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SMITH BARNEY
SECTOR SERIES INC.
FINANCIAL SERVICES FUND
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RESEARCH SERIES | ANNUAL REPORT | OCTOBER 31, 2000
[LOGO OMITTED]
Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed(SM)
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NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
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<PAGE>
[Graphic] Research Series
ANNUAL REPORT o OCTOBER 31, 2000
SMITH BARNEY FINANCIAL
SERVICES FUND
CITIBANK GLOBAL ASSET
MANAGEMENT
Citibank, N.A., through its Citibank Global Asset Management division, is the
subadviser to the Fund. Comprised of a seasoned group of investment and research
professionals, the Fund's management team follows a systematic and rigorous
approach designed to provide appropriate exposure to each market sector.
FUND OBJECTIVE
The Fund seeks long-term capital appreciation by investing primarily in common
stocks. The Fund invests at least 80% of its assets in securities of companies
principally engaged in providing financial services to consumers and industry.
These companies may include, for example, commercial banks, savings and loan
associations, broker-dealers, investment banks, investment advisers, insurance
companies, real estate-related companies, leasing companies, and consumer and
industrial finance companies.
FUND FACTS
FUND INCEPTION
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February 28, 2000
CLASS A CLASS B CLASS L
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NASDAQ N/A SBFBX SFSLX
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Inception 2/28/00 2/28/00 2/28/00
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SMITH BARNEY FINANCIAL SERVICES FUND*
AVERAGE ANNUAL TOTAL RETURNS AS OF OCTOBER 31, 2000
WITHOUT SALES CHARGES(1)
Class A Class B Class L
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Since Inception
(February 28, 2000)** 39.39% 38.68% 38.68%
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WITH SALES CHARGES(2)
Class A Class B Class L
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Since Inception
(February 28, 2000)** 32.42% 33.68% 36.30%
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* 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 deduction of all 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 sales charge of 5.00% and 1.00%, respectively; and
Class B shares reflect the deduction of a 5.00% CDSC, which applies if
shares are redeemed within one year from initial purchase. Thereafter, this
CDSC declines by 1.00% per year until no CDSC is incurred. Class L shares
also reflect the deduction of a 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
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WHAT'S INSIDE
Your Investment in the Smith Barney
Financial Services Fund ............................ 1
A Letter from the Chairman ......................... 2
Fund at a Glance ................................... 3
Shareholder Letter ................................. 4
Schedule of Investments ............................ 8
Statement of Assets and Liabilities ................ 11
Statement of Operations ............................ 12
Statement of Changes in Net Assets ................. 13
Notes to Financial Statements ...................... 14
Financial Highlights ............................... 17
Independent Auditors` Report ....................... 20
[LOGO OMITTED]
Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed(SM)
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Investment Products: Not FDIC Insured o Not Bank Guaranteed o May Lose Value
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<PAGE>
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YOUR INVESTMENT IN THE SMITH BARNEY FINANCIAL SERVICES FUND
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Led by Citibank N.A. through its Citibank Global Asset Management ("CGAM")
division, the Fund offers investors the opportunity to participate in the
long-term growth potential of the financial services industry. The Fund's
management team is comprised of a seasoned group of investment and research
professionals who follow a systematic and rigorous approach designed to provide
appropriate exposure to each market sector.
[GRAPHIC] FINANCIAL SERVICES--A DYNAMIC MARKET SECTOR
Changing demographic trends--coupled with recent economic growth
in the U.S.--has led to higher demand for financial services.
This increased demand, combined with industry consolidation,
evolving distribution channels and industry deregulation, may
offer exciting investment opportunities in financial services.
[GRAPHIC] DIVERSIFICATION IN A TARGETED SECTOR*
An investment in the Fund offers investors a way to invest in the
broad range of financial service companies both in the U.S. and
abroad. The Fund's investments may include companies in a wide
range of industries such as commercial banks, real estate and
insurance among others.
[GRAPHIC] THE BENEFITS OF EXHAUSTIVE FUNDAMENTAL SECURITIES ANALYSIS--
THE RESEARCH SERIES
The Research Series is a selection of Smith Barney Mutual Funds
built on a foundation of substantial buy-side research under the
direction of Citibank Global Asset Management. This series of
funds focus on well-defined industries, sectors and trends.
[GRAPHIC] A COMMITMENT TO MANAGING YOUR SERIOUS MONEY
SSB Citi Asset Management Group ("SSB Citi"), the investment
management division of Citigroup comprises Smith Barney Asset
Management, Salomon Brothers Asset Management and Citibank Global
Asset Management, each an organization with extensive investment
capabilities.
SSB Citi, as a member of one of the largest financial services
providers in the world, offers you the benefits of our global
capabilities. At SSB Citi, you gain access to portfolio
management delivered professionally. We are proud to offer you,
the serious investor, a variety of managed solutions.
*Please note that because the Fund invests in a single industry, its shares do
not represent a complete investment program and the value of its shares may
fluctuate more than shares invested in a broader range of industries.
1 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
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A LETTER FROM THE CHAIRMAN
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[PHOTO]
HEATH B. MCLENDON
CHAIRMAN
The new millennium, so far, has been marked by higher volatility and concerns
that the bull market in stocks may be running out of steam. At SSB Citi Asset
Management Group ("SSB Citi"), we have instituted many positive changes, with
the ultimate goal of offering our investors a well-rounded menu of stock and
bond funds that can be tailored to a wide range of investment objectives.
We believe that your serious money demands professional management. Since 1937,
Smith Barney has managed the serious money of individuals, their families and
their businesses. Today, with over $398.6 billion in assets under management,(1)
SSB Citi offers choices and solutions, uniting the distinguished history of
Smith Barney with the unparalleled global reach of its parent, Citigroup.
A FEW THOUGHTS ON SECTOR INVESTING
Over the past few years, we have seen how profoundly the advancements made in
sectors such as technology and telecommunications have transformed our daily
lives. Computer applications, wireless communications and biotechnological
discoveries have created new investment opportunities and have also transformed
the financial services industry. The new and developing sectors of the economy
that are involved in bringing these products, services and technologies to life
may offer exceptional growth potential, and many investors should consider
having a portion of their investment portfolios in them.
Although most of us recognize that certain sectors drive the economy, we believe
it is much more difficult to determine which companies within a particular
sector, such as financial services, will perform better than the others over
time. The team of experienced professionals at Citibank N.A. thoroughly
researches a broad range of companies within a given sector and carefully
analyzes them, looking to identify those companies that they believe offer the
greatest growth potential over the long term. Through this exhaustive and
proprietary process, CGAM seeks to offer you an opportunity to participate in
those companies that it believes are best-positioned in their respective
industries.
Yet, when investing in a sector fund, it is important to understand that these
funds may experience a significant amount of short-term volatility. We think you
need to maintain a long-term investment horizon and remember that sector funds
may be appropriate as part of an overall portfolio that has more conservative
investments.
When you invest with SSB Citi, 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 success.
Thank you for your confidence in our investment management approach.
Sincerely,
/s/ Heath B. McLendon
------------------------
Heath B. McLendon
Chairman
November 6, 2000
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(1) AS OF OCTOBER 31, 2000. THIS FIGURE REPRESENTS RETAIL, INSTITUTIONAL, MONEY
AND SEPARATE ACCOUNTS.
2 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
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SMITH BARNEY FINANCIAL SERVICES FUND AT A GLANCE (UNAUDITED)
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GROWTH OF $10,000 INVESTED IN THE
SMITH BARNEY FINANCIAL SERVICES FUND VS. GOLDMAN SACHS FINANCIALS INDEX
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[The following table represents a line chart in the printed piece.]
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) -- OCTOBER 31, 2000
Class A GOLDMAN
2/28/00 9500 10000
2/29/00 9516.67 10000
3/31/00 11108.3 11759
4/28/00 10725 11348.6
5/31/00 11358.3 11992.1
6/30/00 10741.7 11330.1
7/31/00 11641.7 12353.2
8/31/00 12758.3 13545.3
9/30/00 13266.7 14005.8
10/31/00 13241.7 13914.8
A $10,000 investment in the Fund made on February 28, 2000 would have grown to
$13,242 with sales charge (as of October 31, 2000). The graph shows how the Fund
compares to its benchmark for the same period. 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.
Please note that an investor cannot invest directly in an index.
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TOP TEN COMMON STOCK HOLDINGS*
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1. AMERICAN INTERNATIONAL GROUP ................... 4.9%
2. WELLS FARGO & CO. .............................. 4.8
3. BANK AMERICA CORP. ............................. 4.2
4. BERKSHIRE HATHAWAY INC. ........................ 4.1
5. AMERICAN EXPRESS CO. ........................... 4.0
6. FEDERAL NATIONAL MORTGAGE ASSOCIATION .......... 3.7
7. MORGAN STANLEY DEAN WITTER ..................... 3.6
8. FEDERAL HOME LOAN MORTGAGE CORP. ............... 2.8
9. CHASE MANHATTAN CORP. .......................... 2.6
10. MERRILL LYNCH & CO. INC. ....................... 2.4
* As a percentage of total investments.
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PORTFOLIO BREAKDOWN*
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[The following table represents a pie chart in the printed piece.]
1.1% Consumer Services
0.7% Discount Note
2.1% Savings & Loans
2.6% Real Estate
13.9% Brokers & Investment Managers
17.0% Financials Companies & Services
25.5% Insurance
37.1% Banks
3 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
DEAR SHAREHOLDER,
We are pleased to provide the annual report for the Smith Barney Sector Series
Inc.--Smith Barney Financial Services Fund ("Fund") for the period from February
28, 2000 through October 31, 2000. In this report we have summarized the
period's prevailing economic and market conditions and outlined our investment
strategy. The information provided in this letter 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 Fund. Please refer to pages 8 through 10 for a complete list and percentage
breakdown of the Fund's holdings. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow. We hope you find this
report to be useful and informative.
PERFORMANCE UPDATE AND FINANCIAL SERVICES SECTOR UPDATE
Since the Fund's inception on February 28, 2000 through October 31, 2000, the
Fund's Class A, shares, without and with sales charges returned 39.39% and
32.42%, respectively. In comparison, the Goldman Sachs Financials Index(1)
returned 39.15% for the same time period. Past performance is not indicative of
future results.
SECTOR INVESTING--THE CGAM PROCESS
Our approach to sector investing is based on exhaustive research that is
intensely focused and led by a group of seasoned investment professionals with
extensive industry expertise. Our team looks for analytical consistency through
intensive modeling and strict application of a consistent valuation methodology.
Our management team is made up of a group of high-quality, seasoned, investment
and research professionals who follow a systematic and rigorous strategy
designed to provide the right exposure to various industries within any
particular sector they cover. Our exhaustive fundamental research evaluates a
universe of businesses in our global quest to identify and participate in what
we deem attractive investment opportunities.
A THREE-STEP RESEARCH PROCESS
----------- ------------ ----------------
FUNDAMENTAL ---- QUANTITATIVE ---- ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
----------- ------------ ----------------
We apply a proprietary, systematic, risk-conscious approach to investing. We
combine fundamental research, quantitative research and active portfolio
management to create portfolios that we think should generate competitive
returns while helping to moderate risk over time.
In our view, there can be no substitute for in-depth analysis, which can often
provide a significant competitive edge in understanding company fundamentals.
(Of course, no assurances can be made that our approach will ultimately be
successful.)
Our fundamental, proprietary research can add value to active portfolio
management by providing timely and unbiased information to their decision-making
processes. Our team conducts on-site company visits and exhaustive research to
uncover the companies that they think have:
o Superior products or services
o Outstanding managements
----------
(1) THE GOLDMAN SACHS FINANCIALS INDEX IS COMPRISED OF COMPANIES IN THE BANKING
SERVICES, BROKERAGE, ASSET MANAGEMENT, INSURANCE AND REAL ESTATE INDUSTRIES.
PLEASE NOTE THAT AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
4 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
o Solid balance sheets
o Market leadership
o Leading innovation
In our opinion, these are the companies' strengths that can potentially create
real value and lead to strong earnings and sales growth, which ultimately drives
stock prices.
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WHILE THE NUMBER OF U.S. BANKING ORGANIZATIONS FELL BY ALMOST 30% BETWEEN 1988
AND 1997, ASSETS HELD BY INDUSTRY LEADERS HAVE CONSISTENTLY INCREASED, WHICH MAY
GIVE THESE WELL-POSITIONED COMPANIES ADDED PROFITS AND EFFICIENCIES.
SOURCE: REPORTS OF INCOME AND CONDITION AND NIC, 1988-1997,
FDIC HISTORICAL STATISTICS ON BANKING, AND MEYER, 1988.
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THE CGAM RESEARCH PROCESS DEFINED
We look to differentiate ourself from the traditional approach to investment
management in a number of ways that we can add value to our clients' portfolios.
Our management style can best be described as disciplined, yet flexible. Our
formidable global reach and local expertise enable us to nurture research teams
with direct access to the regions and industries where they do business. Our
research organization is centered on a team approach to stock research and
selection by covering hundreds of companies and working closely together both
within and across industry teams in a seamless fashion to reach a prudent
consensus.
Each stock analyst builds intensive, detailed company models from the ground up
that seek to anticipate a particular company's future financial performance.
These models are based on the company's competitive position within the
industry, quality of product offerings, costs and risks. These intensive models
detail the analyst's assumptions for potential profitability for the company
going forward and provide some of the necessary information to forecast company
fundamentals and make stock recommendations. Our research team looks to ensure
consistency in industry and accounting assumptions and that in turn can allow
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.
5 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
We believe 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 an investment rating on a company's stock.
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ECONOMISTS ESTIMATE THAT THE LARGEST PERIOD OF WEALTH TRANSFER IN HISTORY WILL
OCCUR AS AMERICANS TRANSFER $41 TRILLION OVER THE NEXT 55 YEARS.
SOURCE: HAVENS AND SCHERVISH, BOSTON COLLEGE, 1999
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FINANCIAL SERVICES SECTOR UPDATE
The financial service sector experienced high levels of volatility due to
concerns regarding the state of capital markets worldwide, telecommunications
debt and the slowing growth of the U.S. economy during the period. However, more
recently, the performance of the sector improved as investors realized that some
of the fears were overdone. Third quarter results from U.S. banks highlighted
some credit quality concerns but they were largely restricted to syndicated
lending. Banks which have limited exposure to syndicated lending and which have
been executing as per plan on their acquisitions are being rewarded by
investors. Brokerage stocks had a rough ride on concerns about slowing capital
markets activity and on their holding of telecom debt, but they are still
outperforming the sector year to date. U.S. insurers have generally reported
strong numbers, on the back of firmer pricing in property and casualty, and
solid domestic and international sales in the life and annuity group.
The financial services sector has also been largely characterized by increased
mergers and acquisition activity during the period. The recent blockbuster deals
between Credit Suisse First Boston and Donaldson, Lufkin & Jenrette, Union Bank
of Switzerland and PaineWebber, and between Chase Manhattan Bank and J.P. Morgan
continue the pattern of rapid consolidation that has radically altered the
financial services industry in recent years.
Other deals that have shaped the sector include the FleetBoston-Summit merger,
the Firstar-US Bancorp merger, and the Danske-RealDanmark merger. These
acquisitions reinforce our belief that the financial services industry may
continue to consolidate globally over the near term.
The Fund remains diversified within the financial services sector as it looks to
own a number of stocks in the many industries that make up the sector, most
notably, banks, insurance, diversified financial companies and real estate
investment trusts. Within the sector, the Fund is slightly overweight (relative
to the benchmark) in life insurer American General and Federal Home Loan
Mortgage Corporation ("Freddie Mac"), while underweight property and casualty
insurers, securities firms, asset management firms and real estate investment
trusts ("REITs").
Although the Fund is underweight in securities firms, we maintain a positive
outlook on Knight Trading, the largest independent securities market maker. With
the recent consolidations in this area, we believe Knight Trading is
well-positioned to either be acquired at a premium--since they are a top-notch
firm with great systems and execution capabilities--or to continue to earn
superior returns due to their technology infrastructure investments. (Of course,
no guarantees can be given that our expectations will be met.)
6 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
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EACH CGAM ANALYST BUILDS INTENSIVE, DETAILED COMPANY MODELS FROM THE GROUND UP
THAT SEEK TO ANTICIPATE A PARTICULAR COMPANY'S FUTURE FINANCIAL PERFORMANCE.
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Although we look to identify those companies held in the Fund through bottom-up
research and stock selection, our overall industry mix is consistent with the
top-down strategic industry themes (demographics, consolidation and
technological innovation) which we use for estimate forecasting and rating
formulation. Since the financial services industry is dynamic, we carefully
monitor the Fund's holdings to reflect any changes that may have an impact on
performance.
EXPERIENCED SECTOR FUND PORTFOLIO MANAGEMENT
The management of the Fund is driven by our analyst recommendations, long-term
earnings and earnings momentum, which form the basis of expected future returns
within any given sector. These expected returns, coupled with detailed risk
forecasts, determine what holdings will be selected. In building and maintaining
the Fund's portfolio, we look to avoid a high risk-to-return on its investments,
and carefully monitor sector performance, constantly looking for any material
changes and/or developments.
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 the years ahead.
Sincerely,
The Investment Team at
Citibank N.A.
NOVEMBER 7, 2000
7 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
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SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
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SHARES SECURITY VALUE
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COMMON STOCK -- 99.3%
BANKS -- 37.1%
26,790 Amsouth Bancorp $ 373,386
12,649 BB&T Corp. 403,187
64,585 Bank of America Corp. 3,104,117
12,578 Bank of Montreal 583,305
26,436 Bank of New York 1,521,722
41,667 Bank One Corp. 1,520,845
17,202 Canadian Imperial Bank 546,163
42,785 Chase Manhattan Corp. 1,946,717
7,047 Comerica 425,022
42,632 First Union Corp. 1,292,282
39,400 Firstar Corp. 775,687
15,297 Fleet Boston Financial Corp. 581,286
25,840 Huntington Bancshares Inc. 371,450
6,579 J.P. Morgan & Co. Inc. 1,088,824
16,510 KeyCorp 407,591
7,160 M & T Bank Corp. 359,432
8,225 Marshall & Ilsley Corp. 372,695
19,519 Mellon Financial Corp. 941,792
23,482 National City Corp. 501,928
7,824 Northern Trust Corp. 667,974
8,852 PNC Financial Services Group 591,977
16,509 Regions Financial Corp. 388,993
27,290 Royal Bank of Canada 863,046
11,749 Southtrust Corp. 380,374
5,100 State Street Corp. 636,174
26,680 Suntrust Banks Inc. 1,302,318
24,161 Synovus Financial Corp. 520,972
22,781 Toronto Dominion Bank 627,901
18,083 Unionbancal Corp. 379,743
76,694 Wells Fargo & Co. 3,551,891
6,863 Zions Bancorp 394,194
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27,422,988
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BROKERS & INVESTMENT MANAGERS -- 13.9%
6,163 Bear Stearns Companies Inc. 373,632
45,774 Charles Schwab Corp. 1,607,812
9,889 Franklin Resources Inc. 423,645
15,757 Goldman Sachs Group Inc. 1,572,746
18,773 Knight Trimark Group Inc. (a) 562,017
8,262 Lehman Brothers Holdings Inc. 532,899
25,290 Merrill Lynch & Co. Inc. 1,770,300
33,206 Morgan Stanley Dean Witter & Co. 2,666,857
8,413 Price, T. Rowe & Associates Inc. 393,834
22,084 TD Waterhouse Group Inc. (a) 365,766
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10,269,508
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CONSUMER SERVICES -- 1.1%
10,420 H&R Block Inc. 371,864
7,920 U.S.A. Education Inc. 442,530
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814,394
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SEE NOTES TO FINANCIAL STATEMENTS.
8 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
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SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
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SHARES SECURITY VALUE
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FINANCIAL COMPANIES & SERVICES -- 17.0%
17,117 Axa Financial Inc. $ 925,388
49,647 American Express Co. 2,978,820
24,857 Associates First Capital Corp. 922,816
6,717 Capital One Financial Corp. 424,011
34,891 Federal Home Loan Mortgage Corp. 2,093,460
35,213 Federal National Mortgage Association 2,711,401
16,970 Household International Inc. 853,803
29,294 MBNA Corp. 1,100,356
5,461 Providian Financial Corp. 567,944
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12,577,999
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INSURANCE -- 25.5%
9,390 Aflac Inc. 686,057
24,148 Allstate Corp. 971,957
18,783 American General Corp. 1,512,031
36,738 American International Group 3,600,324
11,285 Aon Corp. 467,622
48 Berkshire Hathaway Inc., Cl. A (a) 3,057,600
4,561 Cigna Corp. 556,214
9,736 Cincinnati Financial Corp. 357,798
8,096 Hartford Financial Services Group 602,646
5,597 Jefferson Pilot Corp. 384,794
21,604 Lincoln National Corp. 1,045,093
14,187 Loews Corp. 1,290,130
5,121 MBIA Inc. 372,233
6,594 MGIC Investment Corp. 449,216
9,708 Marsh & McLennan Companies Inc. 1,269,321
16,302 Protective Life Corp. 376,984
9,560 St. Paul Companies Inc. 489,950
24,849 Unumprovident Corp. 701,984
8,465 XL Capital Ltd. 650,747
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18,842,701
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REAL ESTATE -- 2.6%
16,153 Archstone Communities Trust 380,605
11,915 Equity Office Properties Trust 358,939
37,263 Prologis Trust 782,523
13,357 Starwood Hotels and Resorts 395,701
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1,917,768
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SAVINGS & LOAN -- 2.1%
10,160 Golden West Financial Corp. 569,595
21,545 Washington Mutual Inc. 947,980
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1,517,575
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TOTAL COMMON STOCK
(Identified Cost-- $62,469,866) 73,362,933
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
9 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
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SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
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DISCOUNT NOTE -- 0.7%
$ 492,000 Student Loan Marketing Discount Note
6.45% due 11/01/00
(Identified Cost-- $492,000) $ 492,000
================================================================================
TOTAL INVESTMENTS -- 100%
(Identified Cost-- $62,961,866)* $73,854,933
================================================================================
(a) NON-INCOME PRODUCING SECURITY.
* AGGREGATE COST FOR FEDERAL INCOME TAXES IS SUBSTANTIALLY THE SAME.
SEE NOTES TO FINANCIAL STATEMENTS.
10 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
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STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
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ASSETS:
Investments, at value (Cost $62,961,866) $73,854,933
Cash 238
Receivable for securities sold 6,548,350
Receivable for fund shares sold 378,605
Dividends and interest receivable 74,769
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TOTAL ASSETS 80,856,895
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LIABILITIES:
Payable for securities purchased 6,839,347
Distribution fees payable 49,896
Management fees payable 4,507
Payable for Fund shares repurchased 100
Accrued expenses and other liabilities 127,746
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TOTAL LIABILITIES 7,021,596
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TOTAL NET ASSETS $73,835,299
================================================================================
NET ASSETS:
Par value of capital shares $ 4,666
Capital paid in excess of par value 60,482,287
Undistributed net investment income 87,112
Accumulated net realized gain from security transactions 2,373,977
Net unrealized appreciation of investments 10,887,257
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TOTAL NET ASSETS $73,835,299
================================================================================
SHARES OUTSTANDING:
Class A 898,679
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Class B 1,815,227
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Class L 1,952,207
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NET ASSET VALUE:
Class A (and redemption price) $15.89
---------------------------------------------------------------------------
Class B * $15.81
---------------------------------------------------------------------------
Class L ** $15.81
---------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of
net asset value per share) $16.73
---------------------------------------------------------------------------
Class L (net asset value plus 1.01% of
net asset value per share) $15.97
================================================================================
* 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.
