
input in building the portfolio.
================================
UNCOVERING OPPORTUNITIES IN THE TECHNOLOGY SECTOR --
BRINGING CHANGE AND INNOVATION TO LIFE
COMPUTER INDUSTRY ALMANAC, a leading computer trade publication, predicts
worldwide Internet use will grow 119% between 2000 and 2005.
Technological innovation is a driving force behind both the American and global
economies. Faster, stronger, profoundly more powerful products and ideas are
transforming the way we live. As technology continues to move forward, investors
can participate in some of the companies that drive the global marketplace.
. INCREASED DEMAND FOR TECHNOLOGY The demand for technology has consistently
increased as consumers and businesses are recognizing technology's important
role in today's ever-changing economic climate. In 1999, businesses spent
close to $550 billion on technology, double the amount spent in 1995.
(Source: U.S. Department of Commerce)
. DOMINANT PLAYER IN U.S. ECONOMY As the global economy continues to embrace,
and become dependent upon, technology, this market sector will continue to be
a leading segment of the U.S. economy.
--------------------------------------------------------------------------------
2 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
. OPPORTUNITIES FOR POTENTIAL GROWTH The technology sector has provided
investors with enormous growth opportunities and accounts for approximately
25% of the Standard & Poor's 500 Index, is a market capitalization-weighted
measure of 500 widely held common stocks. (Past performance is not indicative
of future results.)
PORTFOLIO MANAGEMENT
Following this disciplined research process, analysts determine ratings for
stocks based on stringent and precise investment criteria. From this universe of
stocks, the Fund's management team can strategically construct a portfolio
designed to meet the Fund's specific investment objectives.
The team looks for "good companies at a great price, or great companies at a
good price." Analysts ratings are combined with earnings momentum and valuation
models to rank stocks by their relative attractiveness. The stocks are then
subject to disciplined portfolio construction to ensure appropriate risk-
adjusted returns relative to a particular benchmark.
CGAM's disciplined portfolio construction process looks to control factor (i.e.,
industry, size, style) exposures with the objective of managing risk, focusing
on stock selection as the major source of competitive returns versus the
benchmark.
CGAM believes that the quality of information generated by their proprietary and
global research process may produce consistently competitive results over time
versus the benchmark. (Of course, past performance is not indicative of future
results.)
Thank you for investing in the Smith Barney Sector Series Inc.-- Smith Barney
Technology Fund. We look forward to helping you pursue your financial goals in
years ahead.
Sincerely,
/s/ Heath B. McLendon
---------------------
HEATH B. MCLENDON
Chairman
MAY 2, 2000
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 3
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND AT A GLANCE (UNAUDITED)
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
SMITH BARNEY TECHNOLOGY FUND VS. GOLDMAN SACHS TECHNOLOGY INDEX
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS)-- APRIL 30, 2000
GROWTH OF $10,000 INVESTMENT
A $10,000 investment in the Fund made on 2/28/00 would have declined to $9,317
with sales charge (as of 4/30/00). The graph shows how the Fund compares to its
benchmark for the same period.
[The following table represents a line chart in the printed piece.]
Smith Barney Goldman Sachs
Technology Fund Technology
Class A Index*
-----------------------------------------
2/28/00 $ 9500 $10000
3/31/00 10042 10442
4/28/00 9317 9531
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the index) and assumes all dividends and distributions are reinvested
at Net Asset Value.
* The Goldman Sachs Technology Index is a broad-based measure of U.S.-traded
technology stocks. The Index is comprised of six subindexes -- computer
hardware, computer software, services, semi-conductors, Internet and
multimedia networking.
TOP TEN COMMON STOCK HOLDINGS*
------------------------------------------------------------------
Cisco Systems Inc. 9.8%
------------------------------------------------------------------
Intel Corp. 8.7
------------------------------------------------------------------
International Business Machines Corp. 5.5
------------------------------------------------------------------
Lucent Technologies Inc. 4.2
------------------------------------------------------------------
Oracle Corp. 4.1
------------------------------------------------------------------
Microsoft Corp. 4.0
------------------------------------------------------------------
EMC Corp. 3.7
------------------------------------------------------------------
Nortel Networks Corp. 3.1
------------------------------------------------------------------
Sun Microsystems Inc. 3.0
------------------------------------------------------------------
America Online Inc. 3.0
------------------------------------------------------------------
* As a percentage of total investments.
PORTFOLIO BREAKDOWN*
--------------------------------------------------------------------------------
[The following table represents a pie chart in the printed piece.]
2.6% Discount Note
19.2% Semiconductors
0.4% Catalog/Specialty Distribution
0.4% Other Consumer Services
0.6% Diversified Commercial Services
0.9% Diversified Electronic Products
1.0% Electronic Components
3.6% EDP Services
4.9% Electronic Production Equipment
5.8% EDP Peripherals
8.0% Internet Services
10.5% Computer Communications
12.7% Computer Software
13.7% Telecommunications Equipment
15.7% Electronic Data Processing
--------------------------------------------------------------------------------
4 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
COMMON STOCK-- 97.4%
CATALOG/SPECIALTY DISTRIBUTION -- 0.4%
12,476 Amazon.com, Inc. (a) $ 688,519
--------------------------------------------------------------------------------
COMPUTER COMMUNICATIONS -- 10.5%
237,921 Cisco Systems Inc. (a) 16,494,617
5,554 Jupiter Networks Inc. (a) 1,181,266
--------------------------------------------------------------------------------
17,675,883
--------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 12.7%
4,827 Check Point Software Technologies Corp. (a) 835,071
9,037 Citrix Systems Inc. (a) 551,822
25,539 Computer Associates International Inc. 1,425,395
48,020 Compuware Corp. (a) 603,252
41,623 J.D. Edwards & Co. (a) 759,620
5,694 I2 Technologies Inc. (a) 735,950
96,103 Microsoft Corp. (a) 6,703,184
86,012 Oracle Corp. (a) 6,875,584
46,126 Peoplesoft Inc. (a) 642,881
6,421 Siebel Systems Inc. (a) 788,980
13,366 VERITAS Software Corp. (a) 1,433,712
--------------------------------------------------------------------------------
21,355,451
--------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES -- 0.6%
49,360 Concord EFS Inc. (a) 1,104,430
--------------------------------------------------------------------------------
DIVERSIFIED ELECTRONIC PRODUCTS -- 0.9%
15,185 JDS Uniphase Corp. (a) 1,574,495
--------------------------------------------------------------------------------
ELECTRONIC COMPONENTS -- 1.0%
3,374 E-Tek Dynamics Inc. (a) 690,826
20,584 Solectron Corp. (a) 963,588
--------------------------------------------------------------------------------
1,654,414
--------------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING -- 15.7%
6,782 Apple Computer, Inc. (a) 841,393
59,437 Compaq Computer Corp. 1,738,532
68,610 Dell Computer Corp. (a) 3,439,076
10,688 Gateway Inc. (a) 590,512
35,775 Hewlett Packard Co. 4,829,625
83,356 International Business Machines Corp. 9,304,613
55,359 Sun Microsystems Inc. (a) 5,089,568
30,944 Unisys Corp. (a) 717,514
--------------------------------------------------------------------------------
26,550,833
--------------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING PERIPHERALS -- 5.8%
44,786 EMC Corp. (a) 6,222,456
9,500 Lexmark International Group Inc. (a) 1,121,000
10,666 Network Appliance Inc. (a) 788,618
31,052 Storage Technology Corp. (a) 403,676
20,822 Symbol Technologies Inc. 1,160,826
--------------------------------------------------------------------------------
9,696,576
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 5
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING SERVICES -- 3.6%
19,311 Automatic Data Processing, Inc. $ 1,039,173
18,360 BEA Systems Inc. (a) 885,870
21,949 Electronic Data Systems Corp. 1,508,994
47,298 First Data Corp. 2,302,821
16,107 MarchFirst Inc. (a) 343,280
--------------------------------------------------------------------------------
6,080,138
--------------------------------------------------------------------------------
ELECTRONIC PRODUCTION EQUIPMENT -- 4.9%
19,954 ASM Lithography Holdings (a) 798,161
37,189 Applied Materials Inc. (a) 3,786,305
10,040 KLA Tencor Corp. (a) 751,745
16,869 LAM Research Corp. (a) 773,865
16,431 Novellus Systems Inc. (a) 1,095,742
9,144 Teradyne Inc. (a) 1,005,840
--------------------------------------------------------------------------------
8,211,658
--------------------------------------------------------------------------------
INTERNET SERVICES -- 8.0%
83,215 America Online Inc. (a) 4,977,297
7,018 Ariba Inc. (a) 520,648
14,292 Broadvision Inc. (a) 627,955
9,367 CMG Information Services Inc. (a) 667,399
9,736 Commerce One Inc. (a) 594,505
6,389 Exodus Communications Inc. (a) 565,027
10,569 Infospace Communications Inc. (a) 758,986
4,298 Inktomi Corp. (a)661,623
9,998 Internet Capital Group Inc. (a) 423,665
4,496 VeriSign Inc. (a) 626,630
12,710 Vignette Corp. (a) 612,463
18,503 Yahoo! Inc. (a) 2,410,016
--------------------------------------------------------------------------------
13,446,214
--------------------------------------------------------------------------------
OTHER CONSUMER SERVICES -- 0.4%
4,576 Ebay, Inc. (a) 728,442
--------------------------------------------------------------------------------
SEMI-CONDUCTORS -- 19.2%
9,069 Altera Corp. (a) 927,306
11,601 Analog Devices Inc. (a) 891,102
6,062 Applied Micro Circuits Corp. (a) 781,240
4,157 Broadcom Corp. (a) 716,563
10,522 Conexant Systems Inc. (a) 630,005
115,986 Intel Corp. 14,708,475
10,774 LSI Logic Corp. (a) 673,375
15,014 Linear Technology Corp. 857,675
11,715 Maxim Integrated Products Inc. (a) 759,278
16,142 Microchip Technology Inc. (a) 1,001,813
8,789 Micron Technology Inc. (a) 1,223,868
4,474 PMC Sierra Inc. (a) 858,449
3,976 SDL Inc. (a) 775,320
10,461 STmicroelectronics NV 1,984,321
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
6 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
SEMI-CONDUCTORS -- 19.2% (CONTINUED)
25,628 Texas Industries Inc. $ 4,174,160
8,341 Vitesse Semicondutor Corp. (a) 567,709
10,427 Xilinx Inc. (a) 763,778
--------------------------------------------------------------------------------
32,294,437
--------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 13.7%
14,845 ADC Telecommunications Inc. (a) 901,834
5,925 Ciena Corp. (a) 732,478
8,561 Comverse Technology Inc. (a) 763,534
8,416 Corning Inc. 1,662,160
113,634 Lucent Technologies Inc. 7,066,614
21,968 Motorola Inc. 2,615,565
46,052 Nortel Networks Corp. 5,215,389
27,691 Qualcomm Inc. (a) 3,002,743
13,946 Tellabs Inc. (a) 764,415
10,816 3Com Corp. (a) 426,556
--------------------------------------------------------------------------------
23,151,288
--------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Identified Cost-- $171,635,055) 164,212,778
--------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
--------------------------------------------------------------------------------
DISCOUNT NOTE-- 2.6%
$4,438,000 First Union National Bank, 5.84% due 5/1/00;
Proceeds at maturity -- $4,440,160; (Fully
collateralized by Federal Home Loan Bank, 7.52%
due 8/24/04; Market value -- $4,449,095)
(Identified Cost -- $4,438,000) 4,438,000
--------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Identified Cost -- $176,073,055) $168,650,778
--------------------------------------------------------------------------------
(a) NON-INCOME PRODUCING SECURITY.