11 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
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STATEMENT OF OPERATIONS
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FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO
OCTOBER 31, 2000
INVESTMENT INCOME:
Dividends $ 670,403
Interest 41,152
Less: Foreign withholding tax (5,838)
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TOTAL INVESTMENT INCOME 705,717
-------------------------------------------------------------------------------
EXPENSES:
Distribution fees(Note 2) 276,571
Management fees (Note 2) 260,242
Custody fees 170,543
Shareholder communications 39,237
Legal fees 34,871
Registration fees 21,642
Audit fees 17,667
Directors' fees 7,727
Other 38,306
-------------------------------------------------------------------------------
TOTAL EXPENSES 866,806
Less: Aggregate amount waived by the Manager (Note 2) (179,543)
-------------------------------------------------------------------------------
NET EXPENSE 687,263
-------------------------------------------------------------------------------
NET INVESTMENT INCOME 18,454
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From:
Security transactions (excluding short-term securities) 2,373,977
-------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 10,887,257
-------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 13,261,234
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $13,279,688
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
12 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO
OCTOBER 31, 2000
OPERATIONS:
Net investment income $ 18,454
Net realized gain 2,373,977
Increase in net unrealized appreciation 10,887,257
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 13,279,688
-------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 67,499,965
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (6,944,354)
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 60,555,611
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS 73,835,299
NET ASSETS:
Beginning of period --
-------------------------------------------------------------------------------
END OF PERIOD* $73,835,299
===============================================================================
* Includes undistributed net investment income of: $ 87,112
===============================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
13 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Financial Services Fund is a non-diversified investment fund of
the Smith Barney Sector Series Inc. (the "Company"), a Maryland corporation. The
Company is registered under the Investment Company of 1940, as amended, as an
open-end management investment company and consists of this Fund and five other
separate investment funds: Smith Barney Health Sciences Fund, Smith Barney
Technology Fund, Smith Barney Global Biotechnology Fund, Smith Barney Global
Media & Telecommunications Fund and Smith Barney Global Technology Fund. 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; (m) the character of income and gains to be distributed in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At October 31, 2000, reclassifications were made to the
Funds' capital accounts to reflect permanent book/tax difference and income and
gains available for distribution under income tax regulations. Accordingly, the
Fund reclassified $68,658 from paid in capital to undistributed net investment
income. Net investment income, net realized gains and net assets were not
affected by this adjustment and (n) estimates and assumptions are required to be
made regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in the economic
environment, financial markets and any other parameters used in determining
these estimates could cause actual results to differ.
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.
14 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 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 Portfolio 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 $260,242, of which $179,543 was waived for the period ended October 31, 2000.
Salomon Smith Barney Inc. ("SSB"), another subsidiary of SSBH, acts as the
Fund's distributor, 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 October 31, 2000, the Fund paid
transfer agent fees of $22,796 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 also have a 1.00% CDSC, which applies if redemption
occurs within the first year of purchase.
For the period ended October 31, 2000, CDSCs paid to SSB and sales charges
received by SSB were approximately:
CLASS A CLASS B CLASS L
================================================================================
CDSCs $ 1,000 $16,000 $ 13,000
--------------------------------------------------------------------------------
Sales Charges 219,000 68,000 262,000
================================================================================
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 October 31, 2000, total Distribution Plan fees incurred
were:
CLASS A CLASS B CLASS L
================================================================================
Distribution Plan Fees $16,244 $126,651 $133,676
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the period ended October 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $72,397,162
--------------------------------------------------------------------------------
Sales $12,301,238
================================================================================
At October 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $11,811,518
Gross unrealized depreciation (918,451)
--------------------------------------------------------------------------------
Net unrealized appreciation $10,893,067
================================================================================
15 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 (plus accrued interest) in amounts at
least equal to the repurchase price.
5. Concentration of Risk
The Fund normally invests 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 investments 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 October 31, 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 October 31, 2000, total paid-in capital amounted to the following for each
class:
CLASS A CLASS B CLASS L
================================================================================
Total Paid-in Capital $11,621,388 $23,464,394 $25,469,829
================================================================================
Transactions in shares of each class were as follows:
FEBRUARY 28, 2000
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 2000
----------------------------------
SHARES AMOUNT
================================================================================
CLASS A
Shares sold 1,080,686 $ 14,251,729
Shares issued on reinvestment -- --
Shares reacquired (182,007) (2,630,341)
--------------------------------------------------------------------------------
Net Increase 898,679 $ 11,621,388
================================================================================
CLASS B
Shares sold 1,940,132 $ 25,240,302
Shares issued on reinvestment -- --
Shares reacquired (124,905) (1,775,908)
--------------------------------------------------------------------------------
Net Increase 1,815,227 $ 23,464,394
================================================================================
CLASS L
Shares sold 2,129,426 $ 28,007,934
Shares issued on reinvestment
Shares reacquired (177,219) (2,538,105)
--------------------------------------------------------------------------------
Net Increase 1,952,207 $ 25,469,829
================================================================================
16 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK, FROM FEBRUARY 28, 2000 (COMMENCEMENT
OF OPERATIONS) TO OCTOBER 31, 2000
CLASS A SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment income 0.05
Net realized and unrealized gain 4.44
--------------------------------------------------------------------------------
Total Income From Operations 4.49
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.89
--------------------------------------------------------------------------------
TOTAL RETURN 39.39%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $14,276
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.51%+
Net investment income 0.69%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26%
================================================================================
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 income per share $0.05
RATIOS:
Expenses to average net assets 2.06%+
Net investment income to average net assets 0.14%+
================================================================================
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE
TOTAL RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
17 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK, FROM FEBRUARY 28, 2000 (COMMENCEMENT
OF OPERATIONS) TO OCTOBER 31, 2000
CLASS B SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.01)
Net realized and unrealized gain 4.42
--------------------------------------------------------------------------------
Total Income From Operations 4.41
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.81
--------------------------------------------------------------------------------
TOTAL RETURN 38.68%++
NET ASSETS, END OF PERIOD (000S) $28,696
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.26%+
Net investment loss (0.07)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26%
================================================================================
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 $(0.06)
RATIOS:
Expenses to average net assets 2.81%+
Net investment loss to average net assets (0.62)%+
================================================================================
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
18 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK, FROM FEBRUARY 28, 2000 (COMMENCEMENT
OF OPERATIONS) TO OCTOBER 31, 2000
CLASS L SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.01)
Net realized and unrealized gain 4.42
--------------------------------------------------------------------------------
Total Income From Operations 4.41
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $15.81
--------------------------------------------------------------------------------
TOTAL RETURN 38.68%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $30,863
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.26%+
Net investment loss (0.08)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26%
================================================================================
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 $(0.07)
RATIOS:
Expenses to average net assets 2.81%+
Net investment loss to average net assets (0.63)%+
================================================================================
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
19 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS` REPORT
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE SMITH BARNEY SECTORS SERIES INC.
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Financial Services Fund of Smith
Barney Sectors Series Inc. as of October 31, 2000, the related statements of
operations, changes in net assets and financial highlights for the period
February 28, 2000 (Commencement of Operations) through October 31, 2000. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
As to securities purchased or sold but not yet received or delivered, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Financial Services Fund of Smith Barney Sectors Series Inc. as of October
31, 2000, the results of its operations, the changes in its net assets and
financial highlights for the period February 28, 2000 through October 31, 2000,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
------------
New York, New York
December 11, 2000
20 SMITH BARNEY FINANCIAL SERVICES FUND | 2000 Annual Report to Shareholders
<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
SSB Citi Fund Management LLC
INVESTMENT SUBADVISER
Citibank, N.A.
DISTRIBUTORS
Salomon Smith Barney, Inc.
PFS Distributors Inc.
CUSTODIAN
State Street Bank & Trust Co.
TRANSFER AGENT
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
SUB-TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island
02940-9699
<PAGE>
SMITH BARNEY FINANCIAL SERVICES FUND
--------------------------------------------------------------------------------
This report is submitted for general information of the shareholders of Smith
Barney Sector Series Inc. -- Smith Barney Financial Services Fund, but it may
also be used as sales literature when preceded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after January 31,
2001, this report must be accompanied by performance information for the most
recently completed calendar quarter.
SMITH BARNEY FINANCIAL SERVICES FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any Smith Barney Mutual Funds, including management
fees and expenses, call or write your financial professional for a free
prospectus. Read it carefully before you invest or send money.
www.smithbarney.com/mutualfunds
[SALOMON SMITH BARNEY LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
FD02127 12/00
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
SECTOR SERIES INC.
HEALTH SCIENCES FUND
--------------------------------------------------------------------------------
RESEARCH SERIES | ANNUAL REPORT | OCTOBER 31, 2000
[LOGO OMITTED] SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(SM)
--------------------------------------------------------------------------------
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
--------------------------------------------------------------------------------
<PAGE>
[GRAPHIC] Research Series
Annual Report o October 31, 2000
SMITH BARNEY HEALTH SCIENCES FUND
CITIBANK GLOBAL ASSET MANAGEMENT
Citibank, N.A., through its Citibank Global Asset Management division is the
subadviser to the Fund. Comprised of a seasoned group of investment and research
professionals, the Fund's management team follows a systematic and rigorous
approach designed to provide appropriate exposure to each market sector.
FUND OBJECTIVE
The Fund seeks long-term capital appreciation by investing primarily in common
stocks. The Fund normally invests at least 80% of its assets in securities of
companies principally engaged in the design, manufacturing, or sale of products
or services used for or in connection with health care or medicine.
FUND FACTS
FUND INCEPTION
--------------------------------------------------------------------------------
February 28, 2000
CLASS A CLASS B CLASS L
--------------------------------------------------------------------------------
NASDAQ N/A SBHBX SBHLX
--------------------------------------------------------------------------------
INCEPTION 2/28/00 2/28/00 2/28/00
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND*
TOTAL RETURNS AS OF OCTOBER 31, 2000
WITHOUT SALES CHARGES(1)
Class A Class B Class L
--------------------------------------------------------------------------------
Since Inception
(February 28, 2000)** 27.11% 26.49% 26.49%
--------------------------------------------------------------------------------
WITH SALES CHARGES(2)
Class A Class B Class L
--------------------------------------------------------------------------------
Since Inception
(February 28, 2000)** 20.75% 21.49% 24.23%
--------------------------------------------------------------------------------
* Since the Fund focuses its investments on companies involved in the health
sciences, 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 deduction of all applicable
sales charges with respect to Class A and L shares of 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 sales charge of 5.00% and 1.00%, respectively; and
Class B shares reflect the deduction of a 5.00% CDSC, which applies if
shares are redeemed within one year from initial purchase. Thereafter, this
CDSC declines by 1.00% per year until no CDSC is incurred. Class L shares
also reflect the deduction of 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
WHAT'S INSIDE
Your Investment in the Smith Barney
Health Sciences Fund ..................................1
Letter from the Chairman ..............................2
Fund at a Glance ......................................3
Shareholder Letter ....................................4
Schedule of Investments ...............................8
Statement of Assets and Liabilities ..................10
Statement of Operations ..............................11
Statement of Changes in Net Assets ...................12
Notes to Financial Statements ........................13
Financial Highlights .................................16
Independent Auditors' Report .........................19
[LOGO OMITTED] SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(SM)
--------------------------------------------------------------------------------
Investment Products: Not FDIC Insured o Not Bank Guaranteed o May Lose Value
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
YOUR INVESTMENT IN THE SMITH BARNEY HEALTH SCIENCES FUND
--------------------------------------------------------------------------------
Led by Citibank N.A. through its Global Asset Management ("CGAM") division the
Fund offers investors the opportunity to participate in the long-term growth
potential of the health sciences industry. The Fund's management team is
comprised of a seasoned group of investment and research professionals who
follow a systematic and rigorous approach designed to provide appropriate
exposure to each market sector.
[GRAPHIC OMITTED]
POPULATION CHANGES CAUSING DEMAND TO RISE
Americans are living longer than ever before, and because spending on
healthcare typically increases with age, the demand for health services and
products is expected to rise. Offering investors a convenient way to
participate in the potential growth of this sector, CGAM carefully monitors
new trends and shifting demands related to healthcare.
[GRAPHIC OMITTED]
DIVERSIFICATION IN A TARGETED SECTOR*
An investment in the Fund offers investors a way to invest in a broad range
of companies in the health sciences sector. The Fund's investments may
include companies in a wide range of industries such as biotechnology,
pharmaceuticals and managed healthcare.
[GRAPHIC OMITTED]
THE BENEFITS OF EXHAUSTIVE FUNDAMENTAL SECURITIES ANALYSIS--THE RESEARCH
SERIES
The Research Series is a selection of Smith Barney Mutual Funds built on a
foundation of substantial buy-side research under the direction of CGAM. This
series of funds focus on potential opportunities from well-defined
industries, sectors and trends.
[GRAPHIC OMITTED]
A COMMITMENT TO MANAGING YOUR SERIOUS MONEY
SSB Citi Asset Management Group ("SSB Citi"), the investment management
division of Citigroup, comprises Smith Barney Asset Management, Salomon
Brothers Asset Management and Citibank Global Asset Management, each an
organization with extensive investment capabilities.
SSB Citi, as a member of one of the largest financial services providers in
the world, offers you the benefits of our unparalleled global capabilities.
At SSB Citi, you gain access to portfolio management delivered
professionally. We are proud to offer you, the serious investor, a variety of
managed solutions.
*Please note that because the Fund invests in a single industry, its shares do
not represent a complete investment program, and the value of its shares may
fluctuate more than shares invested in a broader range of industries.
1 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
--------------------------------------------------------------------------------
The new millennium, so far, has been marked by higher volatility and concerns
that the bull market in stocks may be running out of steam. At SSB Citi Asset
Management Group ("SSB Citi"), we have instituted many positive changes, with
the ultimate goal of offering our investors a well-rounded menu of stock and
bond funds that can be tailored to a wide range of investment objectives.
We believe that your serious money demands professional management. Since 1937,
Smith Barney has managed the serious money of individuals, their families and
their businesses. Today, with over $398.6 billion in assets under management,(1)
SSB Citi offers choices and solutions, uniting the distinguished history of
Smith Barney with the unparalleled global reach of its parent, Citigroup.
A FEW THOUGHTS ON SECTOR INVESTING
Over the past few years, we have seen how profoundly the advancements made in
the healthcare sector have transformed our daily lives. Many companies in this
sector may offer exceptional growth potential and many investors should consider
having a portion of their investment portfolios in them.
Although most of us recognize that certain sectors drive the economy, we believe
it is much more difficult to determine which companies within a particular
sector, such as healthcare, will perform better than the others over time. The
team of experienced professionals at Citibank N.A. thoroughly researches a broad
range of companies within a given sector and carefully analyzes them, looking to
identify those companies that they believe offer the greatest growth potential
over the long term. Through this exhaustive and proprietary process, CGAM seeks
to offer you an opportunity to participate in those companies that it believes
are best-positioned in their respective industries.
[PHOTO OMITTED]
HEATH B. MCLENDON
CHAIRMAN
Yet, when investing in a sector fund, it is important to understand that these
funds may experience a significant amount of short-term volatility. We think you
need to maintain a long-term investment horizon and remember that sector funds
may be appropriate as part of an overall portfolio that has more conservative
investments.
When you invest with SSB Citi, 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 success.
Thank you for your confidence in our investment management approach.
Sincerely,
/s/ Heath B. McLendon
---------------------
Heath B. McLendon
Chairman
NOVEMBER 6, 2000
--------------------
(1) AS OF OCTOBER 31, 2000. THIS FIGURE REPRESENTS RETAIL, INSTITUTIONAL, MONEY
AND SEPARATE ACCOUNTS.
2 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY HEALTH SCIENCES FUND AT A GLANCE (UNAUDITED)
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SHARES OF THE
SMITH BARNEY HEALTH SCIENCES FUND VS. GOLDMAN SACHS HEALTHCARE INDEX
--------------------------------------------------------------------------------
FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) -- OCTOBER 31, 2000
[Table below represents line chart in printed piece]
Class A Healthcare Index*
2/28/00 9500 10000
9550 10000
3/31/00 9450 9932
4/28/00 9825 10376
5/31/00 10225 10781.7
6/30/00 11391.7 11954.7
7/31/00 11016.7 11550.6
8/31/00 11375 11967.6
9/39/00 11858.3 12495.4
10/30/00 12075 12796.5
A $10,000 investment in the Fund made on February 28, 2000 would have grown to
$12,075 with sales charge (as of October 31, 2000). The graph shows how the fund
compares to its benchmark for the same period. 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. Please note that an investor cannot invest directly in an index.
TOP TEN COMMON STOCK HOLDINGS*
1. MERCK & CO., INC. ................................ 7.2%
2. ELI LILLY & CO. .................................. 7.2
3. PFIZER, INC. ..................................... 6.6
4. JOHNSON & JOHNSON, INC. .......................... 6.1
5. AMERICAN HOME PRODUCTS CORP. ..................... 5.4
6. ABBOTT LABS ...................................... 5.4
7. BRYSTOL MYERS-SQUIBB CO. ......................... 5.3
8. MEDTRONIC, INC. .................................. 4.9
9. SCHERING-PLOUGH CORP. ............................ 4.0
10. PHARMACIA & UPJOHN INC. .......................... 3.3
----------------------------------------------------------
PORTFOLIO BREAKDOWN*
----------------------------------------------------------
[Table below represents pie chart in printed piece]
0.8% Precision Instruments
1.4% Services to the Health Industry
1.5% Multi-Line Insurance
1.8% Generic Drugs
2.5% Managed Healthcare
3.0% Hospital Nursing Management
3.1% Medical/Dental Distributions
3.5% Pharmaceuticals
4.9% Medical Electronics
10.9% Medical Specialties
16.1% Biotechnology
50.5% Major Pharmaceuticals
* As a percentage of total common stocks.
3 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
DEAR SHAREHOLDER,
We are pleased to provide the annual report for the Smith Barney Sector Series
Inc.--Smith Barney Health Sciences Fund ("Fund") for the period from February
28, 2000 through October 31, 2000. In this report we have summarized the
period's prevailing economic and market conditions and outlined our investment
strategy. The information provided in this letter 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 Fund. Please refer to pages 8 through 9 for a complete list and percentage
breakdown of the Fund's holdings. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow. We hope you find this
report to be useful and informative.
PERFORMANCE UPDATE
From the period from inception on February 28, 2000 through October 31, 2000,
the Fund's Class A shares, without and with sales charges, returned 27.11% and
20.75%, respectively. In comparison, the Goldman Sachs Healthcare Index(1)
returned 27.97% for the same time period.
SECTOR INVESTING--THE CGAM PROCESS
Our approach to global sector investing is based on exhaustive research that is
intensely focused and led by a group of seasoned investment professionals with
extensive industry expertise. Our team looks for analytical consistency through
intensive modeling and strict application of a consistent valuation methodology.
Our management team is made up of a group of high-quality, seasoned, investment
and research professionals who follow a systematic and rigorous strategy
designed to provide the right exposure to various industries within any
particular sector they cover. Our exhaustive fundamental research evaluates a
universe of businesses in our global quest to identify and participate in what
we deem attractive investment opportunities.
A THREE-STEP RESEARCH PROCESS
----------- ------------ ----------------
FUNDAMENTAL QUANTITATIVE ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
----------- ------------ ----------------
We apply a proprietary, systematic, risk-conscious approach to investing. We
combine fundamental research, quantitative research and active portfolio
management to create portfolios that we think should generate competitive
returns while helping to moderate risk over time.
In our view, there can be no substitute for in-depth analysis, which can often
provide a significant competitive edge in understanding company fundamentals.
(Of course, no assurances can be made that our approach will ultimately be
successful.)
Our fundamental, proprietary research can add value to active portfolio
management by providing timely and unbiased information to their decision-making
processes. Our team conducts on-site company visits and exhaustive research to
uncover the companies that they think have:
------------------
(1) 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. PLEASE NOTE THAT AN INVESTOR CANNOT INVEST DIRECTLY IN AN INDEX.
4 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
o Superior products or services
o Outstanding managements
o Solid balance sheets
o Market leadership
o Leading innovation
In our opinion, these are the companies' strengths that can potentially create
real value and lead to strong earnings and sales growth, which ultimately drives
stock prices.
--------------------------------------------------------------------------------
TECHNOLOGICAL ADVANCES HAVE LED THE WAY FOR INNOVATIONS
IN THE HEALTH SCIENCES SECTOR SUCH AS LASER EYE SURGERY, BALLOON ANGIOPLASTY AND
MINIMALLY INVASIVE SURGERY.
--------------------------------------------------------------------------------
THE CGAM RESEARCH PROCESS DEFINED
We look to differentiate ourself from the traditional approach to investment
management in a number of ways that we think we can add value to the portfolio.
Our management style can best be described as disciplined, yet flexible. Our
formidable global reach and local expertise enable us to nurture research teams
with direct access to the regions and industries where they do business. Our
research organization is centered on a team approach to stock research and
selection by covering hundreds of companies and working closely together both
within and across industry teams in a seamless fashion to reach a prudent
consensus.
Each stock 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 within the industry, quality of
product offerings, costs and risks. These intensive models detail the analyst's
assumptions for potential profitability for the company going forward and
provides some of the necessary information to forecast company fundamentals and
make stock recommendations. Our research team looks to ensure consistency in
industry and accounting assumptions and that in turn can allow 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.
We believe this is a valuable and consistent method to provide current
valuations to securities. The DDM-based valuation process, in our 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 an investment rating on a company's stock.
5 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
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 AND A GREATER NUMBER OF THEM REACH AGE 65 AND BEYOND--THEIR PEAK HEALTH
CARE SPENDING DAYS.
SOURCE: STATISTICAL ABSTRACT OF THE UNITED STATES, 1999.
--------------------------------------------------------------------------------
HEALTH SCIENCES SECTOR UPDATE
The health sciences sector performed well during the period, as investors began
to shift their focus from technology stocks to stocks in the pharmaceutical and
medical provider industries. Most health care investors focused their attention
during the later part of the period on the upcoming U.S. presidential election
and its potential impact on Medicare reform, drug coverage topic that took
center stage. However, until a new president is elected, it is impossible to
determine the exact impact of proposed Medicare reform.
Relative to the sector, the Fund has a neutral weighting toward medical
providers; relative to the benchmark, an overweight in product companies like
Baxter International Inc., Medtronic, Inc. and Sybron International Corp.; and a
slight underweight in large pharmaceuticals. Though the Fund is underweighted in
pharmaceuticals as a group, we still see opportunities in Eli Lilly & Co.,
particularly in comparison to other large companies such as Merck & Co., Inc.,
Bristol Myers-Squibb Co. or American Home Products Corp. Eli Lilly will be
reporting on the trial results of its new sepsis treatment in February 2001 and
we feel it will be positive for stock sentiment. Other pharmaceutical and
biotechnology companies have not been able to achieve success in this area,
which we believe may lead to $2 billion per year in additional sales for Eli
Lilly. (Of course, no guarantees can be given that our expectations will be
met.)
--------------------------------------------------------------------------------
THE MANAGEMENT OF THE FUND IS DRIVEN BY ANALYST RECOMMENDATIONS, LONG-TERM
EARNINGS AND EARNINGS MOMENTUM FACTORS WHICH FORM THE BASIS OF EXPECTED FUTURE
RETURNS WITHIN ANY GIVEN SECTOR.
--------------------------------------------------------------------------------
We identify health sciences companies we currently hold in the Fund's portfolio
through our bottom-up fundamental research, yet the overall industry mix is
consistent with the top-down strategic industry themes, which we use for
estimate forecasting and rating formulation. Since industries within the health
sciences sector are generally quick to react to medical findings and conference
announcements, we carefully monitor the Fund's holdings to reflect any changes
that may have an impact on performance.
6 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
EXPERIENCED SECTOR FUND PORTFOLIO MANAGEMENT
The management of the sector funds is driven by our analyst recommendations,
long-term earnings and earnings momentum, which form the basis of expected
future returns within any given sector. These expected returns, coupled with
detailed risk forecasts, determine what holdings will be selected. In building
and maintaining the Fund's portfolio, we look to avoid a high risk-to-return on
its investments, and carefully monitor sector performance, constantly looking
for any material changes and/or developments.
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 the years ahead.
Sincerely,
The Investment Team at
Citibank N.A.
NOVEMBER 7, 2000
7 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
COMMON STOCK -- 100.0%
BIOTECHNOLOGY -- 16.1%
4,774 Abgenix, Inc.+ $ 376,549
4,760 Affymetrix, Inc.+ 263,585
4,495 Alkermes, Inc.+ 166,596
35,836 Amgen, Inc.+ 2,076,248
13,328 Biochemical Pharmaceuticals, Inc.+ 329,868
7,655 Biogen, Inc.+ 460,735
7,899 Chiron Corp.+ 342,125
23,700 Genentech Inc.+ 1,955,250
4,805 Genzyme Corp.+ 341,155
4,147 Gilead Sciences, Inc.+ 356,642
6,186 Human Genome Sciences, Inc.+ 546,784
2,838 Idec Pharmaceuticals Corp.+ 556,603
24,126 Immunex Corp.+ 1,026,863
3,365 Maxygen, Inc.+ 135,441
4,252 Medarex, Inc.+ 259,904
9,336 Medimmune, Inc.+ 610,341
8,858 Millennium Pharmaceuticals+ 642,759
2,704 PE Corp.-Celera+ 182,520
3,068 Protein Design Labs, Inc.+ 414,420
4,950 Vertex Pharmaceuticals, Inc.+ 460,891
--------------------------------------------------------------------------------
11,505,279
--------------------------------------------------------------------------------
GENERIC DRUGS -- 1.8%
9,904 Ivax Corp.+ 430,824
16,752 Mylan Labs, Inc. 469,056
6,378 Watson Pharmaceuticals, Inc.+ 399,024
--------------------------------------------------------------------------------
1,298,904
--------------------------------------------------------------------------------
HOSPITAL NURSING MANAGEMENT -- 3.0%
26,950 HCA Healthcare Corp. 1,076,316
22,676 Health Management Association+ 449,268
14,761 Tenet Healthcare Corp.+ 580,292
--------------------------------------------------------------------------------
2,105,876
--------------------------------------------------------------------------------
MAJOR PHARMACEUTICALS -- 50.5%
72,812 Abbott Labs 3,845,384
60,762 American Home Products Corp. 3,858,387
62,598 Brystol Myers-Squibb Co. 3,814,566
57,204 Eli Lilly & Co. 5,112,608
47,609 Johnson & Johnson, Inc. 4,385,979
57,314 Merck & Co., Inc. 5,154,678
109,788 Pfizer, Inc. 4,741,469
42,479 Pharmacia & Upjohn Inc. 2,336,345
55,414 Schering-Plough Corp. 2,864,211
--------------------------------------------------------------------------------
36,113,627
--------------------------------------------------------------------------------
MANAGED HEALTH CARE -- 2.5%
2,772 AETNA, Inc. 160,256
5,697 Pacificare Health Systems+ 59,462
9,627 UnitedHealth Group Inc. 1,052,953
4,444 Wellpoint Health Networks, Inc.+ 519,670
--------------------------------------------------------------------------------
1,792,341
--------------------------------------------------------------------------------
SEE NOTES TO FINANCIAL STATEMENTS.
8 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
SHARES SECURITY VALUE
================================================================================
MEDICAL/DENTAL DISTRIBUTORS-- 3.1%
4,796 Andrx Corp.+ $ 345,312
15,031 Cardinal Health Inc. 1,424,187
16,954 McKesson HBOC, Inc. 475,772
--------------------------------------------------------------------------------
2,245,271
--------------------------------------------------------------------------------
MEDICAL ELECTRONICS -- 4.9%
64,354 Medtronic, Inc. 3,495,227
--------------------------------------------------------------------------------
MEDICAL SPECIALTIES -- 10.9%
5,741 Alza Corp.+ 464,662
7,501 Bausch & Lomb 289,257
21,067 Baxter International, Inc. 1,731,444
11,327 Becton Dickinson & Co. 379,455
12,186 Biomet, Inc. 440,981
24,764 Boston Scientific Corp.+ 394,676
6,849 C.R. Bard, Inc. 286,802
21,226 Guidant Corp.+ 1,123,651
10,104 Hillenbrand Industries, Inc. 467,310
4,696 Minimed, Inc.+ 342,515
8,672 PE Corp.- PE Biosystems 1,014,624
10,938 Stryker Corp. 515,453
14,539 Sybron International Corp.+ 359,840
--------------------------------------------------------------------------------
7,810,670
--------------------------------------------------------------------------------
MULTI-LINE INSURANCE -- 1.5%
9,032 Cigna Corp. 1,101,452
--------------------------------------------------------------------------------
PHARMACEUTICALS -- 3.5%
11,339 Allergan, Inc. 953,185
9,426 Biovail Corp.+ 396,481
4,239 Forest Labs, Inc.+ 561,668
7,985 King Pharmaceuticals Inc.+ 357,828
3,708 Sepracor, Inc.+ 252,607
--------------------------------------------------------------------------------
2,521,769
--------------------------------------------------------------------------------
PRECISION INSTRUMENTS -- 0.8%
5,700 Visx Inc.+ 122,194
6,002 Waters Corp.+ 435,520
--------------------------------------------------------------------------------
557,714
--------------------------------------------------------------------------------
SERVICES TO THE HEALTH INDUSTRY -- 1.4%
939 Cybear Group+ 646
20,360 IMS Health, Inc. 481,005
3,488 Quest Diagnostics, Inc.+ 335,720
12,468 Quintiles Transnational Corp.+ 173,773
893 Synavant Inc.+ 4,074
--------------------------------------------------------------------------------
995,218
--------------------------------------------------------------------------------
TOTAL COMMON STOCK -- 100%
(Identified Cost -- $61,246,533)* $71,543,348
================================================================================
+ NON-INCOME PRODUCING SECURITY.
* AGGREGATE COST FOR FEDERAL INCOME TAXES IS SUBSTANTIALLY THE SAME.
SEE NOTES TO FINANCIAL STATEMENTS.
9 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
--------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost -- $61,246,533) $ 71,543,348
Receivable for Investments sold 777,391
Receivable for Fund shares sold 406,667
Dividends and interest receivable 37,654
--------------------------------------------------------------------------------
TOTAL ASSETS 72,765,060
--------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 173,198
Payable for Fund shares purchased 6,695
Payable to custodian 459,008
Distribution fees payable 48,039
Management fees payable 17,334
Accrued expenses and other liabilities 114,809
--------------------------------------------------------------------------------
TOTAL LIABILITIES 819,083
--------------------------------------------------------------------------------
TOTAL NET ASSETS $71,945,977
================================================================================
NET ASSETS:
Par value of capital shares $ 4,983
Capital paid in excess of par value 60,052,633
Accumulated net investment loss (7,876)
Accumulated net realized gain from security transactions 1,599,422
Net unrealized appreciation of investments 10,296,815
--------------------------------------------------------------------------------
TOTAL NET ASSETS $71,945,977
================================================================================
SHARES OUTSTANDING:
Class A 1,171,551
---------------------------------------------------------------------------
Class B 1,989,567
---------------------------------------------------------------------------
Class L 1,821,685
---------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $14.49
---------------------------------------------------------------------------
Class B * $14.42
---------------------------------------------------------------------------
Class L ** $14.42
---------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $15.25
---------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $14.57
================================================================================
* 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.
10 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO
OCTOBER 31, 2000
INVESTMENT INCOME:
Dividends $ 239,295
Interest 37,686
--------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 276,981
--------------------------------------------------------------------------------
EXPENSES:
Distribution fees (Note 2) 268,921
Management fees (Note 2) 261,782
Custody fees 133,141
Shareholder communications 39,293
Legal fees 34,472
Registration fees 20,370
Audit fees 17,667
Directors' fees 7,727
Other 37,713
--------------------------------------------------------------------------------
TOTAL EXPENSES 821,086
Less: Aggregate amount waived by the Manager (Note 2) (136,709)
--------------------------------------------------------------------------------
NET EXPENSES 684,377
--------------------------------------------------------------------------------
NET INVESTMENT LOSS (407,396)
--------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS (NOTE 3):
Realized Gain From:
Security transactions (excluding short-term securities) 1,930,048
--------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 10,296,815
--------------------------------------------------------------------------------
NET GAIN ON INVESTMENTS 12,226,863
--------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS $11,819,467
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
11 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO
OCTOBER 31, 2000
OPERATIONS:
Net investment loss $ (407,396)
Net realized gain 1,930,048
Increase in net unrealized appreciation 10,296,815
--------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS 11,819,467
--------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 70,184,936
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (10,058,426)
--------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 60,126,510
--------------------------------------------------------------------------------
INCREASE IN NET ASSETS 71,945,977
NET ASSETS:
Beginning of period --
--------------------------------------------------------------------------------
END OF PERIOD* $71,945,977
================================================================================
* Includes accumulated net investment loss of: $ (7,876)
================================================================================
SEE NOTES TO FINANCIAL STATEMENTS.
12 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Health Sciences Fund is a non-diversified investment fund of
the Smith Barney Series Inc. (the "Company"), a Maryland corporation. The
Company is registered under the Investment Company Act of 1940, as amended, as
an open-end management investment company and consists of this Fund and five
other separate investment funds: Smith Barney Financial Services Fund, Smith
Barney Technology Fund, Smith Barney Global Biotechnology Fund, Smith Barney
Global Media & Telecommunications Fund and Smith Barney Global Technology Fund.
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 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;
(m) the character of income and gains to be distributed in accordance with
income tax regulations which may differ from generally accepted accounting
principles. At October 31, 2000, reclassifications were made to the Funds'
capital accounts to reflect permanent book/tax differences and income and gains
available for distribution under income tax regulations. Accordingly, the Fund
reclassified $399,520 to accumulated net investment loss, $68,894 from paid in
capital and $330,626 from accumulated net realized gain. Net investment income,
net realized gains and net assets were not affected by this adjustment; and (n)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
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 respectively.
13 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 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 Portfolio 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 $261,782, of which $136,709 was waived for the period ended October 31, 2000.
Salomon Smith Barney Inc. ("SSB"), another subsidiary of SSBH, acts as the
Fund's distributor, 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 October 31, 2000, the Fund paid
transfer agent fees of $23,837 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 also have a 1.00% CDSC, which applies if redemption
occurs within the first year of purchase.
For the period ended October 31, 2000, CDSCs paid to SSB and sales charges
received by SSB were approximately:
CLASS A CLASS B CLASS L
================================================================================
CDSCs $ 2,000 $19,000 $ 8,000
--------------------------------------------------------------------------------
Sales Charges $255,000 $78,000 $224,000
================================================================================
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 October 31, 2000, total Distribution Plan fees incurred
were:
CLASS A CLASS B CLASS L
================================================================================
Distribution Plan Fees $19,436 $130,323 $119,162
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the period ended October 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $72,980,921
--------------------------------------------------------------------------------
Sales $13,664,436
================================================================================
At October 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $12,115,428
Gross unrealized depreciation (1,818,613)
--------------------------------------------------------------------------------
Net unrealized appreciation $10,296,815
================================================================================
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 (plus accrued interest) in amounts at
least equal to the repurchase price.
14 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
5. Concentration of Risk
The Fund normally invests 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 investments 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 October 31, 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 October 31, 2000, total paid-in capital amounted to the following for each
class:
CLASS A CLASS B CLASS L
================================================================================
Total Paid-in Capital $14,146,564 $24,017,482 $21,962,464
================================================================================
Transactions in shares of each class were as follows:
FEBRUARY 28, 2000
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 2000
--------------------------------
SHARES AMOUNT
================================================================================
CLASS A
Shares sold 1,584,698 $19,845,221
Shares issued on reinvestment -- --
Shares reacquired (413,147) (5,698,657)
--------------------------------------------------------------------------------
Net Increase 1,171,551 $14,146,564
================================================================================
CLASS B
Shares sold 2,172,669 $26,437,205
Shares issued on reinvestment -- --
Shares reacquired (183,102) (2,419,723)
--------------------------------------------------------------------------------
Net Increase 1,989,567 $24,017,482
================================================================================
CLASS L
Shares sold 1,967,825 $23,902,509
Shares issued on reinvestment -- --
Shares reacquired (146,140) (1,940,045)
--------------------------------------------------------------------------------
Net Increase 1,821,685 $21,962,464
================================================================================
15 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK, FROM FEBRUARY 28, 2000 (COMMENCEMENT
OF OPERATIONS) TO OCTOBER 31, 2000
CLASS A SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.04)
Net realized and unrealized gain 3.13
--------------------------------------------------------------------------------
Total Income From Operations 3.09
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.49
--------------------------------------------------------------------------------
TOTAL RETURN 27.11%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $16,980
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.52%+
Net investment loss (0.67)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26%
================================================================================
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 $(0.04)
RATIOS:
Expenses to average net assets 1.94%+
Net investment loss to average net assets (1.09)%+
================================================================================
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
16 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK, FROM FEBRUARY 28, 2000 (COMMENCEMENT
OF OPERATIONS) TO OCTOBER 31, 2000
CLASS B SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.09)
Net realized and unrealized gain 3.11
--------------------------------------------------------------------------------
Total Income From Operations 3.02
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.42
--------------------------------------------------------------------------------
TOTAL RETURN 26.49%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $28,694
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.26%+
Net investment loss (1.41)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26%
================================================================================
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 $(0.10)
RATIOS:
Expenses to average net assets 2.68%+
Net investment loss to average net assets (1.83)%+
================================================================================
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
17 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK, FROM FEBRUARY 28, 2000 (COMMENCEMENT
OF OPERATIONS) TO OCTOBER 31, 2000
CLASS L SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.09)
Net realized and unrealized gain 3.11
--------------------------------------------------------------------------------
Total Income From Operations 3.02
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $14.42
--------------------------------------------------------------------------------
TOTAL RETURN 26.49%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $26,273
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.27%+
Net investment loss (1.42)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 26%
================================================================================
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 $(0.10)
RATIOS:
Expenses to average net assets 2.68%+
Net investment loss to average net assets (1.83)%+
================================================================================
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
18 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE SMITH BARNEY SECTOR SERIESINC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Health Sciences Fund of Smith
Barney Sector Series Inc. as of October 31, 2000, the related statements of
operations, the statements of changes in net assets and financial highlights for
the period February 28, 2000 (Commencement of Operations) through October 31,
2000. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
As to securities purchased or sold but not yet received or delivered, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Health Sciences Fund of Smith Barney Sector Series Inc. as of October 31,
2000, the results of its operations, the changes in its net assets and financial
highlights for the period February 28, 2000 through October 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KMPG LLP
------------
New York, New York
December 11, 2000
19 SMITH BARNEY HEALTH SCIENCES FUND | 2000 Annual Report to Shareholders
<PAGE>
(This page intentionally left blank.)
<PAGE>
SMITH BARNEY
HEALTH SCIENCES FUND
DIRECTORS INVESTMENT MANAGER
Herbert Barg SSBCiti Fund Management LLC
Alfred J. Bianchetti
Martin Brody INVESTMENT SUBADVISER
Dwight B. Crane Citibank, N.A.
Burt N. Dorsett
Elliot S. Jaffe DISTRIBUTORS
Stephen E. Kaufman Salomon Smith Barney, Inc.
Joseph J. McCann PFS Distributors Inc.
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr. CUSTODIAN
James J. Crisona, Emeritus State Street Bank & Trust Co.
TRANSFER AGENT
OFFICERS Citi Fiduciary Trust Company
Heath B. McLendon 125 Broad Street, 11th Floor
President and Chief Executive Officer New York, New York 10004
SUB-TRANSFER AGENT
Lewis E. Daidone PFPC Global Fund Services
Senior Vice President and Treasurer P.O. Box 9699
Providence, Rhode Island
02940-9699
Irving P. David
Controller
Christina T. Sydor
Secretary
<PAGE>
SMITH BARNEY HEALTH SCIENCES FUND
================================================================================
This report is submitted for general information of the shareholders of Smith
Barney Sector Series Inc. -- Smith Barney Health Sciences Fund, but it may also
be used as sales literature when preceded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after January 31,
2001, this report must be accompanied by performance information for the most
recently completed calendar quarter.
SMITH BARNEY HEALTH SCIENCES FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any Smith Barney Mutual Funds, including management
fees and expenses, call or write your financial professional for a free
prospectus. Read it carefully before you invest or send money.
www.smithbarney.com/mutualfunds
[SALOMON SMITH BARNEY LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
FD02128 12/00
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
SECTOR SERIES INC.
TECHNOLOGY FUND
-------------------------------------------------------------------------------
RESEARCH SERIES | ANNUAL REPORT | OCTOBER 31, 2000
[LOGO OMITTED] SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED. (SM)
-------------------------------------------------------------------------------
NOT FDIC INSURED O NOT BANK GUARANTEED O MAY LOSE VALUE
-------------------------------------------------------------------------------
<PAGE>
[GRAPHIC] Research Series
Annual Report o October 31, 2000
SMITH BARNEY
TECHNOLOGY FUND
CITIBANK GLOBAL ASSET MANAGEMENT
Citibank, N.A., through its Citibank Global Asset Management division is the
subadviser to the Fund. Comprising a seasoned group of investment and research
professionals, the Fund's management team follows a systematic and rigorous
approach designed to provide appropriate exposure to each market sector.
FUND OBJECTIVE
The Fund seeks long-term capital appreciation by investing primarily in common
stocks. The Fund invests at least 80% of its assets in securities 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.
FUND FACTS
FUND INCEPTION
--------------------------------------------------------------------------------
February 28, 2000
CLASS A CLASS B CLASS L
--------------------------------------------------------------------------------
NASDAQ SBTAX SBTBX SBQLX
--------------------------------------------------------------------------------
INCEPTION 2/28/00 2/28/00 2/28/00
--------------------------------------------------------------------------------
Smith Barney Technology Fund*
Total Returns October 31, 2000
WITHOUT SALES CHARGES(1)
Class A Class B Class L
--------------------------------------------------------------------------------
Since Inception+ (19.82)% (20.26)% (20.26)%
(February 28, 2000)**
--------------------------------------------------------------------------------
WITH SALES CHARGES(2)
Class A Class B Class L
--------------------------------------------------------------------------------
Since Inception+ (23.83)% (24.25)% (21.85)%
(February 28, 2000)**
--------------------------------------------------------------------------------
* Since the Fund focuses its investments on companies involved in the technology
industries, 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 deduction of all 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 purchase. This CDSC
declines by 1.00% the first year after purchase and thereafter by 1.00% per
year until no CDSC is incurred. Class L shares also reflect the deduction
of 1.00% per year until CDSC, which applies if shares are redeemed within
the first year of purchase.
WHAT'S INSIDE
Your Investment in the Smith Barney Technology Fund ..... 1
Letter from the Chairman ................................ 2
Fund at a Glance ........................................ 3
Shareholder Letter ...................................... 4
Schedule of Investments ................................. 8
Statement of Assets and Liabilities ..................... 11
Statement of Operations ................................. 12
Statement of Changes in Net Assets ...................... 13
Notes to Financial Statements ........................... 14
Financial Highlights .................................... 17
Independent Auditors' Report ............................ 20
[LOGO] SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(SM)
-------------------------------------------------------------------------------
INVESTMENT PRODUCTS: NOT FDIC INSURED O NOT BANK GUARANTEED O MAY LOSE VALUE
-------------------------------------------------------------------------------
<PAGE>
-------------------------------------------------------------------------------
YOUR INVESTMENT IN THE SMITH BARNEY TECHNOLOGY FUND
-------------------------------------------------------------------------------
Led by Citibank N.A. through Citibank Global Asset Management ("CGAM") division,
the Fund offers investors the opportunity to participate in the long-term growth
potential of the technology industry. The Fund's management team comprises a
seasoned group of investment and research professionals who follow a systematic
and rigorous approach designed to provide appropriate exposure to each market
sector.
[GRAPHIC OMITTED]
BRINGING CHANGE AND INNOVATION TO LIFE
Innovation is rapidly transforming the way we live and do business on a
global scale. Spending on technology has consistently increased as
consumers and businesses are recognizing technology's important role in
today's global economy. This increased spending has in turn caused the role
of technology to expand.
[GRAPHIC OMITTED]
DIVERSIFICATION IN A TARGETED SECTOR*
An investment in the Fund offers investors a way to invest in the broad
range of technology companies both in the U.S. and abroad. The Fund's
investments may include companies in a wide range of industries such as
computer software, electronics, the Internet and communications.
[GRAPHIC OMITTED]
THE BENEFITS OF EXHAUSTIVE FUNDAMENTAL SECURITIES ANALYSIS--THE RESEARCH
SERIES
The Research Series is a selection of Smith Barney Mutual Funds built on a
foundation of substantial buy-side research under the direction of CGAM.
This series of funds focuses on potential opportunities from well-defined
industries, sectors and trends.
[GRAPHIC OMITTED]
A COMMITMENT TO MANAGING YOUR SERIOUS MONEY
SSB Citi Asset Management Group ("SSB Citi"), the investment management
division of Citigroup, comprises Smith Barney Asset Management, Salomon
Brothers Asset Management and Citibank Global Asset Management, each an
organization with extensive investment capabilities.
SSB Citi, as a member of one of the largest financial services providers in
the world, offers you the benefits of our global capabilities. At SSB Citi,
you gain access to portfolio management delivered professionally. We are
proud to offer you, the serious investor, a variety of managed solutions.
*Please note that because the Fund invests in a single industry, its shares do
not represent a complete investment program and the value of its shares may
fluctuate more than shares invested in a broader range of industries.
1 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
-------------------------------------------------------------------------------
The new millennium, so far, has been marked by higher volatility and concerns
that the bull market in stocks may be running out of steam. At SSB Citi Asset
Management Group ("SSB Citi"), we have instituted many positive changes, with
the ultimate goal of offering our investors a well-rounded menu of stock and
bond funds that can be tailored to a wide range of investment objectives.