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 7
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $176,073,055) $168,650,778
Cash 486
Receivable for Fund securities sold 3,090,342
Dividends and interest receivable 6,807
Other receivables 93
--------------------------------------------------------------------------------
TOTAL ASSETS 171,748,506
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 4,127,648
Payable for Fund shares purchased 50,646
Accrued expenses and other liabilities 303,656
--------------------------------------------------------------------------------
TOTAL LIABILITIES 4,481,950
--------------------------------------------------------------------------------
TOTAL NET ASSETS $ 167,266,556
--------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 14,970
Capital paid in excess of par value 175,119,450
Accumulated net investment loss (358,855)
Accumulated net realized loss from security transactions (86,732)
Net unrealized depreciation of investments (7,422,277)
--------------------------------------------------------------------------------
TOTAL NET ASSETS $ 167,266,556
--------------------------------------------------------------------------------
SHARES OUTSTANDING:
Class A 3,438,842
--------------------------------------------------------------------------------
Class B 6,049,977
--------------------------------------------------------------------------------
Class L 5,481,263
--------------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $11.18
--------------------------------------------------------------------------------
Class B * $11.17
--------------------------------------------------------------------------------
Class L ** $11.17
--------------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $11.77
--------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $11.28
--------------------------------------------------------------------------------
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed less than one year from initial purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
8 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000
INVESTMENT INCOME:
Interest $ 91,627
Dividends 12,563
Less: Foreign withholding tax (235)
--------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 103,955
--------------------------------------------------------------------------------
EXPENSES:
Management fees(Note 2) 201,616
Distribution fees (Note 2) 173,967
Custody fees 42,200
Registration fees 36,888
Shareholder communications 10,000
Audit fees 8,000
Legal fees 7,500
Directors' fees 853
Other 26,805
--------------------------------------------------------------------------------
TOTAL EXPENSES 507,829
Less: aggregate amount waived by the Manager (Note 2) (45,019)
--------------------------------------------------------------------------------
NET EXPENSES 462,810
--------------------------------------------------------------------------------
NET INVESTMENT LOSS (358,855)
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From:
Security transactions (excluding short-term securities) (86,732)
--------------------------------------------------------------------------------
NET REALIZED LOSS (86,732)
--------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of Investments:
Beginning of period --
End of period (7,422,277)
--------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED DEPRECIATION (7,422,277)
--------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (7,509,009)
--------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS $(7,867,864)
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 9
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000
OPERATIONS:
Net investment loss $ (358,855)
Net realized loss (86,732)
Increase in net unrealized depreciation (7,422,277)
--------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS (7,867,864)
--------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 179,293,586
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (4,159,166)
--------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 175,134,420
--------------------------------------------------------------------------------
INCREASE IN NET ASSETS 167,266,556
NET ASSETS:
Beginning of period --
--------------------------------------------------------------------------------
END OF PERIOD* $ 167,266,556
--------------------------------------------------------------------------------
* Includes accumulated net investment loss of: $ (358,855)
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
10 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Technology Fund ("Fund"), a separate series of the Smith Barney
Sector Series Inc., a Maryland corporation, is registered under the Investment
Company Act of 1940, as amended, as a non-diversified, open-end management
investment company. On February 28, 2000, the Fund commenced operations.
The significant accounting policies followed by the Fund are: (a) security
transactions are accounted for on trade date; (b) securities traded in national
securities markets are valued at the closing prices in the primary exchange on
which they are traded; securities listed or traded on certain foreign exchanges
or other markets whose operations are similar to the U.S. over-the-counter
market (including securities listed on exchanges where the primary market is
believed to be over-the-counter) and the securities for which no sale was
reported on that date are valued at the mean between the bid and ask prices.
Securities which are listed or traded on more than one exchange or market are
valued at the quotations on the exchange or market determined to be the primary
market for such securities; (c) securities for which market quotations are not
available will be valued in good faith at fair market value by or under the
direction of the Board of Directors; (d) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (e) the accounting records of the Fund are maintained in
U.S. dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income or expense amounts recorded and collected or paid are adjusted
when reported by the custodian; (f) interest income, adjusted for amortization
or premium and accretion of discount, is recorded on an accrual basis; (g)
dividend income is recorded on the ex-dividend date; foreign dividends are
recorded on the ex-dividend date or as soon as practical after the Fund
determines the existence of a dividend declaration after exercising reasonable
due diligence; (h) dividends and distributions to shareholders are recorded on
the ex-dividend date; (i) gains or losses on the sale of securities are
calculated by using the specific identification method; (j) direct expenses are
charged to each class; management fees and general expenses are allocated on the
basis of relative net assets; (k) the character of income and gains to be
distributed are determined in accordance with income tax regulations, which may
differ from generally accepted accounting principles; (l) the Fund intends to
comply with the requirements of the Internal Revenue Code of 1986, as amended,
pertaining to regulated investment companies and to make distributions of
taxable income sufficient to relieve it from substantially all Federal income
and excise taxes; and (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 economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
In addition, the Fund may enter into forward exchange contracts in order to
hedge against foreign currency risk. These contracts are marked-to-market daily,
by recognizing the difference between the contract exchange rate and the current
market rate as an unrealized gain or loss. Realized gains or losses are
recognized when contracts are settled.
2. MANAGEMENT AGREEMENT AND
OTHER TRANSACTIONS
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBCFund Management
Inc., a subsidiary of Salomon Smith Barney Holdings Inc. ("SSBH"),
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 11
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
which, in turn, is a subsidiary of Citigroup Inc. ("Citigroup"), acts as
investment manager to the Fund. The management fee is computed at an annual rate
of 0.95% of the average daily net assets. SSBC has delegated the daily
management of the Fund to Citibank N.A., (the SubAdviser), an affiliate of SSBC.
For services provided to the Fund, the manager pays the Subadviser a subadvisory
fee computed at an annual rate of 0.65% of the Fund's average daily net assets.
The management fees paid amounted to $201,614, of which $45,019 was waived for
the period ended April 30, 2000.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
Citi Fiduciary Trust Company ("CFTC"), another subsidiary of Citigroup, acts as
the Fund's transfer agent and PFPCGlobal Fund Services ("PFPC")acts as the
Fund's sub-transfer agent. CFTC receives fees and asset-based fees that vary
according to the account size and type of account. PFPC is responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and is paid by CFTC. For the period ended April 30, 2000, the Fund paid transfer
agent fees of $11,822 to CFTC.
There is a maximum initial sales charge of 5.00% and 1.00% for Class A shares
and L shares, respectively. There is a contingent deferred sales charge ("CDSC")
of 5.00% on Class B shares, which applies if redemption occurs within one year
from initial purchase and declines thereafter by 1.00% per year until no CDSC is
incurred. Class L shares are being sold at net asset value plus a maximum
initial sales charge of 1.00%. Class L shares also have a 1.00% CDSC, which
applies if redemption occurs within the first year of purchase.
For the period ended April 30, 2000, CDSCs paid to CFBDS and sales charges
received by SSB and CFBDS were approximately:
CLASS A CLASS B CLASS L
--------------------------------------------------------------------------------
CDSCs -- $5,000 $ 2,000
--------------------------------------------------------------------------------
Sales Charges $690,000 -- $549,000
--------------------------------------------------------------------------------
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B and L shares calculated at an annual rate of 0.75% of
the average daily net assets for each class, respectively.
For the period ended April 30, 2000, total Distribution Plan fees incurred were:
CLASS A CLASS B CLASS L
--------------------------------------------------------------------------------
Distribution Plan Fees $12,753 $84,686 $76,528
--------------------------------------------------------------------------------
All officers and one Director of the Fund are employees of SSB.
3. INVESTMENTS
During the period ended April 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding short-
term securities) were as follows:
--------------------------------------------------------------------------------
Purchases $172,325,728
--------------------------------------------------------------------------------
Sales $ 690,673
--------------------------------------------------------------------------------
At April 30, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
--------------------------------------------------------------------------------
Gross unrealized appreciation $ 5,380,597
Gross unrealized depreciation (12,802,874)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (7,422,277)
--------------------------------------------------------------------------------
12 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 13
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
sellers at a future date (generally, the next business day) at an agreed upon
higher repurchase price. The Fund requires continual maintenance of the market
value of the collateral in amounts at least equal to the repurchase price.
5. CONCENTRATION OF RISK
The Fund intends to invest at least 80% of its assets in technology related
investments. As a result of this concentration policy, which is a fundamental
policy of the Fund, the Fund's investment may be subject to greater risk and
market fluctuation than a fund that investments in securities representing a
broader range of investment alternatives.
The Fund's investments in foreign securities may involve risks not present in
domestic investments. Since securities may be denominated in a foreign currency
and may require settlement in foreign currencies and pay interest or dividends
in foreign currencies, changes in the relationship of these foreign currencies
to the U.S. dollar can significantly affect the value of these investments and
earnings of the Fund. Foreign investments may also subject the Fund to foreign
government exchange restrictions, expropriation, taxation or other political,
social or economic developments, all of which could affect the market and/or
credit risk of the investments.
6. CAPITAL SHARES
At April 30, 2000, the Fund had 750 million shares of capital stock authorized
with a par value of $0.001 per share. The Fund has the ability to issue multiple
classes of shares. Each share of a class represents an identical interest in the
Fund and has the same rights, except that each class bears certain expenses
specifically related to the distribution of its shares.