We believe that your serious money demands professional management. Since 1937,
Smith Barney has managed the serious money of individuals, their families and
their businesses. Today, with over $398.6 billion in assets under management,
(1) SSB Citi offers choices and solutions, uniting the distinguished history of
Smith Barney with the unparalleled global reach of its parent, Citigroup.
A FEW THOUGHTS ON SECTOR INVESTING
Over the past few years, we have seen how profoundly the advancements made in
sectors such as technology and telecommunications have transformed our daily
lives. Computer applications, wireless communications and biotechnological
discoveries have created new investment opportunities. The new and developing
sectors of the economy that are involved in bringing these products, services
and technologies to life may offer exceptional growth potential, and many
investors should consider having a portion of their investment portfolios in
them.
Although most of us recognize that certain sectors drive the economy, we believe
it is much more difficult to determine which companies within a particular
sector will perform better than the others over time. The team of experienced
professionals at Citibank N.A. thoroughly researches a broad range of companies
within a given sector and carefully analyzes them, looking to identify those
companies that they believe offer the greatest growth potential over the long
term. Through this exhaustive and proprietary process, CGAM seeks to offer you
an opportunity to participate in those companies that it believes are
best-positioned in their respective industries.
[PHOTO OMITTED]
HEATH B. MCLENDON
CHAIRMAN
Yet, when investing in a sector fund, it is important to understand that these
funds may experience a significant amount of short-term volatility. We think you
need to maintain a long-term investment horizon and remember that sector funds
may be appropriate as part of an overall portfolio that has more conservative
investments.
When you invest with SSB Citi, 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 success.
Thank you for your confidence in our investment management approach.
Sincerely,
/s/ Heath B. McLendon
---------------------
HEATH B. MCLENDON
CHAIRMAN
November 6, 2000
--------------------
(1) As of October 31, 2000. This figure represents retail, institutional, money
and separate accounts.
2 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<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) -- October 31, 2000
[The following table represents a line graph in printed piece.]
Smith Barney
Technology Fund Goldman Sachs
Class A Technology Index*
2/28/00 9500 10000
2/29/00 9683.33 10000
3/31/00 10041.7 10449
4/28/00 9316.67 9537.85
5/31/00 8241.67 8486.78
6/30/00 9233.33 9530.65
7/31/00 8783.33 9086.52
8/31/00 9916.67 10268.7
9/30/00 8216.67 8605.15
10/31/00 7616.67 7955.46
A $10,000 investment in the Fund made on February 28, 2000 would have declined
to $7,617 with sales charge (as of October 31, 2000). The graph shows how the
Fund compares to its benchmark for the same period. 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 comprised of companies in the
hardware, computer, software, services, semi-conductors, Internet and
multimedia networking. Please note that an investor cannot invest directly
in an index.The Nasdaq Composite Index is a market value-weighted index
that measures all domestic and non-U.S. based securities listed on the
NASDAQ stock market.
--------------------------------------------------------------------------------
TOP TEN COMMON STOCK HOLDINGS*
--------------------------------------------------------------------------------
1. Cisco Systems Inc. ................... 8.9%
2. Microsoft Corp. ...................... 8.5
3. Intel Corp. .......................... 5.8
4. EMC Corp. ............................ 4.8
5. International Business Machines Corp.. 4.7
6. Sun Microsystems Inc. ................ 4.4
7. Oracle Corp. ......................... 3.9
8. Nortel Networks Corp. ................ 3.2
9. America Online Inc. .................. 2.9
10. Hewlett-Packard Co. ................. 2.4
* As a percentage of total investments.
-------------------------------------------------------------------------------
PORTFOLIO BREAKDOWN*
-------------------------------------------------------------------------------
[The following table represents a pie chart in the printed piece.]
0.5% Other Consumer Services
0.6% Discount Note
0.6% Electronic Components
0.7% Catalog/Specialty Distributions
0.9% Diversified Commercial Services
1.3% Diversified Electronic Products
2.4% EDP Services
3.7% Electronic Production Equipment
6.6% EDP Peripherals
8.1% Internet Services
10.8% Computer Communications
12.1% Telecommunications Equipment
16.1% Electronic Data Processing
16.8% Semiconductors
18.8% Computer Software
-------------------------------------------------------------------------------
3 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney Sector Series
Inc.--Smith Barney Technology Fund ("Fund") for the year ended October 31, 2000.
In this report we have summarized the period's prevailing economic and market
conditions and outlined our investment strategy. The information provided in
this letter 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 Fund. Please refer to pages 8 through 10 for a complete list and percentage
breakdown of the Fund's holdings. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow. We hope you find this
report to be useful and informative.
PERFORMANCE UPDATE
Since the Fund's inception on February 28, 2000 through October 31, 2000, the
Fund's Class A, shares, without and with sales charges, generated negative
returns of 19.82% and 23.83%, respectively. In comparison, the Goldman Sachs
Technology Index(1) returned a negative 20.45% for the same time period. Past
performance is not indicative of future results.
SECTOR INVESTING--THE CGAM PROCESS
Our approach to sector investing is based on exhaustive research that is
intensely focused and led by a group of seasoned investment professionals with
extensive industry expertise. Our team looks for analytical consistency through
intensive modeling and strict application of a consistent valuation methodology.
Our management team is made up of a group of high-quality, seasoned investment
and research professionals who follow a systematic and rigorous strategy
designed to provide the right exposure to various industries within any
particular sector they cover. Our exhaustive fundamental research evaluates a
universe of businesses in our global quest to identify and participate in what
we deem attractive investment opportunities.
A THREE-STEP RESEARCH PROCESS
-------------------------------------------------------------------------------
FUNDAMENTAL --------> QUANTITATIVE --------> ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
-------------------------------------------------------------------------------
We apply a proprietary, systematic, risk-conscious approach to investing. We
combine fundamental research, quantitative research and active portfolio
management to create portfolios that we think should generate competitive
returns while helping to moderate risk over time.
In our view, there can be no substitute for in-depth analysis, which can often
provide a significant competitive edge in understanding company fundamentals.
(Of course, no assurances can be made that our approach will ultimately be
successful.)
------------
(1) 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. Please note that an investor cannot invest directly in an
index.
4 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
LEADING SEGMENT OF U.S. ECONOMY--
INCREASED DEMAND HAS PROPELLED TECHNOLOGY TO BECOME A BIGGER PART
OF TODAY'S ECONOMY.
AS THE GLOBAL ECONOMY CONTINUES TO EMBRACE TECHNOLOGY, WE BELIEVE
THIS MARKET SECTOR MAY CONTINUE TO BE
A DOMINANT PLAYER.
--------------------------------------------------------------------------------
Our fundamental, proprietary research can add value to active portfolio
management by providing timely and unbiased information to their decision-making
processes. Our team conducts on-site company visits and exhaustive research to
uncover the companies that they think have:
o Superior products or services
o Outstanding managements
o Solid balance sheets
o Market leadership
o Leading innovation
In our opinion, these are the companies' strengths that can potentially create
real value and lead to strong earnings and sales growth, which ultimately drives
stock prices.
--------------------------------------------------------------------------------
INCREASED DEMAND FOR TECHNOLOGY
IN 1999 AS BUSINESS SPENT CLOSE TO
$550 BILLION ON TECHNOLOGY,
DOUBLE THE AMOUNT SPENT IN EARLY 1995.
SOURCE: U.S DEPARTMENT OF COMMERCE
--------------------------------------------------------------------------------
THE CGAM RESEARCH PROCESS DEFINED
We look to differentiate ourself from the traditional approach to investment
management in a number of ways that we can add value to our clients' portfolios.
Our management style can best be described as disciplined, yet flexible. Our
formidable global reach and local expertise enable us to nurture research teams
with direct access to the regions and industries where they do business. Our
research organization is centered on a team approach to stock research and
selection by covering hundreds of companies and working closely together both
within and across industry teams in a seamless fashion to reach a prudent
consensus.
5 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
Each stock 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 within the industry, quality of
product offerings, costs and risks. These intensive models detail the analyst's
assumptions for potential profitability for the company going forward and
provide some of the necessary information to forecast company fundamentals and
make stock recommendations. Our research team looks to ensure consistency in
industry and accounting assumptions and that in turn can allow for better
comparisons of earnings forecasts.
--------------------------------------------------------------------------------
EACH CGAM ANALYST BUILDS INTENSIVE,
DETAILED COMPANY MODELS FROM THE GROUND
UP THAT SEEK TO ANTICIPATE A PARTICULAR
COMPANY'S FUTURE FINANCIAL PERFORMANCE.
--------------------------------------------------------------------------------
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.
We believe 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 an investment rating on a company's stock.
TECHNOLOGY SECTOR UPDATE
Despite good earnings from industry bellweathers such as Sun Microsystems, EMC,
Veritas and Microsoft, negative investor sentiment continued in technology,
particularly with weaker-than-expected revenue growth from Nortel Networks. We
think concerns regarding slowing capital spending on the part of telecom service
providers, along with continued financing fallout from less well-capitalized
firms in this space, have also contributed to the intensity of investor anxiety
regarding the outlook for equipment providers.
It is our view that the current correction in stock valuations rolling through
the sector has resulted in a healthier, more rational environment--namely, one
in which stock selection may become increasingly important and favorable to our
bottom-up, fundamentals-focused, disciplined approach to investing. We continue
to believe technology is an attractive source of investment opportunities with
solid, long-term growth prospects and good underlying fundamentals.
The Fund is presently slightly overweight in hardware companies such as
International Business Machines ("IBM") and semiconductor equipment maker
Applied Material Inc., while slightly underweight in network equipment providers
and Internet companies versus the benchmark. While the Fund is underweight in
software, we maintain a positive outlook on J.D. Edwards & Co., a provider of
business productivity software. The company has recently been eliminating excess
sales costs, yet has still maintained a good backlog of pipeline business.
6 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
Although we look to identify those companies held in the Fund through bottom-up
fundamental research and stock selection, its overall industry mix is consistent
with the top-down strategic industry themes that we use for estimate forecasting
and rating formulation. Since industries within technology are generally quick
to innovate and consolidate, we carefully monitor the Fund's holdings to reflect
any changes that may have an impact on performance.
EXPERIENCED SECTOR FUND PORTFOLIO MANAGEMENT
The management of the Fund is driven by our analyst recommendations, long-term
earnings and earnings momentum, which form the basis of expected future returns
within any given sector. These expected returns, coupled with detailed risk
forecasts, determine what holdings will be selected. In building and maintaining
the Fund's portfolio, we look to avoid a high risk-to-return on its investments,
and carefully monitor sector performance, constantly looking for any material
changes and/or developments.
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
the years ahead.
Sincerely,
The Investment Team at
Citibank N.A.
November 7, 2000
7 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
-------------------------------------------------------------------------------
SHARES SECURITY VALUE
-------------------------------------------------------------------------------
COMMON STOCK -- 99.4%
CATALOG/SPECIALTY DISTRIBUTION -- 0.7%
33,934 Amazon.com, Inc. + $1,242,833
-------------------------------------------------------------------------------
COMPUTER COMMUNICATIONS -- 10.8%
305,923 Cisco Systems Inc. + 16,481,602
12,900 Computer Sciences Corp. + 812,700
14,420 Juniper Networks Inc. + 2,811,900
-------------------------------------------------------------------------------
20,106,202
-------------------------------------------------------------------------------
COMPUTER SOFTWARE -- 18.8%
15,000 Adobe Systems Inc. 1,140,937
10,154 Check Point Software Technologies Corp. + 1,608,140
49,632 J.D. Edwards & Co. + 1,284,228
228,142 Microsoft Corp. + 15,713,280
217,804 Oracle Corp. + 7,187,532
27,091 Peoplesoft Inc. + 1,182,268
18,390 Siebel Systems Inc. + 1,929,801
8,574 I2 Technologies Inc. + 1,457,580
23,581 VERITAS Software Corp. + 3,325,289
------------------------------------------------------------------------------
34,829,055
------------------------------------------------------------------------------
DIVERSIFIED COMMERCIAL SERVICES -- 0.9%
40,182 Concord EFS Inc. + 1,660,019
------------------------------------------------------------------------------
DIVERSIFIED ELECTRONIC PRODUCTS -- 1.3%
30,394 JDS Uniphase Corp. + 2,475,211
------------------------------------------------------------------------------
ELECTRONIC COMPONENTS -- 0.6%
25,884 Solectron Corp. + 1,138,896
------------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING -- 16.1%
72,037 Compaq Computer Corp. 2,190,645
124,329 Dell Computer Corp. + 3,667,705
27,900 Electronic Data Systems Corp. 1,309,556
97,576 Hewlett Packard Co. 4,531,185
88,464 International Business Machines Corp. 8,713,704
24,800 Palm Inc. + 1,328,350
73,326 Sun Microsystems Inc. + 8,130,020
------------------------------------------------------------------------------
29,871,165
------------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING PERIPHERALS -- 6.6%
99,232 EMC Corp. + 8,837,850
14,771 Network Appliance Inc. + 1,757,749
34,854 Symbol Technologies Inc. 1,583,679
------------------------------------------------------------------------------
12,179,278
------------------------------------------------------------------------------
ELECTRONIC DATA PROCESSING SERVICES -- 2.4%
18,411 Automatic Data Processing, Inc. 1,202,468
21,260 BEA Systems Inc. + 1,525,405
35,222 First Data Corp. 1,765,503
------------------------------------------------------------------------------
4,493,376
------------------------------------------------------------------------------
ELECTRONIC PRODUCTION EQUIPMENT -- 3.7%
57,969 Applied Materials Inc. + 3,079,603
24,698 KLA Tencor Corp. + 835,101
47,690 LAM Research Corp. + 923,994
------------------------------------------------------------------------------
See Notes to Financial Statements.
8 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
------------------------------------------------------------------------------
SHARES SECURITY VALUE
------------------------------------------------------------------------------
ELECTRONIC PRODUCTION EQUIPMENT (CONTINUED)
27,077 Novellus Systems Inc. + $ 1,108,465
13,900 Seagate Technology + 971,262
------------------------------------------------------------------------------
6,918,425
------------------------------------------------------------------------------
INTERNET SERVICES -- 8.1%
105,476 America Online Inc. + 5,319,155
11,032 Ariba Inc. + 1,394,169
8,000 Brocade Communication Systems Inc. + 1,819,000
15,536 Commerce One Inc. + 997,217
25,358 Exodus Communications Inc. + 851,078
11,523 Inktomi Corp. + 730,990
79,000 Marchfirst Inc. + 459,187
12,900 Tibco Software Inc. + 812,700
9,796 VeriSign Inc. + 1,293,072
23,133 Yahoo! Inc. + 1,356,172
-------------------------------------------------------------------------------
15,032,740
------------------------------------------------------------------------------
OTHER CONSUMER SERVICES -- 0.5%
17,265 Ebay, Inc. + 889,147
------------------------------------------------------------------------------
SEMI-CONDUCTORS -- 16.8%
30,438 Altera Corp. + 1,246,056
16,601 Analog Devices Inc. + 1,079,065
14,724 Applied Micro Circuits Corp. + 1,125,466
6,290 Broadcom Corp. + 1,398,739
237,680 Intel Corp. 10,695,600
32,674 LSI Logic Corp. + 1,074,158
18,314 Linear Technology Corp. 1,182,398
31,865 Microchip Technology Inc. + 1,007,731
33,504 Micron Technology Inc. + 1,164,264
5,531 PMC Sierra Inc. + 937,505
8,300 Redback Networks Inc. + 883,431
4,600 SDL Inc. + 1,192,550
41,583 STmicroelectronics NV 2,159,717
85,357 Texas Instruments Inc. 4,187,828
12,141 Vitesse Semicondutor Corp. + 849,111
12,727 Xilinx Inc. + 921,912
------------------------------------------------------------------------------
31,105,531
------------------------------------------------------------------------------
TELECOMMUNICATIONS EQUIPMENT -- 12.1%
34,090 ADC Telecommunications Inc. + 728,674
13,750 Ciena Corp. + 1,445,469
11,561 Comverse Technology Inc. + 1,291,942
32,648 Corning Inc. 2,497,572
150,116 Lucent Technologies Inc. 3,499,579
110,790 Motorola Inc. 2,762,826
130,496 Nortel Networks Corp. 5,937,568
11,200 Sycamore Networks Inc. + 708,400
38,458 Qualcomm Inc. + 2,503,976
21,346 Tellabs Inc. + 1,065,966
------------------------------------------------------------------------------
22,441,972
------------------------------------------------------------------------------
See Notes to Financial Statements.
9 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
------------------------------------------------------------------------------
SHARES SECURITY VALUE
------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Identified Cost-- $214,414,075) $184,383,850
------------------------------------------------------------------------------
FACE
AMOUNT SECURITY VALUE
------------------------------------------------------------------------------
DISCOUNT NOTE -- 0.6%
$1,095,000 Student Loan Marketing Discount Note
6.45% due 11/01/00;
(Identified Cost-- $1,095,000) 1,095,000
------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Identified Cost-- $215,509,075)* $185,478,850
------------------------------------------------------------------------------
+ Non-income producing security.
* Aggregate cost for federal income taxes is substantially the same.
See Notes to Financial Statements.
10 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost $215,509,075) $185,478,850
Cash 837
Receivable for Fund securities sold 4,255,451
Dividends and interest receivable 5,340
Other receivables 94
------------------------------------------------------------------------------
TOTAL ASSETS 189,740,572
------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 770,509
Payable for Fund shares purchased 144,539
Distribution fees payable 127,197
Management fees payable 118,354
Accrued expenses and other liabilities 175,134
------------------------------------------------------------------------------
TOTAL LIABILITIES 1,335,733
------------------------------------------------------------------------------
TOTAL NET ASSETS $188,404,839
------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 20,692
Capital paid in excess of par value 232,330,971
Accumulated net investment loss (7,878)
Accumulated net realized loss from security transactions (13,908,721)
Net unrealized depreciation of investments (30,030,225)
------------------------------------------------------------------------------
TOTAL NET ASSETS $188,404,839
------------------------------------------------------------------------------
SHARES OUTSTANDING:
Class A 5,072,866
----------------------------------------------------------------------------
Class B 8,162,215
----------------------------------------------------------------------------
Class L 7,457,148
----------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $9.14
----------------------------------------------------------------------------
Class B * $9.09
----------------------------------------------------------------------------
Class L ** $9.09
----------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $9.62
----------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $9.18
----------------------------------------------------------------------------
* 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.
11 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO
OCTOBER 31, 2000
INVESTMENT INCOME:
Interest $ 146,462
Dividends 95,389
Less: Foreign withholding tax (873)
-------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 240,978
-------------------------------------------------------------------------------
EXPENSES:
Management fees(Note 2) 1,106,818
Distribution fees (Note 2) 961,426
Custody fees 173,376
Transfer agent fees 92,439
Shareholder communications 54,703
Registration fees 53,772
Legal fees 34,560
Audit fees 17,000
Directors' fees 7,727
Other 35,693
-------------------------------------------------------------------------------
TOTAL EXPENSES 2,537,514
Less: Aggregate amount waived by the Manager (Note 2) (96,394)
-------------------------------------------------------------------------------
NET EXPENSES 2,441,120
-------------------------------------------------------------------------------
NET INVESTMENT LOSS (2,200,142)
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS (NOTE 3):
Realized Loss From:
Security transactions (excluding short-term securities) (13,908,721)
-------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation (30,030,225)
-------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (43,938,946)
-------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS $(46,139,088)
-------------------------------------------------------------------------------
See Notes to Financial Statements.
12 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
FOR THE PERIOD FEBRUARY 28, 2000 (COMMENCEMENT OF OPERATIONS) TO
OCTOBER 31, 2000
OPERATIONS:
Net investment loss $ (2,200,142)
Net realized loss (13,908,721)
Decrease in net unrealized depreciation (30,030,225)
-------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS (46,139,088)
-------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 258,490,217
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (23,946,290)
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 234,543,927
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS 188,404,839
NET ASSETS: 188,404,839
Beginning of period --
-------------------------------------------------------------------------------
END OF PERIOD* $188,404,839
-------------------------------------------------------------------------------
* Includes accumulated net investment loss of: $ (7,878)
-------------------------------------------------------------------------------
See Notes to Financial Statements.
13 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Technology Fund is a non-diversified investment fund of the
Smith Barney Sector Series Inc. (the "Company"), a Maryland corporation. The
Company is registered under the Investment Company of 1940, as amended, as an
open-end management investment company and consists of this Fund and five other
separate investment funds: Smith Barney Financial Services Fund, Smith Barney
Health Sciences Fund, Smith Barney Global Biotechnology Fund, Smith Barney
Global Media & Telecommunications Fund and Smith Barney Global Technology Fund.
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; (m) the character of income and gains to be distributed in
accordance with income tax regulations which may differ from generally accepted
accounting principles. At October 31, 2000, reclassifications were made to the
Fund's capital accounts to reflect permanent book/tax difference and income and
gains available for distribution under income tax regulations. Accordingly, the
Fund reclassified $2,192,264 from paid in capital to accumulated net investment
loss. Net investment income, net realized gains and net assets were not affected
by this adjustment and (n) estimates and assumptions are required to be made
regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in 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.
14 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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"), 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
Portfolio 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
manage-ment fees paid amounted to $1,106,818, of which $96,394 was waived for
the period ended October 31, 2000.
Salomon Smith Barney Inc. ("SSB"), another subsidiary of SSBH, acts as the
Fund's distributor 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. CFTCreceives 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 October 31, 2000, the Fund paid
transfer agent fees of $92,439 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 also have a 1.00% CDSC, which applies if redemption
occurs within the first year of purchase.
For the period ended October 31, 2000, CDSCs paid to SSB and sales charges
received by SSB were approximately:
CLASS A CLASS B CLASS L
-------------------------------------------------------------------
CDSCs -- $97,000 $ 27,000
-------------------------------------------------------------------
Sales Charges $1,020,000 $95,000 $800,000
-------------------------------------------------------------------
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 October 31, 2000, total Distribution Plan fees incurred
were:
CLASS A CLASS B CLASS L
-------------------------------------------------------------------
Distribution Plan Fees $67,882 $464,979 $428,565
-------------------------------------------------------------------
All officers and one Director of the Fund are employees of SSB.
3. INVESTMENTS
During the period ended October 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
-------------------------------------------------------------------
Purchases $270,800,845
-------------------------------------------------------------------
Sales $ 42,478,049
-------------------------------------------------------------------
At October 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
-------------------------------------------------------------------
Gross unrealized appreciation $ 11,073,729
Gross unrealized depreciation (41,103,954)
-------------------------------------------------------------------
Net unrealized depreciation $ (30,030,225)
-------------------------------------------------------------------
15 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (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 (plus accrued interest) in amounts at
least equal to the repurchase price.
5. CONCENTRATION OF RISK
The Fund normally invests 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 investments 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 October 31, 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 October 31, 2000, total paid-in capital amounted to the following for each
class:
CLASS A CLASS B CLASS L
-------------------------------------------------------------------
Total Paid-in Capital $56,899,606 $92,585,090 $85,059,231
-------------------------------------------------------------------
Transactions in shares of each class were as follows:
FEBRUARY 28, 2000
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 2000
SHARES AMOUNT
--------------------------------------------------------------------
CLASS A
Shares sold 5,960,086 $66,468,519
Shares issued on reinvestment -- --
Shares reacquired (887,220) (9,568,913)
--------------------------------------------------------------------
Net Increase 5,072,866 $56,899,606
--------------------------------------------------------------------
CLASS B
Shares sold 8,748,636 $98,765,665
Shares issued on reinvestment -- --
Shares reacquired (586,421) (6,180,575)
--------------------------------------------------------------------
Net Increase 8,162,215 $92,585,090
--------------------------------------------------------------------
CLASS L
Shares sold 8,248,332 $93,256,033
Shares issued on reinvestment -- --
Shares reacquired (791,184) (8,196,802)
--------------------------------------------------------------------
Net Increase 7,457,148 $85,059,231
--------------------------------------------------------------------
7. CAPITAL LOSS CARRYFORWARD
At October 31, 2000, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $10,602,000, available to offset future
capital gains expiring October 31, 2008. To the extent that these carryforward
losses are used to offset capital gains, it is probable that any gains so offset
will not be distributed.
16 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
For a share of each class of capital stock from February 28, 2000 (Commencement
of Operations) to October 31, 2000
CLASS A SHARES
------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.07)
Net realized and unrealized loss (2.19)
------------------------------------------------------------------------------
Total Loss From Operations (2.26)
------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
------------------------------------------------------------------------------
Total Distributions --
------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.14
------------------------------------------------------------------------------
TOTAL RETURN (19.82)%++
------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $46,363
------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.52%+
Net investment loss (1.31)%+
------------------------------------------------------------------------------
Portfolio Turnover Rate 24%
------------------------------------------------------------------------------
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 $(0.07)
RATIOS:
Expenses to average net assets 1.60 %+
Net investment loss to average net assets (1.39)%+
-------------------------------------------------------------------------------
+ Annualized.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
See Notes to Financial Statements.
17 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------------------------
For a share of each class of capital stock from February 28, 2000 (Commencement
of Operations) to October 31, 2000
CLASS B SHARES
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.12)
Net realized and unrealized loss (2.19)
--------------------------------------------------------------------------------
Total Loss From Operations (2.31)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.09
--------------------------------------------------------------------------------
TOTAL RETURN (20.26)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $74,227
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.27%+
Net investment loss (2.06)%+
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 24%
-------------------------------------------------------------------------------
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 $(0.12)
RATIOS:
Expenses to average net assets 2.35 %+
Net investment loss to average net assets (2.14)%+
-------------------------------------------------------------------------------
++ Total return is not annualized, as it may not be representative of the
total return for the year.
+ Annualized.
See Notes to Financial Statements.
18 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
For a share of each class of capital stock from February 28, 2000 (Commencement
of Operations) to October 31, 2000
CLASS L SHARES
--------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.12)
Net realized and unrealized loss (2.19)
--------------------------------------------------------------------------------
Total Loss From Operations (2.31)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.09
--------------------------------------------------------------------------------
TOTAL RETURN (20.26)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $67,815
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.27%+
Net investment loss (2.06)%+
--------------------------------------------------------------------------------
Portfolio Turnover Rate 24%
--------------------------------------------------------------------------------
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 $(0.12)
RATIOS:
Expenses to average net assets 2.35%+
Net investment loss to average net assets (2.14)%+
-------------------------------------------------------------------------------
+ Annualized.
++ Total return is not annualized, as it may not be representative of the total
return for the year.
See Notes to Financial Statements.
19 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
-------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE SMITH BARNEY SECTOR SERIES INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Technology Fund of Smith Barney
Sector Series Inc. as of October 31, 2000, the related statements of operations,
the statements of changes in net assets and financial highlights for the period
February 28, 2000 (Commencement of Operations) through October 31, 2000. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
As to securities purchased or sold but not yet received or delivered, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Technology Fund of Smith Barney Sector Series Inc. as of October 31,
2000, the results of its operations, the changes in its net assets and financial
highlights for the period February 28, 2000 through October 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
------------
New York, New York
December 11, 2000
20 Smith Barney Technology Fund | 2000 Annual Report to Shareholders
<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.
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
SSB Citi Fund Management LLC
INVESTMENT SUBADVISER
Citibank, N.A.
DISTRIBUTORS
Salomon Smith Barney Inc.
PFS Distributors Inc.
CUSTODIAN
State Street Bank & Trust Co.
TRANSFER AGENT
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
SUB-TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island
02940-9699
<PAGE>
SMITH BARNEY TECHNOLOGY FUND
--------------------------------------------------------------------------------
This report is submitted for general information of the
shareholders of Smith Barney Sector Series Inc. -- Smith
Barney Technology Fund, but it may also be used as sales
literature when preceded or accompanied by the current
Prospectus, which gives details about charges, expenses,
investment objectives and operating policies of the Fund. If
used as sales material after January 31, 2001, this report
must be accompanied by performance information for the most
recently completed calendar quarter.
SMITH BARNEY TECHNOLOGY FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any Smith Barney Mutual Funds,
including management fees and expenses, call or write your
financial professional for a free prospectus. Read it
carefully before you invest or send money.
www.smithbarney.com/mutualfunds
[SALOMON SMITH BARNEY LOGO]
Salomon Smith Barney is a service mark of Salomon
Smith Barney Inc.
FD02129 12/00
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
SECTOR SERIES INC.
GLOBAL BIOTECHNOLOGY FUND
--------------------------------------------------------------------------------
RESEARCH SERIES | ANNUAL REPORT | OCTOBER 31, 2000
[LOGO] SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED(SM).
--------------------------------------------------------------------------------
NOT FDIC INSURED O NOT BANK GUARANTEED O MAY LOSE VALUE
--------------------------------------------------------------------------------
<PAGE>
[GRAPHIC] Research Series
Annual Report o October 31, 2000
SMITH BARNEY GLOBAL
BIOTECHNOLOGY FUND
CITIBANK GLOBAL
ASSET MANAGEMENT
Citibank, N.A., through its Citibank Global Asset Management division is the
subadviser to the Fund. Comprising a seasoned group of investment and research
professionals, the Fund's management team follows a systematic and rigorous
approach designed to provide appropriate exposure to each market sector.
FUND OBJECTIVE
The Fund seeks long-term capital appreciation. The Fund normally invests at
least 80% of its assets in securities of companies principally engaged in, but
not limited to, the research, development, application, manufacturing and
distribution of various biotechnological and biomedical products, services,
processes and related technologies.
FUND FACTS
FUND INCEPTION
-----------------------------------------------
August 31, 2000
CLASS A CLASS B CLASS L
-----------------------------------------------
NASDAQ SMBAX -- --
-----------------------------------------------
INCEPTION 8/31/00 8/31/00 8/31/00
-----------------------------------------------
SMITH BARNEY GLOBAL BIOTECHNOLOGY FUND*
TOTAL RETURNS OCTOBER 31, 2000
WITHOUT SALES CHARGES(1)
Class A Class B Class L
-------------------------------------------------------
Since Inception (13.33)% (13.51)% (13.51)%
(August 31, 2000)**
-------------------------------------------------------
WITH SALES CHARGES(2)
Class A Class B Class L
-------------------------------------------------------
Since Inception (17.67)% (17.83)% (15.23)%
(August 31, 2000)**
-------------------------------------------------------
* Since the Fund focuses its investments on companies involved in the
biotechnology industries, 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 deduction of all applicable
sales charges with respect to Class A and L shares of 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 sales charge of 5.00% and 1.00%, respectively; and
Class B shares reflect the deduction of a 5.00% CDSC, which applies if
shares are redeemed within one year from initial purchase. Thereafter, this
CDSC declines by 1.00% per year until no CDSC is incurred. Class L shares
also reflect the deduction of a 1.00% per year until no CDSC is incurred.
Class L shares also reflect the deduction of 1.00% CDSC, which applies if
shares are redeemed within the first year of purchase.
--------------------------------------------------------------------------------
WHAT'S INSIDE
Your Investment in the Smith Barney
Global Biotechnology Fund ................. 1
Letter from the Chairman .................. 2
Fund at a Glance .......................... 3
Shareholder Letter ........................ 4
Schedule of Investments ................... 8
Statement of Assets and Liabilities .......10
Statement of Operations ...................11
Statement of Changes in Net Assets ........12
Notes to Financial Statements .............13
Financial Highlights ......................17
Independent Auditors' Report ..............20
[LOGO] SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(SM)
--------------------------------------------------------------------------------
Investment Products: Not FDIC Insured o Not Bank Guaranteed o May Lose Value
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
YOUR INVESTMENT IN THE SMITH BARNEY
GLOBAL BIOTECHNOLOGY FUND
--------------------------------------------------------------------------------
EXPOSURE TO GROWTH OPPORTUNITIES
Led by Citibank N.A. through its Global Asset Management ("CGAM") division, the
Fund offers investors an opportunity to participate in the long-term growth
potential of the global biotechnology industry.
[GRAPHIC]
DISCOVERIES AND IMPROVEMENTS SPUR INCREASED GROWTH
An accelerated pace of discovery and improvements in development and
testing processes have led to significant growth opportunities for many
biotechnology companies.
[GRAPHIC]
DIVERSIFICATION IN A TARGETED SECTOR*
An investment in the Fund offers investors a way to participate in a broad
range of companies in the biotechnology sector, both in the U.S. and
abroad. The Fund's investments may include companies involved in many
different areas, including the research, development, application,
manufacture and distribution of various biotechnological and biomedical
products, services, processes and related technologies.
[GRAPHIC]
THE BENEFITS OF EXHAUSTIVE FUNDAMENTAL SECURITIES ANALYSIS-- THE RESEARCH
SERIES
The Research Series is a selection of Smith Barney Mutual Funds built on a
foundation of substantial buy-side research under the direction of CGAM.
This series of funds focus on potential opportunities from well-defined
industries, sectors and trends.
[GRAPHIC]
A COMMITMENT TO MANAGING YOUR SERIOUS MONEY
SSB Citi Asset Management Group ("SSB Citi"), the investment management
division of Citigroup, comprises Smith Barney Asset Management, Salomon
Brothers Asset Management and Citibank Global Asset Management, each an
organization with extensive investment capabilities.
SSB Citi, as a member of one of the largest financial services providers in
the world, offers you the benefits of our unparalleled global capabilities.
At SSB Citi, you gain access to portfolio management delivered
professionally. We are proud to offer you, the serious investor, a variety
of managed solutions.
* Please note that because the Fund invests in a single industry, its shares
do not represent a complete investment program and the value of its shares
may fluctuate more than shares invested in a broader range of industries.
1 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
--------------------------------------------------------------------------------
The new millennium, so far, has been marked by higher volatility and concerns
that the bull market in stocks may be running out of steam. At SSB Citi Asset
Management Group ("SSB Citi"), we have instituted many positive changes, with
the ultimate goal of offering our investors a well-rounded menu of stock and
bond funds that can be tailored to a wide range of investment objectives.
We believe that your serious money demands professional management. Since 1937,
Smith Barney has managed the serious money of individuals, their families and
their businesses. Today, with over $398.6 billion in assets under management,(1)
SSB Citi offers choices and solutions, uniting the distinguished history of
Smith Barney with the unparalleled global reach of its parent, Citigroup.
A FEW THOUGHTS ON SECTOR INVESTING
Over the past few years, we have seen how profoundly the advancements made in
sectors such as technology have transformed our daily lives. Computer
applications, wireless communications and biotechnological discoveries have
created new investment opportunities. The new and developing sectors of the
economy that are involved in bringing these products, services and technologies
to life may offer exceptional growth potential, and many investors should
consider having a portion of their investment portfolios in them.
Although most of us recognize that certain sectors drive the global economy, we
believe it is much more difficult to determine which companies within a
particular sector will perform better than the others over time. The team of
experienced professionals at Citibank N.A. thoroughly researches a broad range
of companies within a given sector and carefully analyzes them, looking to
identify those companies that they believe offer the greatest growth potential
over the long term. Through this exhaustive and proprietary process, CGAM seeks
to offer an opportunity to participate in those companies that it believes are
best-positioned in their respective industries.
[PHOTO OMITTED]
HEATH B. MCLENDON
CHAIRMAN
-----------------
Yet, when investing in a sector fund, it is important to understand that these
funds may experience a significant amount of short-term volatility. We think you
need to maintain a long-term investment horizon and remember that sector funds
may be appropriate as part of an overall portfolio that has more conservative
investments.
When you invest with SSB Citi 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 success.
Thank you for your confidence in our investment management approach.
Sincerely,
/s/ Heath B. McLendon
----------------------
Heath B. McLendon
Chairman
November 6, 2000
-----------
(1) As of October 31, 2000. This figure represents retail, institutional,
money and separate accounts.
2 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY GLOBAL BIOTECHNOLOGY FUND AT A GLANCE (UNAUDITED)
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SHARES OF THE
SMITH BARNEY GLOBAL BIOTECHNOLOGY FUND VS. MSCI ALL-WORLD INDEX
--------------------------------------------------------------------------------
August 31, 2000 (Commencement of Operations) -- October 31, 2000
[The following table represents a line chart in the printed piece.]
Class A MSCI
8/30/00 9500 10000
9/30/00 9275 9469
10/31/00 8233 9312
A $10,000 investment in the Fund made on August 31, 2000 would have declined to
$8,233 with sales charge (as of October 31, 2000). The graph shows how the fund
compares to its benchmark for the same period. 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 Morgan Stanley Capital International All-World Index ("MSCI All-World")
represents the performance of 47 markets in both the developed and the
emerging markets in Africa, Asia, Australia, Europe, North America and
South America. Please note that an investor cannot invest directly in an
index.
--------------------------------------------------------------------------------
TOP TEN COMMON STOCK HOLDINGS*
--------------------------------------------------------------------------------
---------------------------------------------------
1. Amgen Inc. .................................20.7%
2. Medimmune Inc. ..............................9.5
3. Protein Design Labs Inc. ....................5.3
4. Vertex Pharmaceuticals Inc. .................4.9
5. Sepracor Inc. ...............................4.2
6. Celgene Corp. ...............................3.8
7. QLT Inc. ....................................3.1
8. PE Celera Genomics Group ....................3.0
9. COR Therapeutics Inc. .......................2.7
10. Biochemical Pharmaceuticals Inc. ...........2.7
----------------------------------------------------
* As a percentage of total investments.
--------------------------------------------------------------------------------
INVESTMENT ALLOCATION*
--------------------------------------------------------------------------------
[REPRESENTATION OF PIE CHART]
1.2% United Kingdom
2.5% Switzerland
2.6% Short-Term
6.6% Canada
87.1% United States
3 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
Dear Shareholder,
We are pleased to provide the inaugural annual report for the Smith Barney
Sector Series Inc.--Smith Barney Global Biotechnology Fund ("Fund") for the
period from August 31, 2000 through October 31, 2000. In this report we have
summarized the period's prevailing economic and market conditions and outlined
our investment strategy. The information provided in this letter 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 Fund. Please refer to pages 8 through 9 for a complete list and percentage
breakdown of the Fund's holdings. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow. We hope you find this
report to be useful and informative.
PERFORMANCE UPDATE
Since its inception on August 31, 2000 through October 31, 2000, the Fund's
Class A shares, without and with sales charges generated negative returns of
13.33% and 17.67%, respectively. In comparison, the Morgan Stanley Capital
International All World Index ("MSCI All-World Index")(1) returned a negative
6.88% for the same period. Please note that past performance is not indicative
of future results.
GLOBAL SECTOR INVESTING--THE CGAM PROCESS
Our approach to global sector investing is based on exhaustive research that is
intensely focused and led by a group of seasoned investment professionals with
extensive industry expertise. We look for analytical consistency through
intensive modeling and strict application of a consistent valuation methodology.
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
strategy designed to provide the right exposure to various industries within any
particular sector they cover. CGAM's exhaustive fundamental research evaluates a
universe of businesses in its global quest to identify and participate in
attractive investment opportunities.
A THREE-STEP RESEARCH PROCESS
FUNDAMENTAL --------> QUANTITATIVE --------> ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
We apply a proprietary, systematic, risk-conscious approach to investing. We
combine fundamental research, quantitative research and active portfolio
management to create portfolios that we think should generate competitive
returns while helping to moderate risk over time.
---------------
(1) THE MSCI ALL-WORLD INDEX REPRESENTS THE PERFORMANCE OF MARKETS IN BOTH THE
DEVELOPED AND THE EMERGING MARKETS IN AFRICA, ASIA, AUSTRALIA, EUROPE,
NORTH AMERICA AND SOUTH AMERICA. PLEASE NOTE THAT AN INVESTOR CANNOT INVEST
DIRECTLY IN AN INDEX.
4 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
BY MAPPING THE STRUCTURE OF HUMAN DNA,
SCIENTISTS HAVE OPENED THE DOOR FOR THE
FURTHER DISCOVERY AND DEVELOPMENT OF A
NEW GENERATION OF INNOVATIVE DRUGS TO
TREAT COMPLEX DISEASES. IN THE EARLY 1990S,
THERE WERE APPROXIMATELY 100 DRUGS IN THE
BIOTECHNOLOGY AREA IN
VARIOUS STAGES OF DEVELOPMENT. TODAY,
THERE ARE OVER 1,000 IN DEVELOPMENT.
SOURCE: ERNST & YOUNG.
--------------------------------------------------------------------------------
In our view, there can be no substitute for in-depth analysis, which can often
provide a significant competitive edge in understanding company fundamentals.
(Of course, no assurances can be made that our approach will ultimately be
successful.)
Our fundamental, proprietary research can add value to active portfolio
management by providing timely and unbiased information to our decision-making
processes. Our team conducts on-site company visits and exhaustive research to
uncover the companies that they think have:
o Superior products or services
o Outstanding managements
o Solid balance sheets
o Market leadership
o Leading innovation
In our opinion, these are the companies' strengths that can create real value
and lead to strong earnings and sales growth, which ultimately drives stock
prices.
THE CGAM RESEARCH PROCESS DEFINED
We look to differentiate ourselves from the traditional approach to investment
management in a number of ways that we think can add value to the portfolio. Our
management style can best be described as disciplined, yet flexible. Our
formidable global reach and local expertise enable them to nurture research
teams with direct access to the regions and industries where they do business.
Our research organization is centered on a team-approach to stock research and
selection by covering hundreds of companies and working closely together both
within and across industry teams in a seamless fashion to reach a prudent
consensus.
5 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
IN 1999, 12,735 BIOTECHNOLOGY PATENTS
WERE GRANTED, A SIGNIFICANT INCREASE
FROM 1985, WHEN ONLY 3,394 PATENTS WERE GRANTED.
SOURCE: U.S. PATENT AND TRADEMARK OFFICE, JUNE 2000.
--------------------------------------------------------------------------------
Each stock 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 within the industry, quality of
product offerings, costs and risks. These intensive models detail the analyst's
assumptions for potential profitability for the company going forward, and
provides some of the necessary information to forecast company fundamentals and
make stock recommendations. The research team looks to ensure consistency in
industry and accounting assumptions and that in turn can allow 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.
We believe that is a valuable and consistent method to provide current
valuations to securities. The DDM-based valuation process, in our 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 an investment rating on a company's stock.
GLOBAL BIOTECHNOLOGY SECTOR UPDATE
We believe that present global economic conditions are favorable for many
biotechnology companies. A demographic shift towards an aging population has led
to rising drug consumption worldwide. As such, healthcare and drug spending has
continued to rise in recent years. In addition, political and regulatory factors
such as proposed Medicare reform and the U.S. Food and Drug Administration's
(FDA) streamlining of the drug approval process has had a positive impact on the
industry.
We apply a systematic methodology to "see through" the recent hype surrounding
biotechnology. We believe that our extensive biotechnology experience allows us
to form a full understanding of the subtleties of the therapeutic markets and
the applications of clinical data. With this in-depth understanding, we are able
to identify what we deem to be solid companies with compelling long-term
prospects.
The global biotechnology industry continued its practice of establishing
strategic partnerships with pharmaceutical companies to develop new drugs during
the period. These arrangements convinced many investors that these alliances
could potentially result in the creation of viable new products. In addition,
many biotechnology companies have continued to make development and licensing
agreements that could lead to improved marketing initiatives for some new
therapies.
Positive news flow benefiting a number of companies also came from the
Interscience Conference on Antimicrobial Agents and Chemotherapy (ICAAC(2)).
This conference marked the start of a run of conferences which should provide
further positive news flow on products in development, with the American Society
of Human Genetics meeting starting in early October.
The political landscape has also improved somewhat in the U.S. for the
biotechnology sector. It appears more likely that any major healthcare reform
will not pass until next year. In addition, the proposals put forward by the two
leading Presidential candidates may have a limited impact on biotechnology
stocks.
-------------
(2) THE ICAAC, SPONSORED BY JOHNS HOPKINS UNIVERSITY'S DIVISION OF INFECTIOUS
DISEASES, IS HELD ANNUALLY AND IS ATTENDED BY APPROXIMATELY 12,000
SCIENTISTS, PHYSICIANS, RESEARCHERS, CLINICIANS AND PHARMACISTS TO DISCUSS
NEW ADVANCES IN THE HEALTH SCIENCES INDUSTRY.
6 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
EACH CGAM ANALYST BUILDS INTENSIVE,
DETAILED COMPANY MODELS FROM THE GROUND
UP THAT SEEKS TO ANTICIPATE A PARTICULAR
COMPANY'S FUTURE FINANCIAL PERFORMANCE.
--------------------------------------------------------------------------------
The investment strategy for the Fund is to invest in what we deem to be a
diversified portfolio of biotechnology companies across the different
disciplines that make up this sector. The Fund currently has positions in
diversified therapeutic companies, "enablers" (i.e., companies producing
products which allow other firms to carry out research, either through equipment
or information) and mid- to late-stage research companies. We evaluate companies
on four criteria--profitability (i.e., current or near-term), partnerships,
products and pipeline. The higher a company rates on each of these criteria, the
larger the position we will take in the company. Different from many other
biotechnology funds, we focus on the longer-term outlook for each company, and
subsequently have lower turnover than other, more "theme-driven" funds. While
the Fund is a global fund, holding securities of firms based in at least three
countries, including the U.S., the sector itself tends to be U.S.-based, and
consequently the Fund is made up of almost 90% U.S. stocks.
The Fund has positions in companies such as Amgen Inc., Biogen Inc. and Serono,
enablers such as Protein Design Labs Inc. and research-focused companies like
Abgenix Inc. and QLT Inc. Many of the Fund's largest holdings are already
profitable--Serono SA, Chiron Corp., Amgen Inc., Genentech Inc., Medimmune
Inc.--which we feel may help the Fund weather any future volatility in the
sector.
We also believe in diversifying our bets within the sector, hence the reason for
the larger number of holdings. Among the not-yet-profitable companies held, we
view Abgenix Inc. as a leader in antibody therapeutics, having four products
under development, a good array of partnerships and strong momentum. QLTI Inc.,
the research leader and innovator in photodynamic therapy (light-activated
drugs), derives revenues from an array of royalties and partnerships based on
its intellectual property assets.