At April 30, 2000, total paid-in capital amounted to the following for each
class:
CLASS A CLASS B CLASS L
--------------------------------------------------------------------------------
TOTAL PAID-IN CAPITAL $40,218,367 $70,738,614 $64,177,439
--------------------------------------------------------------------------------
Transactions in shares of each class were as follows:
FEBRUARY 28, 2000
(COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 2000
(UNAUDITED)
--------------------------------------------------------------------------------
SHARES AMOUNT
--------------------------------------------------------------------------------
CLASS A
Shares sold 3,571,048 $ 41,734,256
Shares issued on reinvestment -- --
Shares reacquired (132,206) (1,515,889)
--------------------------------------------------------------------------------
Net Increase 3,438,842 $ 40,218,367
--------------------------------------------------------------------------------
CLASS B
Shares sold 6,130,946 $ 71,656,532
Shares issued on reinvestment -- --
Shares reacquired (80,969) (917,918)
--------------------------------------------------------------------------------
Net Increase 6,049,977 $ 70,738,614
--------------------------------------------------------------------------------
CLASS L
Shares sold 5,634,664 $ 65,902,797
Shares issued on reinvestment -- --
Shares reacquired (153,401) (1,725,358)
--------------------------------------------------------------------------------
Net Increase 5,481,263 $ 64,177,439
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
14 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS A SHARES
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.02)
Net realized and unrealized loss (0.20)
--------------------------------------------------------------------------------
Total Loss From Operations (0.22)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.18
--------------------------------------------------------------------------------
TOTAL RETURN (1.93)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $38,459
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.60%+
Net investment loss (0.50)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 1%
--------------------------------------------------------------------------------
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as follows:
Net investment loss per share $(0.02)
RATIOS:
Expenses to average net assets 1.80%+
Net investment loss to average net assets (0.70)%+
--------------------------------------------------------------------------------
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 15
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS B SHARES
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.03)
Net realized and unrealized loss (0.20)
--------------------------------------------------------------------------------
Total Loss From Operations (0.23)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.17
--------------------------------------------------------------------------------
TOTAL RETURN (2.02)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $67,581
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.35%+
Net investment loss (1.25)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 1%
--------------------------------------------------------------------------------
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as
follows:
Net investment loss per share $(0.03)
RATIOS:
Expenses to average net assets 2.55%+
Net investment income to average net assets (1.45)%+
--------------------------------------------------------------------------------
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
16 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS L SHARES
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.03)
Net realized and unrealized loss (0.20)
--------------------------------------------------------------------------------
Total Loss From Operations (0.23)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.17
--------------------------------------------------------------------------------
TOTAL RETURN (2.02)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $61,227
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.35%+
Net investment loss (1.25)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 1%
--------------------------------------------------------------------------------
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as
follows:
Net investment loss per share $(0.03)
RATIOS:
Expenses to average net assets 2.55%+
Net investment income to average net assets (1.45)%+
--------------------------------------------------------------------------------
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
SMITH BARNEY TECHNOLOGY FUND 17
<PAGE>
This page intentionally left blank.
<PAGE>
SMITH BARNEY
TECHNOLOGY FUND
DIRECTORS
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon, CHAIRMAN
Cornelius C. Rose, Jr.
OFFICERS
Heath B. McLendon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Lewis E. Daidone
SENIOR VICE PRESIDENT AND TREASURER
Irving P. David
CONTROLLER
Christina T. Sydor
SECRETARY
INVESTMENT MANAGER
SSBCiti Fund Management LLC
INVESTMENT SUBADVISER
Citibank, N.A.
DISTRIBUTOR
CFBDS, Inc.
CUSTODIAN
State Street Bank & Trust Co.
TRANSFER AGENT
Citi Fiduciary Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
SUB-TRANSFER AGENT
PFPCGlobal Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of shareholders of Smith
Barney Sector Series Inc. -- Smith Barney Technology Fund, but it may also be
used as sales literature when proceeded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after July 31,
2000, this report must be accompanied by performance information for the most
recently completed calendar quarter.
[LOGO]
SMITH BARNEY
TECHNOLOGY FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
WWW.SMITHBARNEY.COM/MUTUALFUNDS
FD01910 4/00
<PAGE>
[LOGO]
SMITH BARNEY
SECTOR SERIES INC.
FINANCIAL SERVICES
FUND
RESEARCH SERIES
SEMI-ANNUAL REPORT
APRIL 30, 2000
[LOGO]
NOT FDIC INSURED . NOT BANK GUARANTEED . MAY LOSE VALUE
<PAGE>
SMITH BARNEY
SECTOR SERIES INC.--
FINANCIAL SERVICES FUND
================================================================================
The SMITH BARNEY FINANCIAL SERVICES FUND seeks long-term capital appreciation by
investing primarily in common stocks of companies principally engaged in
providing financial services to consumers and industry.
SMITH BARNEY FINANCIAL SERVICES FUND*
TOTAL RETURNS APRIL 30, 2000 (UNAUDITED)
WITHOUT SALES CHARGES(1)
--------------------------------------------------------------------------------
CLASS A CLASS B CLASS L
--------------------------------------------------------------------------------
Since Inception 12.89% 12.81% 12.81%
(February 28, 2000)**
--------------------------------------------------------------------------------
WITH SALES CHARGES(2)
--------------------------------------------------------------------------------
CLASS A CLASS B CLASS L
--------------------------------------------------------------------------------
Since Inception 7.25% 7.17% 11.68%
(February 28, 2000)**
--------------------------------------------------------------------------------
* Since the Fund focuses its investments on companies involved in financial
services, an investment in the fund may involve a greater degree of risk
than an investment in other mutual funds with greater diversification.
** Not Annualized.
(1) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value and does not reflect the deduction of the applicable
sales charges with respect to Class A and L shares or the applicable
contingent deferred sales charges ("CDSC") with respect to Class B and L
shares.
(2) Assumes reinvestment of all dividends and capital gain distributions, if
any, at net asset value. In addition, Class A and shares reflect the
deduction of the maximum initial sales charges of 5.00% and 1.00%,
respectively; Class B shares reflect the deduction of a 5.00% CDSC, which
applies if shares are redeemed within one year from purchase. This CDSC
declines by 1.00% the first year after purchase and thereafter by 1.00% per
year until no CDSC occurs after 5 years. Class L shares also reflect the
deduction of a 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
--------------------------------------------------------------------------------
FUND HIGHLIGHT
--------------------------------------------------------------------------------
THE SMITH BARNEY SECTOR SERIES INC. MAY BE AN OPPORTUNE WAY TO EXTEND YOUR CORE
PORTFOLIO AND TO PARTICIPATE IN EXCITING SECTOR INVESTING OPPORTUNITIES. AS PART
OF A WELL-DIVERSIFIED PORTFOLIO OF INVESTMENTS, SMITH BARNEY FINANCIAL SERVICES
FUND GIVES YOU ACCESS TO A BROAD RANGE OF COMPANIES WITHIN THE DYNAMIC FINANCIAL
SERVICES SECTOR.
--------------------------------------------------------------------------------
NASDAQ SYMBOLS
--------------------------------------------------------------------------------
CLASS A N/A
CLASS B SBFBX
CLASS L SFSLX
--------------------------------------------------------------------------------
WHAT'S INSIDE
--------------------------------------------------------------------------------
SHAREHOLDER LETTER............................................ 1
FUND AT A GLANCE.............................................. 4
SCHEDULE OF INVESTMENTS....................................... 5
STATEMENT OF ASSETS AND LIABILITIES........................... 8
STATEMENT OF OPERATIONS....................................... 9
STATEMENT OF CHANGES IN NET ASSETS........................... 10
NOTES TO FINANCIAL STATEMENTS................................ 11
FINANCIAL HIGHLIGHTS......................................... 14
<PAGE>
--------------------------------------------------------------------------------
SHAREHOLDER LETTER
--------------------------------------------------------------------------------
[PHOTO]
HEATH B. MCLENDON
Chairman
DEAR SHAREHOLDER:
We are pleased to provide the inaugural semi-annual report for the Smith Barney
Sector Series Inc. -- Smith Barney Financial Services Fund ("Fund")for the
period from February 28, 2000 through April 30, 2000. In this report, we have
described the Portfolio Management team's philosophy and investment approach, as
well as outline the Fund's investment strategy during this brief period. A
detailed summary of performance and current holdings can be found in the
sections that follow. We hope you find this report useful and informative.
PERFORMANCE UPDATE*
Since its inception, (February 28, 2000) through April 30, 2000, the Fund's
Class A, B and L shares returned 12.89%, 12.81% and 12.81%, respectively,
without the effects of sales charges. In comparison, the Goldman Sachs
Financials Index** returned 12.74% for the same time period.
A RIGOROUS, RESEARCH-BASED INVESTMENT APPROACH
Citibank N.A., through its Citibank Global Asset Management ("CGAM") division,
an affiliate of SSB Citi Fund Management LLC, is the subadviser of the Fund.
CGAM, with its affiliates, currently manages more than $351 billion in assets
worldwide, as of March 31, 2000, for high-net-worth individuals, mutual funds
and other major institutional clients.
The Fund's management team is made up of a high-quality, seasoned group of
investment and research professionals who follow a systematic and rigorous
investment approach designed to provide appropriate exposure to various
industries within the financial services sector. CGAM's exhaustive fundamental
research evaluates a global universe of businesses in its quest to identify
attractive investment opportunities.
A THREE-STEP RESEARCH PROCESS
--------------------------------------------------------------------------------
FUNDAMENTAL ------ QUANTITATIVE ------ ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
--------------------------------------------------------------------------------
CGAM applies a proprietary, systematic, risk-conscious approach to investing.
The team's investment process combines fundamental research, quantitative
research and active portfolio management to create portfolios that they think
should generate competitive returns while helping to moderate risk.
In their view, there is no substitute for in-depth analysis, which can provide a
significant edge in understanding company fundamentals. (Of course, no
assurances can be made that CGAM's approach will ultimately be successful.) CGAM
is committed to thorough fundamental analysis and careful quantitative research
in their global search for investment opportunities.
The team's fundamental, proprietary research adds value to their active
portfolio management by providing timely and unbiased information to their
decision-making processes. The Fund's team conducts on-site company visits and
exhaustive research to uncover the companies that they think possess:
. superior products or services
. outstanding managements
. solid balance sheets
. market leadership
. driving innovation
In the management team's opinion, these are the strengths that can create value
and lead to earnings and sales growth, which drive stock prices.
--------------------------------------------------------------------------------
* Past performance is not indicative of future results.
** The Goldman Sachs Financials Index is comprised of companies in the banking
services, brokerage, asset management, insurance and real estate industries.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SMITH BARNEY FINANCIAL SERVICES FUND 1
<PAGE>
THE CGAM RESEARCH PROCESS
CGAM differentiates itself from the traditional approach to investment
management in a number of ways that they think can add value to clients'
portfolios. Their management style can best be described as disciplined, yet
flexible. Their formidable global presence enables them to maintain localized
research teams with direct access to the regions and industries where they
conduct business. The CGAM Research organization is centered on a team-approach
to stock research and selection--with approximately 73 industry
analysts--located worldwide in New York, London, Tokyo, Singapore and Melbourne,
covering hundreds of companies and working closely together both within and
across industry teams in a seamless fashion.
Each equity analyst builds intensive, detailed company models from the ground up
that anticipate a particular company's financial performance. These models are
based on the company's competitive position in the industry, product offerings,
costs and risk position. These intensive models detail the analyst's assumptions
for potential profitability for the company going forward and provides some of
the necessary inputs to forecast company fundamentals and make stock
recommendations. The research team looks to ensure consistency in industry and
accounting assumptions which allows for better comparisons of earnings
forecasts.
A common valuation framework-based on the Dividend Discount Model ("DDM") allows
for estimation of returns to fair value. Simply stated, the DDM compares a
company's future discounted dividend stream to its current stock price. CGAM
believes this is a valuable and consistent method to provide current valuations
to securities. The DDM-based valuation process, in their view, provides a common
yardstick that helps analysts and portfolio managers compare the relative
valuation of one company's stock to another. The equity analyst then combines
the DDM valuation together with other fundamental factors such as earnings
surprises to come up with the investment rating on a company's stock.
The chart below shows CGAM's research process for this Fund.
CGAM'S RESEARCH PROCESS AT A GLANCE
--------------------------------
UNIVERSE OF STOCKS
Global Research Coverage
--------------------------------
|
|
--------------------------------
COMPOSITE SIGNAL
Analysts' Ratings
Valuation Models
Momentum/Growth Models
--------------------------------
|
|
--------------------------------
RANKINGS
Determine candidates for
portfolio construction
--------------------------------
================================
Style-neutral, unbiased research
is the management team's primary
input in building the portfolio.
================================
FINANCIAL SERVICES OPPORTUNITIES
The financial services industry is outpacing the overall economy, generating
more than $2.25 trillion of revenue per year.***
A strong period of economic expansion and changing demographic trends have led
to higher demand for financial services. These trends, combined with industry
consolidation resulting from greater technological efficiencies, evolving
alternative distribution channels and industry deregulation may offer investors
exciting opportunities.
. WELL-POSITIONED COMPANIES MAY BENEFIT FROM INDUSTRY CONSOLIDATION With the
deregulation of the financial services industry from the repeal of the
Glass-Steagall Act and technological advances, many companies have turned to
mergers and acquisitions as a fast and innovative way to expand their client
base and offer more products. In fact, while the number of U.S. banking
organizations fell by almost 30% between 1988 and 1997, assets held by
industry leaders have increased significantly, which may give these
well-positioned companies higher profits and greater operational
efficiencies. (Source: FDIC Historical Statistics on Banking)
***Source: Salomon Smith Barney Inc.
--------------------------------------------------------------------------------
2 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
. INCREASED DEMAND An aging, affluent America may mean demand for financial
services products. Economists estimate that the largest period of wealth
transfer in history may occur as Americans are expected to transfer $41
trillion over the next 55 years. (Source: Havens and Schervish, Boston
College, 1999). Additionally, retirement assets are growing as baby boomers,
in their peak earning years, are nearing retirement and focusing on saving.
. POISED FOR POTENTIAL GROWTH As demand continues to grow and companies strive
to meet sophisticated consumer needs, the financial services industry may
provide investors with potential for long-term growth.
PORTFOLIO MANAGEMENT
Following this disciplined research process, analysts determine ratings for
stocks based on stringent and precise investment criteria. From this universe of
stocks, the Fund's management team can strategically construct a portfolio
designed to meet the Fund's specific investment objectives.
The team looks for "good companies at a great price, or great companies at a
good price." Analysts ratings are combined with earnings momentum and valuation
models to rank stocks by their relative attractiveness. The stocks are then
subject to disciplined portfolio construction to ensure appropriate
risk-adjusted returns relative to a particular benchmark.
CGAM's disciplined portfolio construction process looks to control factor (i.e.,
industry, size, style) exposures with the objective of managing risk, focusing
on stock selection as the major source of competitive returns versus the
benchmark.
CGAM believes that the quality of information generated by their proprietary and
global research process may produce consistently competitive results over time
versus the benchmark. (Of course, past performance is not indicative of future
results.)
Thank you for investing in the Smith Barney Sector Series Inc.-- Smith Barney
Financial Services Fund. We look forward to helping you pursue your financial
goals in years ahead.
Sincerely,
/s/ HEATH B. MCLENDON
---------------------
HEATH B. MCLENDON
Chairman
MAY 2, 2000
--------------------------------------------------------------------------------
SMITH BARNEY FINANCIAL SERVICES FUND 3
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY FINANCIAL SERVICES FUND AT A GLANCE (UNAUDITED) APRIL 30, 2000
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
SMITH BARNEY FINANCIAL SERVICES FUND VS. GOLDMAN SACHS FINANCIALS INDEX
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS)-- APRIL 30, 2000
GROWTH OF $10,000 INVESTMENT
A $10,000 investment in the Fund made on 2/28/00 would have grown to $10,725
with sales charge (as of 4/30/00). The graph shows how the Fund compares to its
benchmark for the same period.
[The following table represents a line chart in the printed piece.]
SB Financial Services GS Financials Index
----------------------------------------------------------
2/28/00 $ 9500 $10000
3/31/00 11108 11717
4/28/00 10725 11274
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the index) and assumes all dividends and distributions are reinvested
at Net Asset Value.
* The Goldman Sachs Financials Index is comprised of companies in the banking
services, brokerage, asset management, insurance and real estate industries.
TOP TEN COMMON STOCK HOLDINGS*
--------------------------------------------------------------------------------
American International Group 5.3%
--------------------------------------------------------------------------------
Morgan Stanley Dean Witter & Co. 4.7
--------------------------------------------------------------------------------
Bank America Corp. 4.3
--------------------------------------------------------------------------------
Berkshire Hathaway Inc. 3.9
--------------------------------------------------------------------------------
American Express Co. 3.8
--------------------------------------------------------------------------------
Wells Fargo & Co. 3.8
--------------------------------------------------------------------------------
Federal National Mortgage Association 3.7
--------------------------------------------------------------------------------
Chase Manhattan Corp. 3.5
--------------------------------------------------------------------------------
Goldman Sachs Group Inc. 2.4
--------------------------------------------------------------------------------
Merrill Lynch & Co. Inc. 2.1
--------------------------------------------------------------------------------
* As a percentage of total investments.
PORTFOLIO BREAKDOWN*
--------------------------------------------------------------------------------
0.4% Consumer Services
1.4% Discount Note
1.5% Savings & Loans
5.1% Real Estate
15.3% Brokers & Investment Managers
15.4% Financials Companies & Services
20.6% Insurance
40.3% Banks
--------------------------------------------------------------------------------
4 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK ---98.6%
FINANCE-- BANKS-- 40.3%
12,190 Amsouth Bancorp. $ 177,517
8,249 BB & T Corp. 219,630
33,364 Bank America Corp. 1,634,836
7,578 Bank of Montreal 278,018
16,636 Bank of New York 683,116
24,127 Bank One Corp. 735,874
10,802 Canadian Imperial Bank 285,578
18,283 Chase Manhattan Corp. 1,317,519
4,347 Comerica 184,204
6,381 Fifth Third Bancorp 402,801
15,468 First Sec Corp. 218,485
19,419 First Union Corp. 618,981
20,993 Firstar Corp. 522,201
20,163 Fleet Boston Financial Corp. 714,526
8,746 Huntington Bancshares Inc. 159,614
4,279 J. P. Morgan & Co. Inc. 549,317
10,410 Keycorp 192,585
426 M & T Bank Corp. 187,120
3,625 Marshall & Ilsley Corp. 168,336
12,314 Mellon Financial Corp. 395,587
14,682 National City Corp. 249,594
4,924 Northern Trust Corp. 315,751
7,352 PNC Financial Services Group 320,731
8,609 Regions Financial Corp. 175,946
8,395 Royal Bank of Canada 394,565
7,249 Southtrust Corp. 173,070
3,836 State Street Corp. 371,612
7,180 Summit Bancorp 182,192
8,962 Suntrust Banks Inc. 454,821
9,761 Synovus Financial Corp. 181,189
14,281 Toronto Dominion Bank 330,248
16,051 U.S. Bancorp 326,036
6,215 Union Planters Corp. 175,962
6,683 Unionbancal Corp. 185,036
4,435 Wachovia Corp. 278,019
35,306 Wells Fargo & Co. 1,449,753
4,463 Zions Bancorp. 185,214
--------------------------------------------------------------------------------
15,395,584
--------------------------------------------------------------------------------
FINANCE-- BROKERS & INVESTMENT MANAGERS-- 15.3%
4,363 Bear Stearns Cos Inc. 187,064
4,055 Donaldson, Lufkin & Jenrette Inc. 169,043
6,315 Franklin Resources Inc. 203,659
9,842 Goldman Sachs Group Inc. 917,767
4,960 Knight Trimark Group Inc. (a) 186,930
2,834 Lehman Brothers Holdings Inc. 232,565
7,989 Merrill Lynch & Co. Inc. 814,379
23,137 Morgan Stanley Dean Witter & Co. 1,775,765
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
SMITH BARNEY FINANCIAL SERVICES FUND
5
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
--------------------------------------------------------------------------------
FINANCE-- BROKERS & INVESTMENT MANAGERS-- 15.3% (CONTINUED)
4,593 Paine Webber Group Inc. $ 201,518
5,013 Price T. Rowe & Associates Inc. 191,121
17,332 Schwab Charles corp. 771,274
9,584 TD Waterhouse Group Inc. (a) 192,279
--------------------------------------------------------------------------------
5,843,364
--------------------------------------------------------------------------------
FINANCE-- CONSUMER SERVICES-- 0.4%
4,120 H & R Block Inc. 172,267
--------------------------------------------------------------------------------
Finance-- Financial Companies & Services-- 15.4%
10,983 Axa Financial Inc. 358,320
9,733 American Express Co. 1,460,558
14,735 Associates First Capital Corp. 326,933
4,413 Capital One Financial Corp. 193,069
24,954 Conseco Inc. 135,687
14,345 Federal Home Loan Mortgage Corp. 658,973
23,184 Federal National Mortgage Association 1,398,285
10,300 Household International Inc. 430,025
17,712 MBNA Corp. 470,475
3,074 Providian Financial Corp. 270,704
5,420 SLM Holding Corp. 169,714
--------------------------------------------------------------------------------
5,872,743
--------------------------------------------------------------------------------
FINANCE-- INSURANCE-- 20.6%
6,490 Aflac Inc. 316,793
18,724 Allstate Corp. 442,354
6,521 American General Corp. 365,176
18,581 American International Group 2,038,103
6,885 Aon Corp. 186,325
25 Berkshire Hathaway Inc. (a) 1,482,500
3,579 Chubb Corp. 227,714
5,436 Cincinnati Financial Corp. 219,139
5,142 Hartford Financial Services Group 268,348
3,897 Jefferson Pilot Corp. 259,394
6,328 Lincoln National Corp. 220,293
4,052 Loews Corp. 223,367
3,621 MBIA Inc. 179,013
4,194 MGIC Investment Corp. 200,526
6,208 Marsh & McLennan Cos Inc. 611,876
5,364 Reliastar Financial Corp. 230,987
6,460 St. Paul Cos Inc. 230,138
3,765 XL Capital Ltd. 179,308
--------------------------------------------------------------------------------
7,881,354
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
6 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
FINANCE-- REAL ESTATE-- 5.1%
10,754 Archstone Communities Trust $ 232,555
5,295 Avalonbay Communities Inc. 207,167
10,628 Equity Office Properties Trust 288,949
6,131 Equity Residential Properties Trust 278,961
11,267 Prologis Trust 221,819
9,312 Simon Property Group Inc. 236,292
5,958 Spieker Properties Inc. 264,014
7,476 Starwood Hotels and Resorts 212,599
--------------------------------------------------------------------------------
1,942,356
--------------------------------------------------------------------------------
FINANCE-- SAVINGS & LOAN-- 1.5%
6,960 Golden West Financial Corp. 237,510
13,309 Washington Mutual Inc. 340,211
--------------------------------------------------------------------------------
577,721
--------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Identified Cost-- $35,771,470) 37,685,389
================================================================================
FACE
AMOUNT SECURITY VALUE
================================================================================
DISCOUNT NOTE-- 1.4%
$523,000 Federal Home Loan Mortgage Consumer Discount Note,
5.55% due 5/1/00 (Identified Cost-- $523,000) 523,000
================================================================================
TOTAL INVESTMENTS-- 100%
(Identified Cost-- $36,294,470) $38,208,389
================================================================================
(a) Non-income producing security.