EXPERIENCED SECTOR FUND PORTFOLIO MANAGEMENT
The management of the sector funds is driven by analyst recommendations,
long-term earnings and earnings momentum which form the basis of expected future
returns within any given sector. These expected returns, coupled with detailed
risk forecasts, determine what holdings will be selected. In building and
maintaining the Fund's portfolio, we look to avoid a high risk-to-return on
their investments and carefully monitor sector performance, constantly looking
for any material changes and/or developments.
Thank you for investing in the Smith Barney Sector Series Inc.--Smith Barney
Global Biotechnology Fund. We look forward to helping you pursue your financial
goals in the years ahead.
Sincerely,
The Investment Team at
Citibank N.A.
November 7, 2000
7 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
COMMON STOCK -- 97.4%
CANADA -- 6.6%
39,561 Biochemical Pharmaceuticals Inc.* (Pharmaceuticals) $ 979,135
29,740 Hemosol Inc.* (Biotechnology) 290,099
22,216 QLT Inc.* (Biotechnology) 1,104,899
-------------------------------------------------------------------------------------------------------
2,374,133
-------------------------------------------------------------------------------------------------------
SWITZERLAND -- 2.5%
995 Serono SA (Pharmaceuticals) 895,035
-------------------------------------------------------------------------------------------------------
UNITED STATES -- 87.1%
9,832 Abgenix Inc.* (Pharmaceuticals) 775,499
55,814 Advanced Tissue Sciences Inc.* (Biotechnology) 397,675
5,013 Affymetrix Inc.* (Health Care Equipment & Supplies) 277,595
128,464 Amgen Inc.* (Biotechnology) 7,442,883
22,770 Aradigm Corp.* (Health Care Equipment & Supplies) 503,786
10,275 Aviron* (Biotechnology) 671,728
7,288 Biogen Inc.* (Biotechnology) 438,646
17,867 Biomatrix Inc.* (Biotechnology) 341,706
21,116 Celgene Corp.* (Biotechnology) 1,359,343
9,439 Cephalon Inc.* (Biotechnology) 506,166
14,566 Chiron Corp.* (Biotechnology) 630,890
17,356 COR Therapeutics Inc.* (Biotechnology) 980,614
13,350 Entremed Inc.* (Biotechnology) 415,519
9,440 Enzo Biochemical Inc.* (Biotechnology) 363,440
10,757 Geltex Pharmaceuticals Inc.* (Biotechnology) 533,816
8,294 Genentech Inc.* (Biotechnology) 684,255
5,114 Human Genome Sciences Inc.* (Biotechnology) 452,030
7,904 Immunex Corp.* (Pharmaceuticals) 336,414
14,374 Incyte Genomics Inc.* (Biotechnology) 526,448
7,581 Inhale Therapeutic Systems * (Health Care Equipment & Supplies) 377,155
7,251 Medarex Inc.* (Biotechnology) 443,217
52,169 Medimmune Inc.* (Biotechnology) 3,410,548
6,148 Millennium Pharmaceuticals* (Biotechnology) 446,114
9,643 Neurogen Corp.* (Biotechnology) 303,152
25,543 Northfield Laboratories Inc.* (Biotechnology) 282,569
23,479 Organogenesis Inc.* (Biotechnology) 294,427
5,215 PE Biosystems Group (Health Care Equipment & Supplies) 610,155
15,781 PE Celera Genomics Group* (Biotechnology) 1,065,217
13,990 Protein Design Labs Inc.* (Biotechnology) 1,889,743
13,326 Regeneron Pharmaceuticals Inc.* (Biotechnology) 356,471
17,776 Sangstat MED Corp.* (Biotechnology) 177,760
21,910 Sepracor Inc.* (Biotechnology) 1,492,619
18,885 Vertex Pharmaceuticals Inc.* (Biotechnology) 1,758,370
15,703 Vical Inc.* (Biotechnology) 333,689
39,802 Xoma Ltd.* (Biotechnology) 485,087
-------------------------------------------------------------------------------------------------------
31,364,746
-------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- 1.2%
6,844 Cambridge Antibody* (Pharmaceuticals) 427,003
-------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Identified Cost-- $39,701,436) 35,060,917
-------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
8 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FACE
AMOUNT SECURITY VALUE
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
DISCOUNT NOTE -- 2.6%
$939,000 Student Loan Marketing Discount Note
6.45% due 11/1/00 (Identified Cost-- $939,000) $ 939,000
-------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Identified Cost-- $40,640,436+) $35,999,917
-------------------------------------------------------------------------------------------------------
</TABLE>
* Non-income producing security.
+ Aggregate cost for federal income tax is substantially the same.
See Notes to Financial Statements.
9 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
Statement of Assets and Liabilities October 31, 2000
-------------------------------------------------------------------------------
ASSETS:
Investments, at value (Cost-- $40,640,436) $35,999,917
Cash 960
Receivable for Fund shares sold 430,281
Receivable for open forward foreign currency contract 11
Receivable from the Administrator (Note 10) 44,883
-------------------------------------------------------------------------------
TOTAL ASSETS 36,476,052
-------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 398,478
Payable for Fund shares purchased 9,415
Payable for open forward foreign currency contracts 9
Distribution fees payable 24,580
Accrued expenses and other liabilities 90,054
-------------------------------------------------------------------------------
TOTAL LIABILITIES 522,536
-------------------------------------------------------------------------------
TOTAL NET ASSETS $35,953,516
-------------------------------------------------------------------------------
NET ASSETS:
Par value of capital shares $ 3,644
Capital paid in excess of par value 40,614,613
Accumulated net investment loss (2,318)
Accumulated net realized loss from security
transactions and foreign currencies (21,902)
Net unrealized depreciation of investments
and foreign currencies (4,640,521)
------------------------------------------------------------------------------
TOTAL NET ASSETS $35,953,516
------------------------------------------------------------------------------
SHARES OUTSTANDING:
Class A 859,230
-------------------------------------------------------------------------
Class B 1,186,672
-------------------------------------------------------------------------
Class L 1,598,042
------------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $9.88
-------------------------------------------------------------------------
Class B * $9.86
-------------------------------------------------------------------------
Class L ** $9.86
------------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
------------------------------------------------------------------------------
Class A (net asset value plus 5.26% of net asset value per share) $10.40
-------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $9.96
------------------------------------------------------------------------------
* 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.
10 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
INVESTMENT INCOME:
Interest Income $ 42,740
-------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 53,492
Distribution fees (Note 2) 46,261
Custody fees 40,000
Shareholder communications 30,509
Audit fees 17,667
Registration fees 10,580
Legal fees 3,068
Directors' fees 2,957
Other 1,814
-------------------------------------------------------------------------------
TOTAL EXPENSES 206,348
Less: Aggregate amount waived by the Manager (Note 2) (43,313)
Less: Expenses assumed by the Administrator (Note 11) (44,883)
-------------------------------------------------------------------------------
NET EXPENSES 118,152
-------------------------------------------------------------------------------
NET INVESTMENT LOSS (75,412)
-------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Gain From:
Security (excluding short-term securities)
and foreign currency transactions 2,095
-------------------------------------------------------------------------------
Decrease in Net Unrealized Depreciation (4,640,521)
-------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (4,638,426)
-------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS $(4,713,838)
-------------------------------------------------------------------------------
See Notes to Financial Statements.
11 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
OPERATIONS:
Net investment loss $ (75,412)
Net realized gain 2,095
Decrease in net unrealized depreciation (4,640,521)
-------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS (4,713,838)
-------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 6):
Net proceeds from sale of shares 41,165,480
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (498,126)
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 40,667,354
-------------------------------------------------------------------------------
INCREASE IN NET ASSETS 35,953,516
NET ASSETS:
Beginning of period --
-------------------------------------------------------------------------------
END OF PERIOD* $35,953,516
-------------------------------------------------------------------------------
* Includes accumulated net investment loss of: $ (2,318)
-------------------------------------------------------------------------------
See Notes to Financial Statements.
12 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
-------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES
The Smith Barney Global Biotechnology Fund is a non-diversified investment fund
of the Smith Barney Sector Series Inc. (the "Company"), a Maryland corporation.
The Company is registered under the Investment Company of 1940, as amended, as
an open-end management investment company and consists of this Fund and five
other separate investment funds: Smith Barney Financial Services Fund, Smith
Barney Health Sciences Fund, Smith Barney Technology Fund, Smith Barney Global
Media & Telecommunications Fund and Smith Barney Global Technology Fund. On
August 31, 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 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;
(m) the character of income and gains to be distributed in accordance with
income tax regulations which may differ from generally accepted accounting
principles. At October 31, 2000, reclassifications were made to the Fund's
capital accounts to reflect permanent book/tax differences and income and gains
available for distribution under income tax regulations. Accordingly, the Fund
reclassified $49,097, from paid in capital, $23,997 from accumulated net
realized loss and $73,094 to accumulated net investment loss. Net investment
income, net realized gains and net assets were not affected by this adjustment
and (n) estimates and assumptions are required to be made regarding assets,
liabilities and changes in net assets resulting from operations when financial
statements are prepared. Changes in the economic environment, financial markets
and any other parameters used in determining these estimates could cause actual
results to differ.
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 respectively.
13 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------
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 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 0.50% of the Fund's
average daily net assets. The management fees paid amounted to $53,492, of which
$43,313 was voluntarily waived for the period ended October 31, 2000.
Salomon Smith Barney Inc. 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 October 31, 2000, the Fund paid
transfer agent fees of $2,786 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 also have a 1.00% CDSC, which applies if redemption
occurs within the first year of purchase.
For the period ended October 31, 2000, CDSCs paid to SSB and sales charges
received by SSB were approximately:
CLASS A CLASS B CLASS L
-------------------------------------------------------------------
CDSCs $ -- $ -- $ 1,000
-------------------------------------------------------------------
Sales Charges $259,000 $ -- $179,000
-------------------------------------------------------------------
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 October 31, 2000, total Distribution Plan fees incurred
were:
CLASS A CLASS B CLASS L
-------------------------------------------------------------------
Distribution Plan Fees $3,349 $18,334 $24,578
-------------------------------------------------------------------
All officers and one Director of the Fund are employees of SSB.
3. INVESTMENTS
During the period ended October 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
---------------------------------------------------------------------
Purchases $40,051,165
---------------------------------------------------------------------
Sales $ 351,159
---------------------------------------------------------------------
At October 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
--------------------------------------------------------------------
Gross unrealized appreciation $ 1,605,939
Gross unrealized depreciation (6,246,458)
--------------------------------------------------------------------
Net unrealized depreciation $(4,640,519)
--------------------------------------------------------------------
4. FORWARD FOREIGN CURRENCY CONTRACTS
At October 31, 2000, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized loss on the contracts reflected
in the accompanying financial statements were as follows:
5. OPTION CONTRACTS
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN (LOSS)
-------------------------------------------------------------------
To Buy:
CHF 12,859 7,155 11/2/00 11
GBP 2,243 3,255 11/6/00 (9)
-------------------------------------------------------------------
Net Unrealized Gain
(Loss) on Forward
Foreign Currency Contracts 2
-------------------------------------------------------------------
14 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund 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 Fund 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 amount of the premium
originally paid. When the Fund exercises a call option, the cost of the security
that the Fund purchases upon exercise will be increased by the premium
originally paid.
At October 31, 2000, the Fund had no open purchased call or put options.
When a Fund writes a call or put option, an amount equal to the premium received
by the Fund is recorded as a liability, the value of which is marked-to-market
daily. When a written option expires, the Fund 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 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 Fund 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 Fund enters into options for hedging purposes. The risk in writing a
call option is that the Fund 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 Fund is exposed to the risk of loss if
the market price of the underlying security declines.
At October 31, 2000, the Fund did not write any options.
6. 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 day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At October 31, 2000, the Fund had no open futures contracts.
7. 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 (plus accrued interest) in amounts at
least equal to the repurchase price.
8. CONCENTRATION OF RISK
The Fund intends to invest at least 80% of its assets in bio-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 invests in securities representing a broader
range of investment alternatives.
15 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
-------------------------------------------------------------------------------
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.
9. CAPITAL SHARES
At October 31, 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 October 31, 2000, total paid-in capital amounted to the following for each
class:
CLASS A CLASS B CLASS L
-------------------------------------------------------------------------------
Total Paid-in Capital $9,580,974 $13,264,512 $17,821,868
-------------------------------------------------------------------------------
10. ASSUMPTION OF EXPENSES
SSBC has voluntarily agreed to pay a portion of the expenses of the Fund for the
period ended October 31, 2000, which amounted to $44,883.
11. CAPITAL LOSS CARRYFORWARD
At October 31, 2000, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $21,902, available to offset future capital
gains expiring October 31, 2008. To the extent that these carryforward losses
are used to offset capital gains, it is probable that any gains so offset will
not be distributed.
Transactions in shares of each class were as follows:
AUGUST 31, 2000
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 2000
---------------------------------
SHARES AMOUNT
-------------------------------------------------------------------------------
CLASS A
Shares sold 865,546 $ 9,646,712
Shares issued on reinvestment -- --
Shares reacquired (6,316) (65,738)
-------------------------------------------------------------------------------
Net Increase 859,230 $ 9,580,974
-------------------------------------------------------------------------------
CLASS B
Shares sold 1,216,537 $ 13,558,737
Shares issued on reinvestment -- --
Shares reacquired (29,865) (294,225)
-------------------------------------------------------------------------------
Net Increase 1,186,672 $ 13,264,512
-------------------------------------------------------------------------------
CLASS L
Shares sold 1,611,305 $ 17,960,031
Shares issued on reinvestment -- --
Shares reacquired (13,263) (138,163)
-------------------------------------------------------------------------------
Net Increase 1,598,042 $ 17,821,868
-------------------------------------------------------------------------------
16 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------------------
For a share of each class of capital stock from August 31, 2000 (Commencement of
Operations) to October 31, 2000
CLASS A SHARES
-------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
-------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.04)
Net realized and unrealized loss (1.48)
-------------------------------------------------------------------------------
Total Income From Operations (1.52)
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
-------------------------------------------------------------------------------
Total Distributions --
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.88
-------------------------------------------------------------------------------
TOTAL RETURN (13.33)%++
-------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $8,486
-------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.52 %+
Net investment loss (0.78)%+
-------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 1%
-------------------------------------------------------------------------------
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 $(0.04)
RATIOS:
Expenses to average net assets 3.08%+
Net investment loss to average net assets (2.34)%+
-------------------------------------------------------------------------------
Note: The per share amounts were computed using monthly average of shares
during the period.
+ Annualized.
++ Total return is not annualized, as it may not be representative of
the total return for the year.
See Notes to Financial Statements.
17 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------------------------
For a share of each class of capital stock from August 31, 2000 (Commencement of
Operations) to October 31, 2000
CLASS B SHARES
-------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
-------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.05)
Net realized and unrealized loss (1.49)
-------------------------------------------------------------------------------
Total Income From Operations (1.54)
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
-------------------------------------------------------------------------------
Total Distributions --
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.86
-------------------------------------------------------------------------------
TOTAL RETURN (13.51)%++
-------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $11,705
-------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.28%+
Net investment loss (1.51)%+
------------------------------------------------------------------------------
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 $(0.05)
RATIOS:
Expenses to average net assets 3.84%+
Net investment loss to average net assets (3.07)%+
-------------------------------------------------------------------------------
Note: The per share amounts were computed using monthly average of shares
during the period.
+ Annualized.
++ Total return is not annualized, as it may not be representative of the
total return for the year.
See Notes to Financial Statements.
18 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
-------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
-------------------------------------------------------------------------------
For a share of each class of capital stock from August 31, 2000 (Commencement of
Operations) to October 31, 2000
CLASS L SHARES
-------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
-------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.06)
Net realized and unrealized loss (1.48)
-------------------------------------------------------------------------------
Total Income From Operations (1.54)
-------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
-------------------------------------------------------------------------------
Total Distributions --
-------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $9.86
-------------------------------------------------------------------------------
TOTAL RETURN (13.51)%++
-------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000S) $15,763
-------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.28%+
Net investment loss (1.51)%+
-------------------------------------------------------------------------------
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 $(0.06)
RATIOS:
Expenses to average net assets 3.84%+
Net investment loss to average net assets (3.07)%+
-------------------------------------------------------------------------------
Note: The per share amounts were computed using monthly average of shares
during the period.
+ Annualized.
++ Total return is not annualized, as it may not be representative of
the total return for the year.
See Notes to Financial Statements.
19 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE SMITH BARNEY SECTOR SERIES INC.:
We have audited the accompnaying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Global Biotechnology Fund of Smith
Barney Sector Series Inc. as of October 31, 2000, the related statement of
operations, the statements of changes in net assets, and financial highlights
for the period August 31, 2000 (Commencement of Operations) through October 31,
2000. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
As to securities purchased or sold but not yet received or delivered, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Global Biotechnology Fund of Smith Barney Sector Series Inc. as of
October 31, 2000, the results of its operations, the changes in its net assets
and financial highlights for the period August 31, 2000 through October 31,
2000, in conformity with accounting principles generally accepted in the United
States of America.
/s/ KPMG LLP
------------
New York, New York
December 11, 2000
See Notes to Financial Statements.
20 Smith Barney Global Biotechnology Fund | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY
GLOBAL BIOTECHNOLOGY 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
SSB Citi Fund Management LLC
INVESTMENT SUBADVISER
Citibank N.A.
DISTRIBUTORS
Salomon Smith Barney Inc.
PFS Distributors Inc.
CUSTODIAN
State Street Bank & Trust Co.
TRANSFER AGENT
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
SUB-TRANSFER AGENT
PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island
02940-9699
<PAGE>
SMITH BARNEY GLOBAL BIOTECHNOLOGY FUND
-------------------------------------------------------------------------------
This report is submitted for general information of the
shareholders of Smith Barney Sector Series Inc. -- Smith
Barney Global Biotechnolgoy Fund, but it may also be used as
sales literature when preceded or accompanied by the current
Prospectus, which gives details about charges, expenses,
investment objectives and operating policies of the Fund. If
used as sales material after January 31, 2001, this report
must be accompanied by performance information for the most
recently completed calendar quarter.
SMITH BARNEY GLOBAL BIOTECHNOLOGY FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any Smith Barney Mutual Funds,
including management fees and expenses, call or write your
financial professional for a free prospectus. Read it
carefully before you invest or send money.
www.smithbarney.com/mutualfunds
[SALOMON SMITH BARNEY LOGO]
Salomon Smith Barney is a service mark of Salomon
Smith Barney Inc.
FD02132 12/00
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
SECTOR SERIES INC.
GLOBAL MEDIA & TELECOMMUNICATIONS FUND
--------------------------------------------------------------------------------
RESEARCH SERIES | ANNUAL REPORT | OCTOBER 31, 2000
[LOGO OMITTED]
Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed(SM)
--------------------------------------------------------------------------------
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
--------------------------------------------------------------------------------
<PAGE>
[Graphic] Research Series
ANNUAL REPORT o OCTOBER 31, 2000
SMITH BARNEY GLOBAL MEDIA &
TELECOMMUNICATIONS FUND
CITIBANK GLOBAL
ASSET MANAGEMENT
Citibank, N.A., through its Citibank Global Asset Management division is the
subadviser to the Fund. Comprising a seasoned group of investment and research
professionals, the Fund's management team follows a systematic and rigorous
approach designed to provide appropriate exposure to each market sector.
FUND OBJECTIVE
The Fund seeks long-term capital appreciation. The Fund normally invests at
least 80% of its assets in securities of companies principally engaged in, but
not limited to, the development, production, sale and distribution of goods or
services used in the broadcast and media industries; companies engaged in
design, development, manufacturing, distribution or sale of communications
services and equipment; and companies that are involved in supplying equipment
or services to such companies, as well as companies that offer telephone
service, wireless communications, satellite communications, television and movie
programming, broadcasting, and Internet access.
FUND FACTS
FUND INCEPTION
--------------------------------------------------------------------------------
August 31, 2000
Class A Class B Class L
--------------------------------------------------------------------------------
NASDAQ SMTAX SMTBX SGMLX
--------------------------------------------------------------------------------
Inception 8/31/00 8/31/00 8/31/00
--------------------------------------------------------------------------------
SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND*
TOTAL RETURNS OCTOBER 31, 2000
WITHOUT SALES CHARGES(1)
Class A Class B Class L
--------------------------------------------------------------------------------
Since Inception (8.07)% (8.16)% (8.16)%
(August 31, 2000)**
--------------------------------------------------------------------------------
WITH SALES CHARGES(2)
Class A Class B Class L
--------------------------------------------------------------------------------
Since Inception (12.67)% (12.75)% (9.99)%
(August 31, 2000)**
--------------------------------------------------------------------------------
* Since the Fund focuses its investments on companies involved in the media
and telecommunications industries, 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 deduction of all 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 purchase. This CDSC declines by 1.00% the
first year after purchase and thereafter by 1.00% per year until no CDSC is
incurred. Class L shares also reflect the deduction of 1.00% per year until
CDSC, which applies if shares are redeemed within the first year of
purchase.
--------------------------------------------------------------------------------
WHAT'S INSIDE
Your Investment in the Smith Barney
Global Media & Telecommunications Fund ........... 1
Letter from the Chairman ......................... 2
Fund at a Glance ................................. 3
Shareholder Letter ............................... 4
Schedule of Investments .......................... 8
Statement of Assets and Liabilities .............. 10
Statement of Operations .......................... 11
Statement of Changes in Net Assets ............... 12
Notes to Financial Statements .................... 13
Financial Highlights ............................. 17
Independent Auditors' Report ..................... 20
[LOGO OMITTED]
Smith Barney
Mutual Funds
Your Serious Money. Professionally Managed(SM)
--------------------------------------------------------------------------------
Investment Poducts: Not FDIC Insured o Not Bank Guaranteed o May Lose Value
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
YOUR INVESTMENT IN THE SMITH BARNEY
GLOBAL MEDIA & TELECOMMUNICATIONS FUND
--------------------------------------------------------------------------------
Led by Citibank N.A. through its Citibank Global Asset Management ("CGAM")
division, the Fund offers you the opportunity to participate in the long-term
growth potential of the media and telecommunications industries. The Fund's
management team comprises a seasoned group of investment and research
professionals who follow a systematic and rigorous approach designed to provide
appropriate exposure to each market sector.
[GRAPHIC] AN INVESTMENT IN THE FUTURE OF GLOBAL MEDIA AND
TELECOMMUNICATIONS
An investment in the Fund represents an opportunity to take
advantage of the anticipated growth and increasing importance of
the media and telecommunications industries. And while this
sector has seen its fair share of challenges of late, we continue
to view its long-term prospects favorably.
[GRAPHIC] DIVERSIFICATION IN A TARGETED SECTOR*
An investment in the Fund offers investors a way to invest in the
broad range of companies shaping the media and telecommunications
industries, both in the U.S. and abroad. The Fund's investments
may include companies in a wide range of industries, such as
broadcasting, media and communications, among others.
[GRAPHIC] THE BENEFITS OF EXHAUSTIVE FUNDAMENTAL SECURITIES ANALYSIS--
THE RESEARCH SERIES
The Research Series is a selection of Smith Barney Mutual Funds
built on a foundation of substantial buy-side research under the
direction of CGAM. This series of funds focuses on potential
opportunities from well-defined industries, sectors and trends.