SEE NOTES TO FINANCIAL STATEMENTS.
================================================================================
SMITH BARNEY FINANCIAL SERVICES FUND 7
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2000
================================================================================
ASSETS:
Investments, at value (Cost $36,294,470) $38,208,389
Cash 689
Receivable for securities sold 964,426
Dividends and interest receivable 46,771
--------------------------------------------------------------------------------
TOTAL ASSETS 39,220,275
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 446,202
Distribution fees payable 24,604
Payable for Fund shares purchased 63,976
Accrued expenses and other liabilities 53,060
--------------------------------------------------------------------------------
TOTAL LIABILITIES 587,842
--------------------------------------------------------------------------------
TOTAL NET ASSETS $38,632,433
================================================================================
NET ASSETS:
Par value of capital shares $ 3,003
Capital paid in excess of par value 36,579,757
Undistributed net investment income 13,719
Accumulated net realized gain from security transactions 122,035
Net unrealized appreciation of investments 1,913,919
--------------------------------------------------------------------------------
TOTAL NET ASSETS $38,632,433
================================================================================
SHARES OUTSTANDING:
Class A 628,386
---------------------------------------------------------------------------
Class B 1,182,391
---------------------------------------------------------------------------
Class L 1,192,383
---------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $12.88
--------------------------------------------------------------------------------
Class B * $12.86
---------------------------------------------------------------------------
Class L ** $12.86
---------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $13.56
--------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $12.99
================================================================================
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed less than one year from initial purchase (See Note 2).
** Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
8 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
STATEMENT OF OPERATIONS (UNAUDITED)
================================================================================
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000
INVESTMENT INCOME:
Dividends $ 96,821
Interest 18,982
Less: Foreign withholding tax (596)
--------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 115,207
--------------------------------------------------------------------------------
EXPENSES:
Distribution fees(Note 2) 39,183
Management fees (Note 2) 37,245
Custody fees 18,787
Registration fees 11,330
Audit fees 8,000
Legal fees 7,500
Shareholder communications 5,000
Directors' fees 853
Other 10,835
--------------------------------------------------------------------------------
TOTAL EXPENSES 138,733
Less: Aggregate amount waived by the Manager (Note 2) (37,245)
--------------------------------------------------------------------------------
NET EXPENSE 101,488
--------------------------------------------------------------------------------
NET INVESTMENT INCOME 13,719
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From:
Security transactions (excluding short-term securities) 122,035
--------------------------------------------------------------------------------
NET REALIZED GAIN 122,035
--------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of Investments:
Beginning of period --
End of period 1,913,919
--------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION 1,913,919
--------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 2,035,954
--------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $2,049,673
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
SMITH BARNEY FINANCIAL SERVICES FUND 9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment income 13,719
Net realized gain 122,035
Increase in net unrealized appreciation 1,913,919
------------------------------------------------------------------------------------
Increase in Net Assets From Operations 2,049,673
------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 37,127,414
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (544,654)
------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 36,582,760
------------------------------------------------------------------------------------
INCREASE IN NET ASSETS 38,632,433
NET ASSETS:
Beginning of period --
------------------------------------------------------------------------------------
END OF PERIOD* $38,632,433
====================================================================================
* Includes undistributed net investment income of: $13,719
====================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
10 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Financial Services Fund ("Fund"), a separate series of the Smith
Barney Sector Series Inc., a Maryland corporation, is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. On February 28, 2000, the Fund commenced of
operations.
The significant accounting policies followed by the Fund are: (a) security
transactions are accounted for on trade date; (b) securities traded in national
securities markets are valued at the closing prices in the primary exchange on
which they are traded; securities listed or traded on certain foreign exchanges
or other markets whose operations are similar to the U.S. over-the-counter
market (including securities listed on exchanges where the primary market is
believed to be over-the-counter) and the securities for which no sale was
reported on that date are valued at the mean between the bid and ask prices.
Securities which are listed or traded on more than one exchange or market are
valued at the quotations on the exchange or market determined to be the primary
market for such securities; (c) securities for which market quotations are not
available will be valued in good faith at fair market value by or under the
direction of the Board of Directors; (d) securities maturing within 60 days are
valued at cost plus accreted discount, or minus amortized premium, which
approximates value; (e) the accounting records of the Fund are maintained in
U.S. dollars. All assets and liabilities denominated in foreign currencies are
translated into U.S. dollars based on the rate of exchange of such currencies
against U.S. dollars on the date of valuation. Purchases and sales of
securities, and income and expenses are translated at the rate of exchange
quoted on the respective date that such transactions are recorded. Differences
between income or expense amounts recorded and collected or paid are adjusted
when reported by the custodian;
(f) interest income, adjusted for amortization of premium and accretion of
discount, is recorded on an accrual basis; (g) dividend income is recorded on
the ex-dividend date; foreign dividends are recorded on the ex-dividend date or
as soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence: (h) dividends and
distributions to shareholders are recorded on the ex-dividend date; (i) gains or
losses on the sale of securities are calculated by using the specific
indentification method; (j) direct expenses are charged to each class;
management fees and general expenses are allocated on the basis of relative net
assets; (k) the character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles; (l) the Fund intends to comply with the
requirements of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
and (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.
In addition, the Fund 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.
2. MANAGEMENT AGREEMENT AND
OTHER TRANSACTIONS
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBC Fund Management
Inc., a subsidiary
-------------------------------------------------------------------------------
SMITH BARNEY FINANCIAL SERVICES FUND 11
<PAGE>
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
-------------------------------------------------------------------------------
of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary
of Citigroup Inc. ("Citigroup"), acts as investment manager to the Fund. The
management fee is computed at an annual rate of 0.80% of the average daily net
assets. SSBC has delegated the daily management of the Fund to Citibank N.A.,
(the SubAdviser), an affiliate of SSBC. For services provided to the Fund, the
manager pays the Subadviser a subadvisory fee computed at an annual rate of
0.50% of the Fund's average daily net assets. The management fees paid amounted
to $37,245, all of which was waived for the period ended April 30, 2000.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
Citi Fiduciary Trust Company ("CFTC"), another subsidiary of Citigroup, acts as
the Fund's transfer agent and PFPC Global Fund Services ("PFPC") acts as the
Fund's sub-transfer agent. CFTC receives fees and asset-based fees that vary
according to the account size and type of account. PFPC is responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and is paid by CFTC. For the period ended April 30, 2000, the Fund paid transfer
agent fees of $2,584 to CFTC.
There is a maximum initial sales charge of 5.00% and 1.00% for Class A shares
and L shares, respectively. There is a contingent deferred sales charge ("CDSC")
of 5.00% on Class B shares, which applies if redemption occurs within one year
from initial purchase and declines thereafter by 1.00% per year until no CDSC is
incurred. Class L shares are being sold at net asset value plus a maximum
initial sales charge of 1.00%. Class L shares also have a 1.00% CDSC, which
applies if redemption occurs within the first year of purchase.
For the period ended April 30, 2000, CDSCs paid to CFBDS and sales charges
received by SSB and CFBDS were approximately:
Class A Class B Class L
================================================================================
CDSCs -- $3,000 $1,000
-------------------------------------------------------------------------------
Sales Charges $128,000 -- $140,000
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B and L shares calculated at an annual rate of 0.75% of
the average daily net assets for each class, respectively.
For the period ended April 30, 2000, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $2,457 $19,009 $17,717
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. INVESTMENTS
During the period ended April 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $36,271,367
--------------------------------------------------------------------------------
Sales $ 621,965
================================================================================
At April 30, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $2,582,388)
Gross unrealized depreciation (668,469)
--------------------------------------------------------------------------------
Net unrealized appreciation $1,913,919)
================================================================================
--------------------------------------------------------------------------------
12 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
5. CONCENTRATION OF RISK
The Fund intends to invest at least 80% of its assets in financial services
related investments. As a result of this concentration policy, which is a
fundamental policy of the Fund, the Fund's investment may be subject to greater
risk and market fluctuation than a fund that invests in securities representing
a broader range of investment alternatives.
The Fund's investments in foreign securities may involve risks not present in
domestic investments. Since securities may be denominated in a foreign currency
and may require settlement in foreign currencies and pay interest or dividends
in foreign currencies, changes in the relationship of these foreign currencies
to the U.S. dollar can significantly affect the value of these investments and
earnings of the Fund. Foreign investments may also subject the Fund to foreign
government exchange restrictions, expropriation, taxation or other political,
social or economic developments, all of which could affect the market and/or
credit risk of the investments.
6. CAPITAL SHARES
At April 30, 2000, the Fund had 750 million shares of capital stock authorized
with a par value of $0.001 per share. The Fund has the ability to issue multiple
classes of shares. Each share of a class represents an identical interest in the
Fund and has the same rights, except that each class bears certain expenses
specifically related to the distribution of its shares.
At April 30, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L
================================================================================
Total Paid-in Capital $7,650,619 $14,331,555 $14,600,586
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, 2000
(COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 2000
(UNAUDITED)
----------------------------------
SHARES AMOUNT
==========================================================================================
<S> <C> <C>
CLASS A
Shares sold 638,560 $ 7,780,577
Shares issued on reinvestment -- --
Shares reacquired (10,174) (129,958)
------------------------------------------------------------------------------------------
Net Increase 628,386 $ 7,650,619
==========================================================================================
CLASS B
Shares sold 1,195,538 $ 14,498,935
Shares issued on reinvestment -- --
Shares reacquired (13,147) (167,380)
------------------------------------------------------------------------------------------
Net Increase 1,182,391 $ 14,331,555
==========================================================================================
CLASS L
Shares sold 1,212,488 $ 14,847,902
Shares issued on reinvestment -- --
Shares reacquired (20,105) (247,316)
------------------------------------------------------------------------------------------
Net Increase 1,192,383 $ 14,600,586
==========================================================================================
</TABLE>
--------------------------------------------------------------------------------
SMITH BARNEY FINANCIAL SERVICES FUND 13
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS A SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.01
Net realized and unrealized gain 1.47
--------------------------------------------------------------------------------
Total Income From Operations 1.48
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $12.88
--------------------------------------------------------------------------------
TOTAL RETURN 12.89%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000s) $8,091
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.50%+
Net investment income 0.87%+
--------------------------------------------------------------------------------
Portfolio Turnover Rate 7%
================================================================================
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as follows:
Net investment loss per share $0.00*
RATIOS:
Expenses to average net assets 2.33%+
Net investment loss to average net assets (0.04)%+
================================================================================
* AMOUNT REPRESENTS LESS THAN $0.01 PER SHARE
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
+ ANNUALIZED.