[GRAPHIC] A COMMITMENT TO MANAGING YOUR SERIOUS MONEY
SSB Citi Asset Management Group ("SSB Citi"), the investment
management division of Citigroup comprises Smith Barney Asset
Management, Salomon Brothers Asset Management and Citibank Global
Asset Management, each an organization with extensive investment
capabilities.
SSB Citi, as a member of one of the largest financial services
providers in the world, offers you the benefits of our global
capabilities. At SSB Citi, you gain access to portfolio
management delivered professionally. We are proud to offer you,
the serious investor, a variety of managed solutions.
*Please note that because the Fund invests in a single industry, its shares do
not represent a complete investment program, and the value of its shares may
fluctuate more than shares invested in a broader range of industries.
1 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
LETTER FROM THE CHAIRMAN
[PHOTO]
HEATH B. MCLENDON
CHAIRMAN
The new millennium, so far, has been marked by higher volatility and concerns
that the bull market in stocks may be running out of steam. At SSB Citi Fund
Management Group ("SSB Citi"), we have instituted many positive changes, with
the ultimate goal of offering our investors a well-rounded menu of stock and
bond funds that can be tailored to a wide range of investment objectives.
We believe that your serious money demands professional management. Since 1937,
Smith Barney has managed the serious money of individuals, their families and
their businesses. Today, with over $398.6 billion in assets under management,(1)
SSB Citi offers choices and solutions, uniting the distinguished history of
Smith Barney with the unparalleled global reach of its parent, Citigroup.
A FEW THOUGHTS ON SECTOR INVESTING
Over the past few years, we have seen how profoundly the advancements made in
sectors such as technology and telecommunications have transformed our daily
lives. Computer applications, wireless communications and biotechnological
discoveries have created new investment opportunities and have changed how we
communicate and how we are entertained. The new and developing sectors of the
economy that are involved in bringing these products, services and technologies
to life may offer exceptional growth potential, and many investors should
consider having a portion of their investment portfolios in them.
Although most of us recognize that certain sectors drive the economy, we believe
it is much more difficult to determine which companies will perform better than
the others over time. The team of experienced professionals at Citibank N.A.
thoroughly researches a broad range of companies within a given sector and
carefully analyzes them, looking to identify those companies that they believe
offer the greatest growth potential over the long term. Through this exhaustive
and proprietary process, CGAM seeks to offer an opportunity for you to
participate in those companies that it believes are best-positioned in their
respective industries.
Yet, when investing in a sector fund, it is important to understand that these
funds may experience a significant amount of short-term volatility. We think you
need to maintain a long-term investment horizon and remember that sector funds
may be appropriate as part of an overall portfolio that has more conservative
investments.
When you invest with SSB Citi 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 success.
Thank you for your confidence in our investment management approach.
Sincerely,
/s/ Heath B. McLendon
---------------------
Heath B. McLendon
Chairman
November 6, 2000
--------------------------------------------------------------------------------
(1) AS OF OCTOBER 31, 2000. THIS FIGURE REPRESENTS RETAIL, INSTITUTIONAL, MONEY
AND SEPARATE ACCOUNTS.
2 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report toShareholders
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND AT A GLANCE (UNAUDITED)
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN SHARES OF THE
SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND VS. MSCI ALL-WORLD INDEX
--------------------------------------------------------------------------------
AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS) -- OCTOBER 31, 2000
[The following table represents a line chart in the printed piece.]
Class A MSCI
8/30/00 9500 10000
9/30/00 8625 9469
10/31/00 8733 9312
A $10,000 investment in the Fund made on August 31, 2000 would have declined to
$8,733 with sales charge (as of October 31, 2000). The graph shows how the fund
compares to its benchmark for the same period. 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 Morgan Stanley Capital International All-World Index ("MSCIAll-World")
represents the performance of 47 markets in both the developed and the emerging
markets in Africa, Asia, Australia, Europe, North America and South America.
Please note that an investor cannot invest directly in an index.
--------------------------------------------------------------------------------
TOP TEN COMMON STOCK HOLDINGS*
--------------------------------------------------------------------------------
1. VODAFONE GROUP ................................. 8.1%
2. VERIZON COMMUNICATIONS ......................... 6.4
3. BELLSOUTH CORP. ................................ 5.4
4. SBC COMMUNICATIONS ............................. 5.3
5. DEUTSCHE TELEKOM ............................... 4.1
6. VIACOM INC. .................................... 3.9
7. FRANCE TELECOM ................................. 3.4
8. OMNICOM GROUP .................................. 3.3
9. WALT DISNEY CO. ................................ 3.3
10. NIPPON TELEGRAPH & TELEPHONE CO. ............... 3.1
* As a percentage of total investments.
--------------------------------------------------------------------------------
PORTFOLIO BREAKDOWN*
--------------------------------------------------------------------------------
[The following table represents a pie chart in the printed piece.]
1.5% Australia
6.2% Asia/Pacific
2.0% Short-Term
34.8% Europe
55.5% The Americas
3 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
DEAR SHAREHOLDER:
We are pleased to provide the inaugural annual report for the Smith Barney
Sector Series Inc.--Smith Barney Global Media & Telecommunications Fund ("Fund")
for the period from August 31, 2000 through October 31, 2000. In this report we
have summarized the periods prevailing economic and market conditions and
outlined our investment strategy. The information provided in this letter
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 Fund. Please refer to pages 8 through 9 for a complete list and percentage
breakdown of the Fund's holdings. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow. We hope you find this
report to be useful and informative.
PERFORMANCE UPDATE
Since its inception on August 31, 2000 through October 31, 2000, the Fund's
Class A shares, without and with sales charges generated negative returns of
8.07% and 12.67%, respectively. In comparison, the Morgan Stanley Capital
International All-World Index ("MSCI All-World Index")(1) returned a negative
6.88% for the same period. Please note that past performance is not indicative
of future results.
GLOBAL SECTOR INVESTING--THE CGAM PROCESS
Our approach to global sector investing is based on exhaustive research that is
intensely focused and led by a group of seasoned investment professionals with
extensive industry expertise. Our team looks for analytical consistency through
intensive modeling and strict application of a consistent valuation methodology.
Our management team is made up of a group of high-quality, seasoned investment
and research professionals who follow a systematic and rigorous strategy
designed to provide the right exposure to various industries within any
particular sector they cover. Our exhaustive fundamental research evaluates a
universe of businesses in its global quest to identify and participate in
attractive investment opportunities.
A THREE-STEP RESEARCH PROCESS
----------- ------------ ----------------
FUNDAMENTAL ---- QUANTITATIVE ---- ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
----------- ------------ ----------------
We apply a proprietary, systematic, risk-conscious approach to investing. We
combine fundamental research, quantitative research and active portfolio
management to create portfolios that we think should generate competitive
returns while helping to moderate risk over time.
In our view, there can be no substitute for in-depth analysis, which can often
provide a significant competitive edge in understanding company fundamentals.
(Of course, no assurances can be made that our approach will ultimately be
successful.)
----------
(1) THE MSCI ALL-WORLD INDEX REPRESENTS THE PERFORMANCE OF MARKETS IN BOTH THE
DEVELOPED AND THE EMERGING MARKETS IN AFRICA, ASIA, AUSTRALIA, EUROPE, NORTH
AMERICA AND SOUTH AMERICA. PLEASE NOTE THAT AN INVESTOR CANNOT INVEST
DIRECTLY IN AN INDEX.
4 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
Our fundamental, proprietary research can add value to active portfolio
management by providing timely and unbiased information to their decision-making
processes. Our team conducts on-site company visits and exhaustive research to
uncover the companies that they think have:
o Superior products or services
o Outstanding managements
o Solid balance sheets
o Market leadership
o Leading innovation
--------------------------------------------------------------------------------
APPROXIMATELY 200 MILLION PEOPLE, ONLY 3%
OF THE WORLD'S POPULATION CURRENTLY USE THE
INTERNET. E-COMMERCE IS RISING EXPONENTIALLY,
AS THE INTERNET BRINGS ONLINE SHOPPING TO
EVERYTHING FROM AUTOMOBILES TO VACATIONS.
SOURCE: CLINTON ADMINISTRATION AGENDA FOR THE SEATTLE
WORLD TRADE ORGANIZATION MEETING, 1999.
--------------------------------------------------------------------------------
In our opinion, these are the companies' strengths that can create real value
and lead to strong earnings and sales growth, which ultimately drives stock
prices.
THE CGAM RESEARCH PROCESS DEFINED
We look to differentiate ourselves from the traditional approach to investment
management in a number of ways that we think we can add value to the portfolio.
Our management style can best be described as disciplined, yet flexible. Our
formidable global reach and local expertise enable us to nurture research teams
with direct access to the regions and industries where we do business. Our
research organization is centered on a team-approach to stock research and
selection by covering hundreds of companies and working closely together both
within and across industry teams in a seamless fashion to reach a prudent
consensus.
Each stock 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 within the industry, quality of
product offerings, costs and risks. These intensive models detail the analyst's
assumptions for potential profitability for the company going forward and
provides some of the necessary information to forecast company fundamentals and
make stock recommendations. The research team looks to ensure consistency in
industry and accounting assumptions and that in turn can allow 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.
We believe this is a valuable and consistent method to provide current
valuations to securities. The DDM-based valuation process, in our view, provides
a common yardstick that helps analysts and portfolio managers compare the
relative valuation
5 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
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 an investment rating on a company's stock.
THE GLOBAL MEDIA AND TELECOMMUNICATIONS FUND--THE CGAM APPROACH
We believe there are several key trends driving the growth of technology such
as:
o Deregulation that has continued to erode barriers to entry and stimulating
competition on a global scale;
o Technological advances that have rapidly improved the price-performance of
and demand for communications networks;
o The recent explosion of the wireless and Internet industries due in large
part to strong demand for worldwide "anytime, anywhere" connectivity;
o Distribution of a wide range of new services and revenue opportunities
requiring media content and data communications; and
o Industry-wide consolidation due to a need for economies of scale and global
reach.
--------------------------------------------------------------------------------
IN THE YEARS AHEAD, WIRELESS USERS MAY
REPRESENT ONE OF THE BIGGEST SOURCES OF
TELECOMMUNICATIONS GROWTH.
--------------------------------------------------------------------------------
Our technology team believes that our view of the media and telecommunications
industries differs from many investment professionals. The two themes we draw
from are:
o GLOBAL COVERAGE AND LOCAL PRESENCE. The team looks to provide timely insights
regarding cross-border consolidation and emerging technologies. The team is
confident that their extensive research allows them to clearly evaluate the
viability of companies' plans to expand internationally.
o CONSISTENT, LONG-TERM FORECASTS. The team believes that the lines between the
media, telecommunications and technology industries are becoming less
blurring. The team also holds the view that "traditional" valuation methods
used in evaluating the media and telecommunications industries do not take
into consideration differing accounting standards and stages of development
or market potential.
GLOBAL MEDIA & TELECOMMUNICATIONS SECTOR UPDATE
The worldwide media sector, in our view, has reached appropriate valuation
levels after recent declines. Advertising expenditures continues at a robust
pace, although the rate of growth is expected to slow down in line with the
slowing growth of the U.S. economy. European advertising growth is witnessing an
exceptional year with growth rates of approximately 18% in France, 15% in Italy
and double-digit growth in most European countries.
During the period, corporate activity in the sector remained strong, as seen by
the highly visible deals between America Online and Time Warner, Fox and Chris
Craft, WWP and Young and Rubicam, News Corporation and Gemstar and Vivendi and
Universal. We anticipate that corporate consolidation activity may also continue
in radio and satellite television.
Intense competition continues to pressure the long distance telecommunications
sector. The largest U.S. carriers, AT&T, WorldCom, and Sprint all significantly
reduced their outlooks during the past month to reflect severe pricing pressure
and market share losses. In our opinion, the key drivers impacting their
businesses were new entrants, new technology, and a migration of traffic to
wireless networks. These competitive pressures are affecting not only their
long-distance voice business, but also their
6 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
data and Internet backbone businesses where growth is slowing. For these
reasons, we continue to favor the local telephone companies such as Verizon
Communications, BellSouth Corp., SBC Communications, and Alltel Corp. We think
the local telephone companies that have more stable and defendable local
businesses are beginning to take market share from the long distance operators,
and are seeing solid growth in their wireless operations due to overall
acceleration in U.S. wireless penetration.
The Fund is presently slightly overweight in the advertising industry through
its holdings in Omnicom and Interpublic Group. Although Internet advertising
budgets have recently been cut, we believe that these two companies have enough
"traditional" advertising pipeline and future prospects to warrant our
investment. We are underweight telecommunications firms and broadcasters,
although within this underweight we see good opportunities in satellite
broadcasting through General Motors' Hughes Electronics subsidiary, which has
been mentioned as a potential acquisition target for News Corporation, Rupert
Murdoch's Australian media firm.
Also in the telecommunications space, we are positive on NTT DoCoMo Inc., whose
"i-mode" wireless protocol has high market share in Japan, and the possibility
of export to other markets.
Although we look to identify those companies held in the Fund through bottom-up
fundamental research and stock selection, the overall industry mix is consistent
with the top-down strategic industry themes that we use for estimate forecasting
and rating formulation. Because the telecommunications sector is going through
many changes and deregulation, we carefully monitor the Fund's holdings to
reflect any changes that may have an impact on performance.
--------------------------------------------------------------------------------
THE MANAGEMENT OF OUR SECTOR FUNDS IS
DRIVEN BY OUR ANALYST RECOMMENDATIONS,
LONG-TERM EARNINGS AND EARNINGS MOMENTUM
FACTORS THAT FORM THE BASIS OF EXPECTED
FUTURE RETURNS WITHIN ANY GIVEN SECTOR.
--------------------------------------------------------------------------------
EXPERIENCED SECTOR FUND PORTFOLIO MANAGEMENT
The management of the sector funds is driven by analyst recommendations,
long-term earnings and earnings momentum which form the basis of expected future
returns within any given sector. These expected returns, coupled with detailed
risk forecasts, determine what holdings will be selected. In building and
maintaining the Fund's portfolio, we look to avoid a high risk-to-return on
their investments and carefully monitor sector performance, constantly looking
for any material changes and/or developments.
Thank you for investing in the Smith Barney Sector Series Inc.--Smith Barney
Global Media & Telecommunications Fund. We look forward to helping you pursue
your financial goals in the years ahead.
Sincerely,
The Investment Team at
Citibank N.A.
NOVEMBER 7, 2000
7 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
====================================================================================================
COMMON STOCK -- 97.9%
AUSTRALIA -- 1.5%
<S> <C> <C> <C>
14,427 News Corp. (Media) $129,374
----------------------------------------------------------------------------------------------------
BRAZIL -- 0.6%
1,000 Telemig Celular Participacoes S.A. (Telecommunication Services) 52,500
----------------------------------------------------------------------------------------------------
FINLAND -- 0.8%
3,272 Sonera Oyj (Telecommunication Services) 72,081
----------------------------------------------------------------------------------------------------
FRANCE -- 4.0%
389 Canal Plus (Media) 56,283
2,853 France Telecom S.A. (Telecommunication Services) 298,274
----------------------------------------------------------------------------------------------------
354,557
----------------------------------------------------------------------------------------------------
GERMANY -- 4.1%
9,487 Deutsche Telekom AG (Telecommunication Services) 356,242
----------------------------------------------------------------------------------------------------
HONG KONG -- 1.7%
71,000 Pacific Century* (Telecommunication Services) 54,622
144,000 South China Morning Post (Media) 98,782
----------------------------------------------------------------------------------------------------
153,404
----------------------------------------------------------------------------------------------------
ITALY -- 5.0%
17,241 Olivetti S.p.A. (Telecommunication Services) 52,232
14,803 Telecom Italia S.P.A. (Telecommunication Services) 171,469
24,791 T.I.M. S.p.A. (Telecommunication Services) 210,797
----------------------------------------------------------------------------------------------------
434,498
----------------------------------------------------------------------------------------------------
JAPAN -- 4.5%
30 Nippon Telegraph & Telephone Co.* (Telecommunication Services) 273,015
5 NTT DoCoMo, Inc. (Telecommunication Services) 123,264
----------------------------------------------------------------------------------------------------
396,279
----------------------------------------------------------------------------------------------------
MEXICO -- 1.8%
59,403 Grupo Televisa* (Media) 160,893
----------------------------------------------------------------------------------------------------
NETHERLANDS -- 0.7%
2,920 KON NV (Telecommunication Services) 59,148
----------------------------------------------------------------------------------------------------
SPAIN -- 4.2%
4,154 Sogecable, S.A.* (Media) 101,522
13,977 Telefonica, S.A. (Telecommunication Services) 266,514
----------------------------------------------------------------------------------------------------
368,036
----------------------------------------------------------------------------------------------------
UNITED STATES -- 53.7%
8,255 AT&T Corp. (Telecommunication Services) 191,413
4,336 AT&T Corp.-- Liberty Media Corporation* (Media) 78,048
5,182 AT&T Wireless Group* (Telecommunication Services) 129,226
1,942 ALLTEL Corp. (Telecommunication Services) 125,138
9,814 Bellsouth Corp. (Telecommunication Services) 474,139
6,596 GM Corporation Cl. H* (Communications Equipment) 213,710
6,293 Interpublic Group of Companies, Inc. (Media) 270,206
619 Level 3 Communications, Inc.* (Telecommunication Services) 29,519
3,072 New York Times Co. (Media) 112,896
3,209 Nextel Communications Inc.* (Telecommunication Services) 123,346
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS (CONTINUED) OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==========================================================================================================
UNITED STATES -- 53.7% (CONTINUED)
<S> <C> <C> <C>
3,126 Omnicom Group (Media) $ 288,373
4,885 Qwest Communications International Inc.* (Telecommunication Services) 237,533
8,029 SBC Communications Inc. (Telecommunication Services) 463,173
2,073 Scripps Co. (E.W.) -- Cl. A (Media) 121,141
1,925 Sprint PCS* (Telecommunication Services) 73,391
2,862 Time Warner Inc. (Media) 217,254
3,587 Univision Communications Inc.* (Media) 137,203
9,721 Verizon Communications (Telecommunication Services) 561,995
6,067 Viacom Inc.* (Media) 345,061
8,008 Walt Disney Co. (Media) 286,787
9,050 Worldcom Inc.* (Telecommunication Services) 214,937
----------------------------------------------------------------------------------------------------------
4,694,489
----------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- 15.3%
12,001 British Sky Broadcast (Media) 173,258
16,295 British Telecommunications Plc. (Telecommunication Services) 191,037
22,509 Carlton Communications (Media) 181,260
4,231 Reuters Group (Media) 82,385
170,592 Vodafone Group Plc. (Telecommunication Services) 709,764
----------------------------------------------------------------------------------------------------------
1,337,704
----------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Identified Cost -- $9,151,128) 8,569,205
==========================================================================================================
FACE
AMOUNT SECURITY VALUE
==========================================================================================================
DISCOUNT NOTE -- 2.1%
$180,000 Student Loan Marketing Discount Note,
6.45% due 11/01/00 (Identified Cost -- $180,000) 180,000
==========================================================================================================
TOTAL INVESTMENTS -- 100%
(Identified Cost -- $9,331,128+) $8,749,205
==========================================================================================================
* NON-INCOME PRODUCING SECURITY.
+ AGGREGATE COST FOR FEDERAL INCOME TAXES IS SUBSTANTIALLY THE SAME.
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
9 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
Investments, at value (Cost -- $9,331,128) $ 8,749,205
Cash 439
Receivable for Fund shares sold 75,876
Receivable from Sub-Administrator (Note 10) 62,120
Receivable for securities sold 11,327
Receivable for open forward foreign currency contracts (Note 4) 25
Dividends and interest receivable 11,946
--------------------------------------------------------------------------------------------------------
TOTAL ASSETS 8,910,938
--------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities purchased 78,699
Payable for Fund shares purchased 2,727
Distribution fees payable 6,113
Payable for open forward foreign currency contracts (Note 4) 39
Accrued expenses and other liabilities 62,165
--------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 149,743
--------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 8,761,195
========================================================================================================
NET ASSETS:
Par value of capital shares $ 836
Capital paid in excess of par value 9,361,069
Undistributed net investment income 35,621
Accumulated net realized loss from security transactions and foreign currencies (54,355)
Net unrealized depreciation of investments (581,976)
--------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 8,761,195
========================================================================================================
SHARES OUTSTANDING:
Class A 118,057
---------------------------------------------------------------------------------------------------
Class B 497,979
---------------------------------------------------------------------------------------------------
Class L 220,895
---------------------------------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $10.48
---------------------------------------------------------------------------------------------------
Class B * $10.47
---------------------------------------------------------------------------------------------------
Class L ** $10.47
---------------------------------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $11.03
---------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $10.58
========================================================================================================
</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.
10 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
<TABLE>
<S> <C>
INVESTMENT INCOME:
Dividends $ 13,350
Interest 11,526
Less: Foreign withholding tax (107)
---------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 24,769
---------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 10,434
Distribution fees (Note 2) 11,764
Custody fees 20,750
Registration fees 2,584
Shareholder communications 30,509
Audit fees 17,667
Legal fees 3,068
Directors' fees 2,957
Other 1,314
---------------------------------------------------------------------------------------------------------
TOTAL EXPENSES 101,047
Less: expenses assumed by the Sub-Administrator (Note 10) (62,120)
Less: aggregate amount waived by the Manager (Note 2) (10,434)
---------------------------------------------------------------------------------------------------------
NET EXPENSES 28,493
---------------------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (3,724)
---------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From:
Security (excluding short-term securities) and foreign currency transactions (26,774)
---------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Depreciation (581,976)
---------------------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (608,750)
---------------------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS $ (612,474)
==========================================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
<TABLE>
<S> <C>
OPERATIONS:
Net investment loss $ (3,724)
Net realized loss (26,774)
Increase in net unrealized depreciation (581,976)
---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM OPERATIONS (612,474)
---------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 9,538,770
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (165,101)
---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 9,373,669
---------------------------------------------------------------------------------------
INCREASE IN NET ASSETS 8,761,195
NET ASSETS:
Beginning of period --
---------------------------------------------------------------------------------------
END OF PERIOD* $8,761,195
=======================================================================================
* Includes undistributed net investment income: $ 35,621
=======================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Global Media & Telecommunications Fund is a non-diversified
investment fund of the Smith Barney Sector Series Inc. (the "Company"), a
Maryland corporation. The Company is registered under the Investment Company of
1940, as amended, as an open-end management investment company and consists of
this Fund and five other separate investment funds: Smith Barney Financial
Services Fund, Smith Barney Health Sciences Fund, Smith Barney Technology Fund,
Smith Barney Global Biotechnology Fund, and Smith Barney Global Technology Fund.
On August 31, 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;
(m) the character of income and gains to be distributed in accordance with
income tax regulations which may differ from generally accepted accounting
principles. At October 31, 2000, reclassifications were made to the Fund's
capital accounts to reflect permanent book/tax differences and income and gains
available for distribution under income tax regulations. Accordingly, the Fund
reclassified $11,764 from paid in capital, $17,210 from accumulated net realized
loss and $28,974 to undistributed net investment income. Net investment income,
net realized gains and net assets were not affected by this adjustment; and (n)
estimates and assumptions are required to be made regarding assets, liabilities
and changes in net assets resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
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 respectively.