--------------------------------------------------------------------------------
14 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS B SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.00*
Net realized and unrealized gain 1.46
--------------------------------------------------------------------------------
Total Income From Operations 1.46
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.86
--------------------------------------------------------------------------------
TOTAL RETURN 12.81%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $15,206
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.25%+
Net investment income 0.12%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 7%
================================================================================
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as
follows: Net investment loss per share $(0.01)
RATIOS:
Expenses to average net assets 3.08%+
Net investment loss to average net assets (0.71)%+
================================================================================
* Amount represents less than $0.01 per share.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
SMITH BARNEY FINANCIAL SERVICES FUND 15
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS L SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.00*
Net realized and unrealized gain 1.46
--------------------------------------------------------------------------------
Total Income From Operations 1.46
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 12.86
--------------------------------------------------------------------------------
TOTAL RETURN 12.81%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $15,335
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.25%+
Net investment income 0.12%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 7%
================================================================================
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as
follows:
Net investment loss per share $(0.01)
RATIOS:
Expenses to average net assets 3.08%+
Net investment loss to average net assets (0.71)%+
================================================================================
* AMOUNT REPRESENTS LESS THAN $0.01 PER SHARE.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
+ ANNUALIZED.
--------------------------------------------------------------------------------
16 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
This page intentionally left blank.
<PAGE>
SMITH BARNEY
FINANCIAL SERVICES FUND
DIRECTORS
Herbert Barg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon, CHAIRMAN
Cornelius C. Rose, Jr.
James J. Crisona, EMERITUS
OFFICERS
Heath B. McLendon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Lewis E. Daidone
SENIOR VICE PRESIDENT AND TREASURER
Irving P. David
CONTROLLER
Christina T. Sydor
SECRETARY
INVESTMENT MANAGER
SSBCiti Fund Management LLC
INVESTMENT SUBADVISER
Citibank, N.A.
DISTRIBUTOR
CFBDS, Inc.
CUSTODIAN
State Street Bank & Trust Co.
TRANSFER AGENT
Citi Fiduciary Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
SUB-TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of shareholders of Smith
Barney Sector Series Inc. --Smith Barney Financial Services Fund, but it may
also be used as sales literature when proceeded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after July 31,
2000, this report must be accompanied by performance information for the most
recently completed calendar quarter.
SALOMON SMITH BARNEY
--------------------
A member of CITIGROUP[logo]
SALOMON SMITH BARNEY IS A SERVICE MARK OF SOLOMON SMITH BARNEY INC.
SMITH BARNEY FINANCIAL
SERVICES FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
WWW.SMITHBARNEY.COM/MUTUALFUNDS
FD01912 4/00
<PAGE>
[SB
MF]
SMITH BARNEY
SECTOR SERIES INC.
HEALTH SCIENCES
Fund
-----------------------
RESEARCH SERIES
SEMI-ANNUAL REPORT
APRIL 30, 2000
-----------------------
[LOGO] SMITH BARNEY
[LOGO] MUTUAL FUNDS
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
<PAGE>
--------------------------------------------------------------------------------
Shareholder Letter
--------------------------------------------------------------------------------
DEAR SHAREHOLDER:
[Photo Omitted]
We are pleased to provide the
inaugural semi-annual report for the
Smith Barney Sector Series Inc. --
HEALTH B. Smith Barney Health Sciences Fund
McLENDON ("Fund") for the period from February
28, 2000 through April 30, 2000. In
this report, we have described the
Chairman Portfolio Management team's philosophy
and investment approach, as
well as outlined the Fund's investment strategy during this brief period. A
detailed summary of performance and current holdings can be found in the
sections that follow. We hope you find this report useful and informative.
PERFORMANCE UPDATE*
Since its inception (February 28, 2000) through April 30, 2000, the Fund's Class
A, B and L shares returned 3.42%, 3.33% and 3.33%, respectively, without the
effects of sales charges. In comparison, the Goldman Sachs Healthcare Index**
returned 0.35% for the same time period.
A RIGOROUS, RESEARCH-BASED INVESTMENT APPROACH
Citibank N.A., through its Citibank Global Asset Management ("CGAM") division,
an affiliate of SSB Citi Fund Management LLC, is the subadviser of the Fund.
CGAM, with its affiliates, currently manages more than $351 billion in assets
worldwide, as of March 31, 2000, for high-net-worth individuals, mutual funds
and other major institutional clients.
The Fund's management team is made up of a high-quality, seasoned group of
investment and research professionals who follow a systematic and rigorous
investment approach designed to provide appropriate exposure to various
industries within the financial services sector. CGAM's exhaustive fundamental
research evaluates a global universe of businesses in its quest to identify
attractive investment opportunities.
A THREE-STEP RESEARCH PROCESS
------------ --------------- -------------------
FUNDAMENTAL ------ QUANTITATIVE ------ ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
------------ --------------- -------------------
CGAM applies a proprietary, systematic, risk-conscious approach to investing.
The team's investment process combines fundamental research, quantitative
research and active portfolio management to create portfolios that they think
should generate competitive returns while helping to moderate risk.
In their view, there is no substitute for in-depth analysis, which can provide a
significant edge in understanding company fundamentals. (Of course, no
assurances can be made that CGAM's approach will ultimately be successful.) CGAM
is committed to thorough fundamental analysis and careful quantitative research
in their global search for investment opportunities.
The team's fundamental, proprietary research adds value to their active
portfolio management by providing timely and unbiased information to their
decision-making processes. The Fund's team conducts on-site company visits and
exhaustive research to uncover the companies that they think possess:
. superior products or services
. outstanding managements
. solid balance sheets
. market leadership
. driving innovation
In the management team's opinion, these are the strengths that can create value
and lead to earnings and sales growth, which drive stock prices.
------------
* Past performance is not indicative of future results.
** The Goldman Sachs Healthcare Index is comprised of health care service
companies, including long-term care and hospital facilities, health care
management organizations and continuing care services and pharmaceutical
companies.
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND 1
<PAGE>
THE CGAM RESEARCH PROCESS
CGAM differentiates itself from the traditional approach to investment
management in a number of ways that they think can add value to clients'
portfolios. Their management style can best be described as disciplined, yet
flexible. Their formidable global presence enables them to maintain localized
research teams with direct access to the regions and industries where they
conduct business. The CGAM Research organization is centered on a team-approach
to stock research and selection -- with approximately 73 industry analysts --
located worldwide in New York, London, Tokyo, Singapore and Melbourne, covering
hundreds of companies and working closely together both within and across
industry teams in a seamless fashion.
Each equity analyst builds intensive, detailed company models from the ground up
that anticipate a particular company's financial performance. These models are
based on the company's competitive position in the industry, product offerings,
costs and risk position. These intensive models detail the analyst's assumptions
for potential profitability for the company going forward and provides some of
the necessary inputs to forecast company fundamentals and make stock
recommendations. The research team looks to ensure consistency in industry and
accounting assumptions which allows for better comparisons of earnings
forecasts.
A common valuation framework-based on the Dividend Discount Model ("DDM") allows
for estimation of returns to fair value. Simply stated, the DDM compares a
company's future discounted dividend stream to its current stock price. CGAM
believes this is a valuable and consistent method to provide current valuations
to securities. The DDM-based valuation process, in their view, provides a common
yardstick that helps analysts and portfolio managers compare the relative
valuation of one company's stock to another. The equity analyst then combines
the DDM valuation together with other fundamental factors such as earnings
surprises to come up with the investment rating on a company's stock.
The chart below shows CGAM's research process for this Fund.
CGAM'S RESEARCH PROCESS AT A GLANCE
--------------------------------
UNIVERSE OF STOCKS
Global Research Coverage
--------------------------------
|
|
--------------------------------
COMPOSITE SIGNAL
Analysts' Ratings
Valuation Models
Momentum/Growth Models
--------------------------------
|
|
--------------------------------
RANKINGS
Determine candidates for
portfolio construction
--------------------------------
================================
Style-neutral, unbiased research
is the management team's primary
input in building the portfolio.
================================
HEALTH SCIENCES OPPORTUNITIES
RAPID ADVANCES IN THE FIELDS OF MEDICINE AND BIOTECHNOLOGY, COMBINED WITH AN
AGING POPULATION, CREATE A COMPELLING LONG-TERM CASE FOR INVESTING IN THE HEALTH
SCIENCES INDUSTRY.
The health sciences sector may be poised for substantial growth as the baby
boomer generation becomes prime health care consumers. Advances in technology
are leading to significant breakthroughs in pharmaceuticals, biotechnology,
medical products and healthcare.
. DEMOGRAPHIC SHIFTS MAY SPUR DEMAND Since 1929, spending on health sciences
products and services has increased dramatically and is expected to climb for
the next 30 years, as Americans live longer. In fact, the U.S. Census Bureau
estimates that by 2015, the number of Americans over age 65 will increase by
about 32%.
. HEALTH SCIENCES MARKETPLACE INNOVATIONS Technology advances have paved the
way for innovations in health sciences. Medical inventions that continue to
revolutionize the industry may also provide excellent investments
opportunities over time.
. POISED FOR POTENTIALLY HIGHER GROWTH As a result of higher demand and major
advancements in the
--------------------------------------------------------------------------------
2 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
industry, the health sciences sector has contributed more to the Gross Domestic
Product than ever before -- 13.6% today compared to 5.1% 30 years ago. (Source:
National Health Statistics Group, Office of the Actuary). We believe his shift,
and our positive long-term outlook for this sector, can help give investors the
opportunity to benefit form the potential long-term growth.
PORTFOLIO MANAGEMENT
Following this disciplined research process, analysts determine ratings for
stocks based on stringent and precise investment criteria. From this universe of
stocks, the Fund's management team can strategically construct a portfolio
designed to meet the Fund's specific investment objectives.
The team looks for "good companies at a great price, or great companies at a
good price." Analysts ratings are combined with earnings momentum and valuation
models to rank stocks by their relative attractiveness. The stocks are then
subject to disciplined portfolio construction to ensure appropriate
risk-adjusted returns relative to a particular benchmark.
CGAM's disciplined portfolio construction process looks to control factor (i.e.,
industry, size, style) exposures with the objective of managing risk, focusing
on stock selection as the major source of competitive returns versus the
benchmark.
CGAM believes that the quality of information generated by their proprietary and
global research process may produce consistently competitive results over time
versus the benchmark. (Of course, past performance is not indicative of future
results.)
Thank you for investing in the Smith Barney Sector Series Inc.-- Smith Barney
Health Sciences Fund. We look forward to helping you pursue your financial goals
in years ahead.
Sincerely,
/s/ HEATH B. McLENDON
---------------------
HEATH B. MCLENDON
Chairman
MAY 2, 2000
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND 3
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND AT A GLANCE (UNAUDITED)
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
SMITH BARNEY HEALTH SCIENCES FUND VS. GOLDMAN SACHS HEALTHCARE INDEX
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS)-- APRIL 30, 2000
GROWTH OF $10,000 INVESTMENT
A $10,000 investment in the Fund made on 2/28/00 would have declined to $9,825
with sales charge (as of 4/30/00). The graph shows how the Fund compares to its
benchmark for the same period.
[Table below represents line chart in it printed piece]
SB Health GS Healthcare
"2/28/00" 9500 10000
"3/31/00" 9450 9927
"4/28/00" 9825 10035
The graph includes the initial sales charge on the Fund (no comparable charge
exists for the index) and assumes all dividends and distributions are reinvested
at Net Asset Value.
* The Goldman Sachs Healthcare Index is comprised of health care service
companies, including long-term care and hospital facilities, health care
management organizations and continuing care services and pharmaceutical
companies.
TOP TEN COMMON STOCK HOLDINGS*
-------------------------------------------------------------------------------
Pfizer, Inc. 7.0%
-------------------------------------------------------------------------------
Johnson & Johnson, Inc. 6.3
-------------------------------------------------------------------------------
Warner Lambert & Co. 5.7
-------------------------------------------------------------------------------
Abbot Labs 5.3
-------------------------------------------------------------------------------
American Home Products Corp. 5.1
-------------------------------------------------------------------------------
Medtronic, Inc. 5.1
-------------------------------------------------------------------------------
Eli Lilly & Co. 5.1
-------------------------------------------------------------------------------
Merck & Co., Inc. 5.0
-------------------------------------------------------------------------------
Brystol Myers-Squibb Co. 4.1
-------------------------------------------------------------------------------
Schering-Plough Corp. 3.9
--------------------------------------------------------------------------------
[Table below represents pie chart in it printed piece]
Portfolio Breakdown*
-------------------------------------------------------------------------------
0.6% Precision Instruments
1.5% Generic Drugs
1.5% Services to the Health Industry
1.6% Discount Note
2.0% Multi-Line Insurance
2.7% Medical/Dental Distributions
3.2% Hospital Nursing Management
3.3% Pharmaceuticals
3.5% Managed Healthcare
5.1% Medical Electronics
11.6% Medical Specialties
15.8% Biotechnology
47.6% Major Pharmaceuticals
* As a percentage of total investments.
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
================================================================================
<S> <C> <C>
COMMON STOCK-- 98.4%
BIOTECHNOLOGY-- 15.8%
2,215 Abgenix, Inc. (a) $ 198,381
1,565 Affymetrix, Inc. (a) 211,373
3,076 Alkermes, Inc. (a) 163,797
24,241 Amgen, Inc. (a) 1,357,496
7,912 Biochemical Pharmaceuticals, Inc. (a) 181,976
5,507 Biogen, Inc. (a) 323,880
6,408 Chiron Corp. (a) 289,962
6,087 Curagen Corp. (a)162,066
4,160 Genzyme Corp. (a)203,060
3,318 Gilead Sciences, Inc. (a) 179,794
2,618 Human Genome Sciences, Inc. (a) 200,441
2,512 Idec Pharmaceuticals Corp. (a) 160,768
17,316 Immunex Corp. (a)681,817
2,123 Incyte Pharmaceuticals, Inc. (a) 163,471
4,033 Maxygen, Inc. (a)168,630
4,257 Medarex, Inc. (a)225,621
2,089 Medimmune, Inc. (a) 334,109
2,800 Millennium Pharmaceuticals (a) 222,250
2,283 PE Corp.- Celera (a) 188,348
2,220 Protein Design Labs, Inc. (a) 225,330
3,594 Vertex Pharmaceuticals, Inc. (a) 187,787
--------------------------------------------------------------------------------
6,030,357
--------------------------------------------------------------------------------
GENERIC DRUGS ---1.5%
6,555 Ivax Corp. (a) 179,443
6,341 Mylan Labs, Inc. 179,926
4,402 Watson Pharmaceuticals, Inc. (a) 197,815
--------------------------------------------------------------------------------
557,184
HOSPITAL NURSING MANAGEMENT-- 3.2%
23,190 Columbia/Healthcare Corp. 659,466
12,866 Health Management Association (a) 205,052
13,998 Tenet Healthcare Corp. (a) 356,949
--------------------------------------------------------------------------------
1,221,467
--------------------------------------------------------------------------------
MAJOR PHARMACEUTICALS-- 47.6%
52,419 Abbott Labs 2,014,855
34,786 American Home Products Corp. 1,954,538
30,098 Brystol Myers-Squibb Co. 1,578,264
24,978 Eli Lilly & Co. 1,931,112
28,875 Johnson & Johnson, Inc. 2,382,188
27,640 Merck & Co., Inc.1,920,980
63,291 Pfizer, Inc. 2,666,133
1 Pharmacia & Upjohn, Inc. 50
37,182 Schering-Plough Corp. 1,498,899
19,222 Warner Lambert Co. 2,187,704
--------------------------------------------------------------------------------
18,134,723
--------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND 5
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) APRIL 30, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
<TABLE>
<CAPTION>
<S> <C> <C>
MANAGED HEALTH CARE ---3.5%
7,329 AETNA, Inc. $ 424,166
3,377 Pacificare Health Systems (a) 173,704
7,499 United Healthcare Corp. 500,090
3,323 Wellpoint Health Networks, Inc. (a) 245,071
--------------------------------------------------------------------------------
1,343,031
--------------------------------------------------------------------------------
MEDICAL/DENTAL DISTRIBUTORS-- 2.7%
3,572 Andrx Corp. (a) 182,842
11,583 Cardinal Health Corp. 637,789
12,720 McKesson HBOC, Inc. 214,650
--------------------------------------------------------------------------------
1,035,281
--------------------------------------------------------------------------------
MEDICAL ELECTRONICs-- 5.1%
37,447 Medtronic, Inc. 1,944,904
--------------------------------------------------------------------------------
MEDICAL SPECIALTIES-- 11.6%
4,490 Alza Corp. (a) 197,841
3,436 Bausch & Lomb 207,449
14,937 Baxter International, Inc. 972,772
9,127 Becton Dickinson & Co. 233,879
5,438 Biomet, Inc. 194,069
16,411 Boston Scientific Corp. (a) 434,891
4,400 C.R. Bard, Inc. 191,675
12,187 Guidant Corp. (a)699,229
5,867 Hillenbrand Industries, Inc. 176,743
1,726 Minimed, Inc. (a)212,190
6,943 PE Corp.- PE Biosystems 416,580
4,190 Stryker Corp. 301,156
6,270 Sybron International Corp. (a) 195,154
--------------------------------------------------------------------------------
4,433,628
--------------------------------------------------------------------------------
MULTI-LINE INSURANCE -- 2.0%
9,706 Cigna Corp. 774,053
--------------------------------------------------------------------------------
OTHER PHARMACEUTICALS-- 3.3%
6,154 Allergan, Inc. 362,317
3,752 Biovail Corp. (a) 178,923
3,494 Forest Labs, Inc. (a) 293,714
6,833 Jones Pharmaceuticals, Inc. 196,876
2,283 Sepracor, Inc. (a) 210,036
--------------------------------------------------------------------------------
1,241,866
--------------------------------------------------------------------------------
PRECISION INSTRUMENTS-- 0.6%
2,323 Waters Corp. (a) 220,104
--------------------------------------------------------------------------------
SERVICES TO THE HEALTH INDUSTRY-- 1.5%
11,169 IMS Health, Inc. 190,571
3,241 Quest Diagnostics, Inc. (a) 188,586
12,201 Quintiles Transnational Corp. (a) 174,627
--------------------------------------------------------------------------------
553,784
TOTAL COMMON STOCK
(Identified Cost-- $36,814,231) 37,490,382
================================================================================
--------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
6 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) April 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
===============================================================================================
<S> <C> <C>
DISCOUNT NOTE-- 1.6%
$609,000 Federal Home Loan Mortgage Consumer Discount Note,
5.55% due 5/1/00 (Identified Cost-- $609,000) $ 609,000
===============================================================================================
Total Investments-- 100%
(Identified Cost-- $37,423,231) $38,099,382
===============================================================================================
</TABLE>
(a) NON-INCOME PRODUCING SECURITY.
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND 7
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
ASSETS:
Investments, at value (Cost $37,423,231) $38,099,382
Cash 971
Receivable for Fund shares sold 793,326
Dividends and interest receivable 27,496
----------------------------------------------------------------------------------
TOTAL ASSETS 38,921,175
----------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 533,797
Payable for Fund shares purchased 49,146
Distribution fees payable 23,225
Management fees payable 22,818
Accrued expenses and other liabilities 35,383
----------------------------------------------------------------------------------
TOTAL LIABILITIES 664,369
----------------------------------------------------------------------------------
TOTAL NET ASSETS $38,256,806
==================================================================================
NET ASSETS:
Par value of capital shares $ 3,247
Capital paid in excess of par value 37,159,051
Accumulated net investment loss (54,278)
Accumulated net realized gain from security transactions 472,635
Net unrealized appreciation of investments 676,151
----------------------------------------------------------------------------------
TOTAL NET ASSETS $38,256,806
==================================================================================
SHARES OUTSTANDING:
Class A 790,302
-----------------------------------------------------------------------------
Class B 1,311,431
-----------------------------------------------------------------------------
Class L 1,145,042
-----------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $11.79
-----------------------------------------------------------------------------
Class B * $11.78
-----------------------------------------------------------------------------
Class L ** $11.78
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $12.41
-----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $11.90
==================================================================================
</TABLE>
*Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed less than one year from initial purchase (See Note 2).
**Redemption price is NAV of Class L shares reduced by a 1.00% CDSC if shares
are redeemed within the first year of purchase.
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
8 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000
<TABLE>
<CAPTION>
<S> <C>
INVESTMENT INCOME:
Dividends $ 36,120
Interest 17,362
--------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 53,482
--------------------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Notes 2) 39,964
Management fees (Note 2) 39,270
Custody fees 26,741
Registration fees 9,107
Audit fees 8,000
Legal fees 7,500
Shareholder communications 5,000
Directors' fees 853
Other 10,595
--------------------------------------------------------------------------------------------
TOTAL EXPENSES 147,030
Less: Aggregate amount waived by the Manager (Note 2) (39,270)
--------------------------------------------------------------------------------------------
NET EXPENSES 107,760
--------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (54,278)
----------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From:
Security transactions (excluding short-term securities) 472,635
--------------------------------------------------------------------------------------------
NET REALIZED GAIN 472,635
--------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of Investments:
Beginning of period --
End of period 676,151
--------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED APPRECIATION 676,151
--------------------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 1,148,786
--------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $1,094,508
============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND 9
<PAGE>
--------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS (UNAUDITED)
--------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000
<TABLE>
<CAPTION>
<S> <C>
OPERATIONS:
Net investment loss $ (54,278)
Net realized gain 472,635
Increase in net unrealized appreciation 676,151
-------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 1,094,508
-------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 37,858,540
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (696,242)
-------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 37,162,298
-------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS 38,256,806
NET ASSETS:
Beginning of period --
-------------------------------------------------------------------------------------------
END OF PERIOD* $38,256,806
===========================================================================================
* Includes accumulated net investment loss of: $(54,278)
===========================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
--------------------------------------------------------------------------------
10 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
Smith Barney Health Sciences Fund ("Fund"), a separate series of the Smith
Barney Sector Series Inc., a Maryland corporation, is registered under the
Investment Company Act of 1940, as amended, as a non-diversified, open-end
management investment company. On February 28, 2000, the Fund commenced
operations.
The significant accounting policies followed by the Fund are: (a) security
transactions are accounted for on trade date; (b) securities traded in national
securities markets are valued at the closing prices in the primary exchange on
which they are traded; securities listed or traded on certain foreign exchanges
or other markets whose operations are similar to the U.S. over-the-counter
market (including securities listed on exchanges where the primary market is
believed to be over-the-counter) and securities for which no sale was reported
on that date are valued at the mean between the bid and ask prices. Securities
which are listed or traded on more than one exchange or market are valued at the
quotations on the exchange or market determined to be the primary market for
such securities; (c) securities for which market quotations are not available
will be valued in good faith at fair market value by or under the direction of
the Board of Directors; (d) securities maturing within 60 days are valued at
cost plus accreted discount, or minus amortized premium, which approximates
value; (e) the accounting records of the Fund are maintained in U.S. dollars.
All assets and liabilities denominated in foreign currencies are translated into
U.S. dollars based on the rate of exchange of such currencies against U.S.
dollars on the date of valuation. Purchases and sales of securities, and income
and expenses are translated at the rate of exchange quoted on the respective
date that such transactions are recorded. Differences between income or expense
amounts recorded and collected or paid are adjusted when reported by the
custodian;
(f) interest income, adjusted for amortization or premium and accretion of
discount, is recorded on an accrual basis; (g) dividend income is recorded on
the ex-dividend date; foreign dividends are recorded on the ex-dividend date or
as soon as practical after the Fund determines the existence of a dividend
declaration after exercising reasonable due diligence; (h) dividends and
distributions to shareholders are recorded on the ex-dividend date; (i) gains or
losses on the sale of securities are calculated by using the specific
identification method; (j) direct expenses are charged to each class;
management fees and general expenses are allocated on the basis of relative net
assets; (k) the character of income and gains to be distributed are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles; (l) the Fund intends to comply with the
requirements of the Internal Revenue Code of 1986, as amended, pertaining to
regulated investment companies and to make distributions of taxable income
sufficient to relieve it from substantially all Federal income and excise taxes;
and (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.
In addition, the Fund 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.
2. MANAGEMENT AGREEMENT AND OTHER TRANSACTIONS
SSB Citi Fund Management LLC ("SSBC"), formerly known as SSBCFund Management
Inc., a subsidiary
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND 11
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
of Salomon Smith Barney Holdings Inc. ("SSBH"), which, in turn, is a subsidiary
of Citigroup Inc. ("Citigroup"), acts as investment manager to the Fund. The
management fee is computed at an annual rate of 0.80% of the average daily net
assets. SSBC has delegated the daily management of the Fund to Citibank N.A.,
(the SubAdviser), an affiliate of SSBC. For services provided to the Fund, the
manager pays the Subadviser a subadvisory fee computed at an annual rate of
0.50% of the Fund's average daily net assets. The management fees paid amounted
to $39,270, all of which was waived for the period ended April 30, 2000.
CFBDS, Inc. ("CFBDS") acts as the Fund's distributor. Salomon Smith Barney Inc.
("SSB"), another subsidiary of SSBH, as well as certain other broker-dealers,
continues to sell Fund shares to the public as a member of the selling group.
Citi Fiduciary Trust Company ("CFTC"), another subsidiary of Citigroup, acts as
the Fund's transfer agent and PFPC Global Fund Services ("PFPC") acts as the
Fund's sub-transfer agent. CFTC receives fees and asset-based fees that vary
according to the account size and type of account. PFPC is responsible for
shareholder recordkeeping and financial processing for all shareholder accounts
and is paid by CFTC. For the period ended April 30, 2000, the Fund paid transfer
agent fees of $2,535 to CFTC.
There is a maximum initial sales charge of 5.00% and 1.00% for Class A shares
and L shares, respectively. There is a contingent deferred sales charge ("CDSC")
of 5.00% on Class B shares, which applies if redemption occurs within one year
from initial purchase and declines thereafter by 1.00% per year until no CDSC is
incurred. Class L shares are being sold at net asset value plus a maximum
initial sales charge of 1.00%. Class L shares also have a 1.00% CDSC, which
applies if redemption occurs within the first year of purchase.
For the period ended April 30, 2000, CDSCs paid to CFBDS and sales charges
received by SSB and CFBDS were approximately:
CLASS A CLASS B CLASS L
================================================================================
CDSCs -- $2,000 $ 1,000
--------------------------------------------------------------------------------
Sales Charges $159,000 -- $125,000
================================================================================
Pursuant to a Distribution Plan, the Fund pays a service fee with respect to
Class A, B and L shares calculated at an annual rate of 0.25% of the average
daily net assets of each respective class. The Fund also pays a distribution fee
with respect to Class B and L shares calculated at an annual rate of 0.75% of
the average daily net assets for each class, respectively.
For the period ended April 30, 2000, total Distribution Plan fees incurred were:
CLASS A CLASS B CLASS L
================================================================================
Distribution Plan Fees $3,041 $20,460 $16,463
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. INVESTMENTS
During the period ended April 30, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $38,980,349
--------------------------------------------------------------------------------
Sales $ 2,638,753
================================================================================
At April 30, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 3,663,329
Gross unrealized depreciation (2,987,178)
-------------------------------------------------------------------------------
Net unrealized appreciation $ 676,151
================================================================================
--------------------------------------------------------------------------------
12 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
--------------------------------------------------------------------------------
4. REPURCHASE AGREEMENTS
The Fund purchases (and its custodian takes possession of) U.S. government
securities from banks and securities dealers subject to agreements to resell the
securities to the sellers at a future date (generally, the next business day) at
an agreed upon higher repurchase price. The Fund requires continual maintenance
of the market value of the collateral in amounts at least equal to the
repurchase price.
5. CONCENTRATION OF RISK
The Fund intends to invest at least 80% of its assets in health related
investments. As a result of this concentration policy, which is a fundamental
policy of the Fund, the Fund's investment may be subject to greater risk and
market fluctuation than a fund that invests in securities representing a broader
range of investment alternatives.
The Fund's investments in foreign securities may involve risks not present in
domestic investments. Since securities may be denominated in a foreign currency
and may require settlement in foreign currencies and pay interest or dividends
in foreign currencies, changes in the relationship of these foreign currencies
to the U.S. dollar can significantly affect the value of these investments and
earnings of the Fund. Foreign investments may also subject the Fund to foreign
government exchange restrictions, expropriation, taxation or other political,
social or economic developments, all of which could affect the market and/or
credit risk of the investments.
6. CAPITAL SHARES
At April 30, 2000, the Fund had 750 million shares of capital stock authorized
with a par value of $0.001 per share. The Fund has the ability to issue multiple
classes of shares. Each share of a class represents an identical interest in the
Fund and has the same rights, except that each class bears certain expenses
specifically related to the distribution of its shares.
At April 30, 2000, total paid-in capital amounted to the following for each
class:
CLASS A CLASS B CLASS L
================================================================================
Total Paid-in Capital $9,043,630 $15,009,248 $13,109,420
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
FEBRUARY 28, 2000
(COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 2000
(UNAUDITED)
========================================================================================
AMOUNT SHARES VALUE
----------------------------------------------------------------------------------------
<S> <C> <C>
CLASS A
Shares sold 813,128 $ 9,306,899
Shares issued on reinvestment -- --
Shares reacquired (22,826) (263,269)
----------------------------------------------------------------------------------------
Net Increase 790,302 $ 9,043,630
=========================================================================================
CLASS B
Shares sold 1,332,847 $ 15,257,091
Shares issued on reinvestment -- --
Shares reacquired (21,416) (247,843)
----------------------------------------------------------------------------------------
Net Increase 1,311,431 $ 15,009,248
=========================================================================================
CLASS L
Shares sold 1,161,393 $ 13,294,549
Shares issued on reinvestment -- --
Shares reacquired (16,351) (185,129)
----------------------------------------------------------------------------------------
Net Increase 1,145,042 $ 13,109,420
=========================================================================================
</TABLE>
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND 13
<PAGE>
-----------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-----------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS A SHARES
==============================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.01)
Net realized and unrealized gain 0.40
------------------------------------------------------------------------------
Total Income From Operations 0.39
------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
------------------------------------------------------------------------------
Total Distributions --
------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.79
------------------------------------------------------------------------------
TOTAL RETURN 3.42%++
------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $9,320
------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.50%+
Net investment loss (0.54)%+
------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 28%
==============================================================================
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment income (loss) per share and the ratios would have been
as follows:
Net investment loss per share $(0.02)
RATIOS:
Expenses to average net assets 2.40%+
Net investment loss to average net assets (1.44)%+
================================================================================
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
14 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS B SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.02)
Net realized and unrealized gain 0.40
--------------------------------------------------------------------------------
Total Income From Operations 0.38
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.78
--------------------------------------------------------------------------------
TOTAL RETURN 3.33%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $15,448
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.25%+
Net investment loss (1.29)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 28%
================================================================================
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as
follows:
Net investment loss per share $ (0.03)
RATIOS:
Expenses to average net assets 3.15%+
Net investment loss to average net assets (2.19)%+
================================================================================
++ Total return is not annualized, as it may not be representative of the total
return for the year.
+ Annualized.
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND INC. 15
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 2000 (UNAUDITED)
CLASS L SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.02)
Net realized and unrealized gain 0.40
--------------------------------------------------------------------------------
Total Income From Operations 0.38
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.78
--------------------------------------------------------------------------------
TOTAL RETURN 3.33%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $13,488
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.25%+
Net investment loss (1.29)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 28%
================================================================================
Note: If Agents of the Fund had not voluntarily waived a portion of their fees,
the net investment loss per share and the ratios would have been as
follows:
Net investment loss per share $(0.03)
RATIOS:
Expenses to average net assets 3.15%+
Net investment loss to average net assets (2.19)%+
================================================================================
++ Total return is not annualized, as it may not be representative of the total
return for the year
+ Annualized.
--------------------------------------------------------------------------------
16 2000 SEMI-ANNUAL REPORT TO SHAREHOLDERS
<PAGE>
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<PAGE>
SMITH BARNEY
HEALTH SCIENCES FUND
DIRECTORS
Herbert Berg
Alfred J. Bianchetti
Martin Brody
Dwight B. Crane
Burt N. Dorsett
Elliot S. Jaffe
Stephen E. Kaufman
Joseph J. McCann
Heath B. McLendon, CHAIRMAN
Cornelius C. Rose, Jr.
James J. Crisona, EMERITUS
OFFICERS
Heath B. McLendon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Lewis E. Daidone
SENIOR VICE PRESIDENT AND TREASURER
Irving P. David
CONTROLLER
Christina T. Sydor
SECRETARY
INVESTMENT MANAGER
SSBCiti Fund Management LLC
INVESTMENT SUBADVISER
Citibank, N.A.
DISTRIBUTOR
CFBDS, Inc.
CUSTODIAN
State Street Bank &Trust Co.
TRANSFER AGENT
Citi Fiduciary Trust Company
388 Greenwich Street, 22nd Floor
New York, New York 10013
SUB-TRANSFER AGENT
PFPCGlobal Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
This report is submitted for the general information of shareholders of Smith
Barney Sector Series Inc.--Smith Barney Health Sciences Fund, but it may also be
used as sales literature when proceeded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after July 31,
2000, this report must be accompanied by performance information for the most
recently completed calendar quarter.
SALOMONSMITHBARNEY
------------------
A member of citigroup[logo]
SALOMON SMITH BARNEY
SMITH BARNEY HEALTH
SCIENCES FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
WWW.SMITHBARNEY.COM/MUTUALFUNDS
FD01911 4/00