13 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
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 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 $10,434, all of
which was waived for the period ended October 31, 2000.
Salomon Smith Barney Inc. 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 October 31, 2000, the Fund paid
transfer agent fees of $650 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 also have a 1.00% CDSC, which applies if redemption
occurs within the first year of purchase.
For the period ended October 31, 2000, CDSCs paid to SSB and sales charges
received by SSB were approximately:
CLASS A CLASS B CLASS L
================================================================================
CDSCs $ -- $ -- $ --
--------------------------------------------------------------------------------
Sales Charges $34,000 $ -- $25,000
================================================================================
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 October 31, 2000, total Distribution Plan fees incurred
were:
CLASS A CLASS B CLASS L
================================================================================
Distribution Plan Fees $426 $7,901 $3,437
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the period ended October 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $9,398,734
--------------------------------------------------------------------------------
Sales $ 224,605
================================================================================
At October 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 447,815
Gross unrealized depreciation (1,029,791)
--------------------------------------------------------------------------------
Net unrealized depreciation $ (581,976)
================================================================================
4. Forward Foreign Currency Contracts
At October 31, 2000, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized loss on the contracts reflected
in the accompanying financial statements were as follows:
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE GAIN/LOSS
================================================================================
TO BUY
Euro 10,240 $ 8,691 11/3/00 $ 25
Pound Sterling 10,093 $14,646 11/6/00 (39)
--------------------------------------------------------------------------------
Net Unrealized Loss
on Forward Foreign
Currency Contracts $(14)
================================================================================
14 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
5. Option Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
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 Fund 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 amount of the
premium originally paid. When the Fund exercises a call option, the cost of the
security that the Fund purchases upon exercise will be increased by the premium
originally paid.
At October 31, 2000, the Fund had no open purchased call or put options.
When a Fund writes a call or put option, an amount equal to the premium received
by the Fund is recorded as a liability, the value of which is marked-to-market
daily. When a written option expires, the Fund realizes a gain. When the Fund
enters into a closing purchase transaction, the Fund 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 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 Fund enters into options for hedging purposes. The risk in writing a
call option is that the Fund 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 Fund is exposed to the risk of loss if
the market price of the underlying security declines.
During the period ended October 31, 2000, the Fund did not write any options.
6. 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 day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Fund records a realized gain or loss
equal to the difference between the proceeds from (or cost of) the closing
transactions and the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At October 31, 2000, the Fund had no open futures contracts.
7. 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 (plus accrued interest) in amounts at
least equal to the repurchase price.
8. Concentration of Risks
The Fund intends to invest at least 80% of its assets in media &
telecommunications related investments. As a result of this concentration
policy, which is a fundamental policy of the
15 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 Funds' 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 the 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.
In addition to the risks described above, risks may arise from forward foreign
currency contracts with respect to the potential inability of counterparties to
meet the terms of their contracts.
9. Capital Shares
At October 31, 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 October 31, 2000, total paid-in capital amounted to the following for each
class:
CLASS A CLASS B CLASS L
================================================================================
Total Paid-in Capital $1,311,991 $5,591,667 $2,470,011
================================================================================
10. Assumption of Expenses
SSBH has voluntarily agreed to pay a portion of the expenses of the Fund for the
period ended October 31, 2000, which amounted to $62,120.
11. Capital Loss Carryforward
At October 31, 2000, the Fund had, for Federal income tax purposes, a capital
loss carryforward of approximately $54,076, available to offset future capital
gains expiring October 31, 2008. To the extent that these carryforward losses
are used to offset capital gains, it is probable that any gains so offset will
not be distributed.
Transactions in shares of each class were as follows:
AUGUST 31, 2000
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 2000
---------------------------------
SHARES AMOUNT
================================================================================
CLASS A
Shares sold 119,238 $ 1,323,986
Shares issued on reinvestment -- --
Shares reacquired (1,181) (11,995)
--------------------------------------------------------------------------------
Net Increase 118,057 $ 1,311,991
================================================================================
CLASS B
Shares sold 509,391 $ 5,706,545
Shares issued on reinvestment -- --
Shares reacquired (11,412) (114,878)
--------------------------------------------------------------------------------
Net Increase 497,979 $ 5,591,667
================================================================================
CLASS L
Shares sold 224,522 $ 2,508,239
Shares issued on reinvestment -- --
Shares reacquired (3,627) (38,228)
--------------------------------------------------------------------------------
Net Increase 220,895 $ 2,470,011
================================================================================
16 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK FROM AUGUST 31, 2000 (COMMENCEMENT OF
OPERATIONS) TO OCTOBER 31, 2000
CLASS A SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.09)
Net realized and unrealized loss (0.83)
--------------------------------------------------------------------------------
Total Income From Operations (0.92)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.48
--------------------------------------------------------------------------------
TOTAL RETURN (8.07)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $1,237
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.52%+
Net investment loss 0.35%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 3%
================================================================================
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 $(0.09)
RATIOS:
Expenses to average net assets 7.08%+
Net investment loss to average net assets (5.21)%+
================================================================================
NOTE: THE PER SHARE AMOUNTS WERE COMPUTED USING MONTHLY AVERAGE OF SHARES
DURING THE PERIOD.
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF
THE TOTAL RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
17 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK FROM AUGUST 31, 2000 (COMMENCEMENT OF
OPERATIONS) TO OCTOBER 31, 2000
CLASS B SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.10)
Net realized and unrealized loss (0.83)
--------------------------------------------------------------------------------
Total Income From Operations (0.93)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.47
--------------------------------------------------------------------------------
TOTAL RETURN (8.16)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $5,212
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.29%+
Net investment loss (0.36)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 3%
================================================================================
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 $(0.10)
RATIOS:
Expenses to average net assets 7.85%+
Net investment loss to average net assets (5.92)%+
================================================================================
NOTE: THE PER SHARE AMOUNTS WERE COMPUTED USING MONTHLY AVERAGE OF SHARES
DURING THE PERIOD.
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF
THE TOTAL RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
18 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK FROM AUGUST 31, 2000 (COMMENCEMENT OF
OPERATIONS) TO OCTOBER 31, 2000
CLASS L SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.10)
Net realized and unrealized loss (0.83)
--------------------------------------------------------------------------------
Total Income From Operations (0.93)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $10.47
--------------------------------------------------------------------------------
TOTAL RETURN (8.16)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $2,312
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.28%+
Net investment loss (0.40)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 3%
================================================================================
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 $(0.10)
RATIOS:
Expenses to average net assets 7.85%+
Net investment loss to average net assets (5.96)%+
================================================================================
NOTE: THE PER SHARE AMOUNTS WERE COMPUTED USING MONTHLY AVERAGE OF SHARES
DURING THE PERIOD.
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF
THE TOTAL RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
19 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE SMITH BARNEY SECTOR SERIES INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Global Media & Telecommunications
Fund of Smith Barney Sector Series Inc. as of October 31, 2000, the related
statement of operations, the statements of changes in net assets and financial
highlights for the period August 31, 2000 (Commencement of Operations) through
October 31, 2000. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
As to securities purchased or sold but not yet received or delivered, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Global Media & Telecommunications Fund of Smith Barney Sector Series
Inc., as of October 31, 2000, the results of its operations, the changes in its
net assets and financial highlights for the period August 31, 2000 through
October 31, 2000, in conformity with accounting prin`ciples generally accepted
in the United States of America.
/s/ KPMG LLP
--------------------
New York, New York
December 11, 2000
20 SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND |
2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
GLOBAL MEDIA & TELECOMMUNICATIONS 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.
DISTRIBUTORS
Salomon Smith Barney Inc.
PFS Distributors Inc.
CUSTODIAN
State Street Bank & Trust Co.
TRANSFER AGENT
Citi Fiduciary Trust Company
125 Broad Street, 11th Floor
New York, New York 10004
SUB-TRANSFER AGENT
PFPCGlobal Fund Services
P.O. Box 9699
Providence, Rhode Island
02940-9699
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY GLOBAL MEDIA & TELECOMMUNICATIONS FUND
--------------------------------------------------------------------------------
This report is submitted for general information of the shareholders of Smith
Barney Sector Series Inc. -- Smith Barney Global Media & Telecommunications
Fund, but it may also be used as sales literature when preceded or accompanied
by the current Prospectus, which gives details about charges, expenses,
investment objectives and operating policies of the Fund. If used as sales
material after January 31, 2001, this report must be accompanied by performance
information for the most recently completed calendar quarter.
SMITH BARNEY GLOBAL MEDIA &
TELECOMMUNICATIONS FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any Smith Barney Mutual Funds, including management
fees and expenses, call or write your financial professional for a free
prospectus. Read it carefully before you invest or send money.
www.smithbarney.com/mutualfunds
SALOMON SMITH BARNEY [LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
FD02131 12/00
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY
SECTOR SERIES INC.
GLOBAL TECHNOLOGY FUND
--------------------------------------------------------------------------------
RESEARCH SERIES | ANNUAL REPORT | OCTOBER 31, 2000
[LOGO OMITTED] SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(SM)
--------------------------------------------------------------------------------
NOT FDIC INSURED o NOT BANK GUARANTEED o MAY LOSE VALUE
--------------------------------------------------------------------------------
<PAGE>
[LOGO] Research Series
Annual Report o October 31, 2000
SMITH BARNEY GLOBAL
TECHNOLOGY FUND
CITIBANK GLOBAL ASSET MANAGEMENT
Citibank, N.A., through its Citibank Global Asset Management division, is the
subadviser to the Fund. Composed of a seasoned group of investment and research
professionals, the Fund's management team follows a systematic and rigorous
approach designed to provide appropriate exposure to each market sector.
FUND OBJECTIVE
The Fund seeks long-term capital appreciation. The Fund normally invests at
least 80% of its assets in securities of companies principally engaged in, but
not limited to, offering, using or developing products, processes or services
that will provide or will benefit significantly from technological advances and
improvements.
FUND FACTS
FUND INCEPTION
------------------------------------------
August 31, 2000
CLASS A CLASS B CLASS L
------------------------------------------
NASDAQ STFAX -- SBGTX
INCEPTION 8/31/00 8/31/00 8/31/00
------------------------------------------
SMITH BARNEY GLOBAL TECHNOLOGY FUND*
TOTAL RETURNS OCTOBER 31, 2000
WITHOUT SALES CHARGES(1)
Class A Class B Class L
------------------------------------------------------------
Since Inception (22.98)% (23.07)% (23.07)%
(August 31, 2000)**
------------------------------------------------------------
WITH SALES CHARGES(2)
Class A Class B Class L
------------------------------------------------------------
Since Inception (26.83)% (26.92)% (24.60)%
(August 31, 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 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 1.00% CDSC, which applies if shares are redeemed within the
first year of purchase.
<PAGE>
--------------------------------------------------------------------------------
WHAT'S INSIDE
Your Investment in the Smith Barney
Global Technology Fund .............................. 1
Letter from the Chairman ............................ 2
Fund at a Glance .................................... 3
Shareholder Letter .................................. 4
Schedule of Investments ............................. 8
Statement of Assets and Liabilities ................. 10
Statement of Operations ............................. 11
Statement of Changes in Net Assets .................. 12
Notes to Financial Statements ....................... 13
Financial Highlights ................................ 17
Independent Auditors' Report ........................ 20
[LOGO OMITTED] SMITH BARNEY MUTUAL FUNDS
YOUR SERIOUS MONEY. PROFESSIONALLY MANAGED.(SM)
--------------------------------------------------------------------------------
Investment Products: Not FDIC Insured o Not Bank Guaranteed o May Lose Value
--------------------------------------------------------------------------------
<PAGE>
--------------------------------------------------------------------------------
Your Investment in the SMITH BARNEY GLOBAL TECHNOLOGY FUND
--------------------------------------------------------------------------------
EXPOSURE TO GROWTH OPPORTUNITIES
Led by Citibank Global Asset Management ("CGAM"), the Fund seeks long-term
capital appreciation through exposure to the global technology industry.
[GRAPHIC OMITTED]
INNOVATION THAT TRANSFORMS THE WORLD
Technological innovation has changed the face of the world. As further
advancements continue to be made in many different areas across the globe,
it may be beneficial to maintain broad exposure to global technology
companies. CGAM continually monitors the global changes taking place, and
looks to offer investors access to companies on the leading edge of
technology.
[GRAPHIC OMITTED]
DIVERSIFICATION IN A TARGETED SECTOR*
An investment in the Fund offers investors a way to invest in a broad range
of companies in the technology sectors, both in the U.S. and abroad. The
Fund's investments may include companies in a wide range of industries,
such as computers, semi-conductors, software, electronics and
communications.
[GRAPHIC OMITTED]
THE BENEFITS OF EXHAUSTIVE FUNDAMENTAL SECURITIES ANALYSIS--
THE RESEARCH SERIES
The Research Series is a selection of Smith Barney Mutual Funds built on a
foundation of substantial buy-side research under the direction of CGAM.
This series of funds focus on potential opportunities from well-defined
industries, sectors and trends.
[GRAPHIC OMITTED]
A COMMITMENT TO MANAGING YOUR SERIOUS MONEY
SSB Citi Asset Management Group ("SSB Citi"), the investment management
division of Citigroup, comprises Smith Barney Asset Management, Salomon
Brothers Asset Management and Citibank Global Asset Management, each an
organization with extensive investment capabilities.
SSB Citi, as a member of one of the largest financial services providers in
the world, offers you the benefits of our unparalleled global capabilities.
At SSB Citi, you gain access to portfolio management delivered
professionally. We are proud to offer you, the serious investor, a variety
of managed solutions.
*Please note that because the Fund invests in a single industry, its shares do
not represent a complete investment program, and the value of its shares may
fluctuate more than shares invested in a broader range of industries.
1 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
LETTER FROM THE CHAIRMAN
--------------------------------------------------------------------------------
The new millennium, so far, has been marked by higher volatility and concerns
that the bull market in stocks may be running out of steam. At SSB Citi Asset
Management Group ("SSB Citi"), we have instituted many positive changes, with
the ultimate goal of offering our investors a well-rounded menu of stock and
bond funds that can be tailored to a wide range of investment objectives.
We believe that your serious money demands professional management. Since 1937,
Smith Barney has managed the serious money of individuals, their families and
their businesses. Today, with over $398.6 billion in assets under management,(1)
SSB Citi offers choices and solutions, uniting the distinguished history of
Smith Barney with the unparalleled global reach of its parent, Citigroup.
A FEW THOUGHTS ON SECTOR INVESTING
Over the past few years, we have seen how profoundly the advancements made in
sectors such as technology and telecommunications have transformed our daily
lives. Computer applications, wireless communications and biotechnological
discoveries have created new investment opportunities. The new and developing
sectors of the economy that are involved in bringing these products, services
and technologies to life may offer exceptional growth potential, and many
investors should consider having a portion of their investment portfolios in
them.
Although most of us recognize that certain sectors drive the economy, we believe
it is much more difficult to determine which global technologies companies
within a particular sector will perform better than the others over time. The
team of experienced professionals at Citibank N.A. thoroughly researches a broad
range of companies within a given sector and carefully analyzes them, looking to
identify those companies that they believe offer the greatest growth potential
over the long term. Through this exhaustive and proprietary process, CGAM seeks
to offer you an opportunity for you to participate in those companies that it
believes are best-positioned in their respective industries.
[PHOTO OMITTED]
HEATH B. MCLENDON
CHAIRMAN
-----------------
Yet, when investing in a sector fund, it is important to understand that these
funds may experience a significant amount of short-term volatility. We think you
need to maintain a long-term investment horizon and remember that sector funds
may be appropriate as part of an overall portfolio that has more conservative
investments.
When you invest with SSB Citi, 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 success.
Thank you for your confidence in our investment management approach.
Sincerely,
/s/ Heath B. McLendon
---------------------
Heath B. McLendon
Chairman
NOVEMBER 6, 2000
---------------
(1) AS OF OCTOBER 31, 2000. THIS FIGURE REPRESENTS RETAIL, INSTITUTIONAL, MONEY
AND SEPARATE ACCOUNTS.
2 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SMITH BARNEY GLOBAL TECHNOLOGY FUND AT A GLANCE
--------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN THE
SMITH BARNEY GLOBAL TECHNOLOGY FUND VS. MSCI ALL-WORLD INDEX & MSCI INFORMATION
TECHNOLOGY INDEX
--------------------------------------------------------------------------------
AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS) -- OCTOBER 31, 2000
[THE TABLE BELOW REPRESENTS LINE CHART IN PRINTED PIECE]
SMITH BARNEY GLOBAL MSCI ALL-WORLD MSCI INFORMATION
TECHNOLOGY FUND CLASS A INDEX+ TECHNOLOGY INDEX++
8/31/00 9500 10000 10000
9/30/00 7750 9469 8146
10/31/00 7316 9312 7521
A $10,000 investment in the Fund made on August 31, 2000 would have declined to
$7,317 with sales charge (as of October 31, 2000). The graph shows how the Fund
compares to its benchmark for the same period. 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 Morgan Stanley Capital International All-World Index ("MSCI All-World
Index") represents the performance of 47 markets in both the developed and
the emerging markets in Africa, Asia, Australia, Europe, North America and
South America. Please note than an investor cannot invest directly in an
index.
++ The Morgan Stanley Capital International Information Technology Index ("MSCI
Information Technology Index") is comprised of assets from MSCI's developed
and emerging markets universes and includes assets from the information
technology sector as defined by Morgan Stanley Dean Witter's "Global Industry
Classification Standard." The index is composed of the developed and emerging
markets countries in the MSCI World Extended and EMF Indices. The index
constituents are weighted according to their market capitalizations. Each
country's weight within the index will fluctuate over time according to
market movements. The index is calculated without dividends and with gross
dividends reinvested and is calculated in U.S. dollars and local currency.
Past performance is not indicative of future results. Please note than an
investor cannot invest directly in an index.
-----------------------------------------------------------
TOP TEN COMMON STOCK HOLDINGS*
-----------------------------------------------------------
1. MICROSOFT CORP. ................................. 9.7%
2. CISCO SYSTEMS INC. .............................. 8.7
3. INTEL CORP. ..................................... 6.8
4. NOKIA OYJ ....................................... 5.3
5. EMCCORP. ........................................ 4.9
6. INTERNATIONAL BUSINESS MACHINES CORP. ........... 4.4
7. ORACLE CORP. .................................... 3.9
8. NORTEL NETWORKS CORP. ........................... 3.3
9. AMERICA ONLINE INC. ............................. 2.8
10. MOTOROLA INC. ................................... 2.5
-----------------------------------------------------------
PORTFOLIO BREAKDOWN*
-----------------------------------------------------------
[THE TABLE BELOW REPRESENTS PIE CHART IN PRINTED PIECE]
0.6% Netherlands
3.3% Canada
1.1% United Kingdom
1.9% Germany
2.4% Short-Term
2.8% Sweden
3.7% France
5.3% Finland
9.8% Japan
69.1% United States
* As a percentage of total investments.
3 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
DEAR SHAREHOLDER:
We are pleased to provide the inaugural annual report for the Smith Barney
Sector Series Inc.--Smith Barney Global Technology Fund ("Fund") for the period
from August 31, 2000 through October 31, 2000. In this report we have summarized
the period's prevailing economic and market conditions, and outlined our
investment strategy. The information provided in this letter 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 Fund. Please refer to pages 8 through 9 for a complete list and percentage
breakdown of the Fund's holdings. A detailed summary of the Fund's performance
can be found in the appropriate sections that follow. We hope you find this
report to be useful and informative.
PERFORMANCE UPDATE
Since its inception on August 31, 2000 through October 31, 2000, the Fund's
Class A shares, without and with sales charges, generated negative returns of
22.98% and 26.83%, respectively. In comparison, the Morgan Stanley Capital
International All-World Index ("MSCIAll-World Index")(1) returned a negative
6.88% and the Morgan Stanley Capital International Information Technology Index
("MSCIInformation Technology Index")(2) returned a negative 24.79% for the same
period. Please note that past performance is not indicative of future results.
GLOBAL SECTOR EQUITY INVESTING--THE CGAM PROCESS
Our approach to global sector investing is based on exhaustive research that is
intensely focused and led by a group of seasoned investment professionals with
extensive industry expertise. We look for analytical consistency through
intensive modeling and strict application of a consistent valuation methodology.
The Fund's management team is made up of a high-quality, seasoned investment and
research professionals who follow a systematic and rigorous strategy designed to
provide the right exposure to various industries within any particular sector
they cover. Our exhaustive fundamental research evaluates a universe of
businesses in its global quest to identify and participate in attractive
investment opportunities.
A THREE-STEP RESEARCH PROCESS
------------- -------------- ------------------
FUNDAMENTAL QUANTITATIVE ACTIVE PORTFOLIO
RESEARCH RESEARCH MANAGEMENT
------------- -------------- ------------------
We apply a proprietary, systematic, risk-conscious approach to investing. We
combine fundamental research, quantitative research and active portfolio
management to create portfolios that they think should generate competitive
returns while helping to moderate risk over time.
In our view, there can be no substitute for in-depth analysis, which can often
provide a significant competitive edge in understanding company fundamentals.
(Of course, no assurances can be made that our approach will ultimately be
successful.)
--------------
(1) THE MSCI ALL-WORLD INDEX REPRESENTS THE PERFORMANCE OF MARKETS IN BOTH THE
DEVELOPED AND THE EMERGING MARKETS IN AFRICA, ASIA, AUSTRALIA, EUROPE, NORTH
AMERICA AND SOUTH AMERICA. PLEASE NOTE THAT AN INVESTOR CANNOT INVEST
DIRECTLY IN AN INDEX.
(2) THE MSCI INFORMATION TECHNOLOGY INDEX IS COMPRISED OF ASSETS FROM MSCI'S
DEVELOPED AND EMERGING MARKETS UNIVERSES AND INCLUDES ASSETS FROM THE
INFORMATION TECHNOLOGY SECTOR AS DEFINED BY MORGAN STANLEY DEAN WITTER'S
"GLOBAL INDUSTRY CLASSIFICATION STANDARD." THE INDEX IS COMPOSED OF THE
DEVELOPED AND EMERGING MARKETS COUNTRIES IN THE MSCIWORLD EXTENDED AND EMF
INDICES. THE INDEX CONSTITUENTS ARE WEIGHTED ACCORDING TO THEIR MARKET
CAPITALIZATIONS. EACH COUNTRY'S WEIGHT WITHIN THE INDEX WILL FLUCTUATE OVER
TIME ACCORDING TO MARKET MOVEMENTS. THE INDEX IS CALCULATED WITHOUT
DIVIDENDS AND WITH GROSS DIVIDENDS REINVESTED AND IS CALCULATED IN U.S.
DOLLARS AND LOCAL CURRENCY. PLEASE NOTE THAT AN INVESTOR CANNOT INVEST
DIRECTLY IN AN INDEX.
MANAGEMENT BELIEVES THAT THE PERFORMANCE COMPARISON TO THE SPECIFIC INDEX IS
A MORE APPROPRIATE COMPARISON THAN A COMPARISON TO ANY SINGLE BROAD-BASED
SECURITIES MARKET INDEX, SUCH AS THE MSCI ALL-WORLD INDEX, BECAUSE THE
SPECIFIC INDEX HAS BEEN TAILORED TO THE FUND'S INVESTMENT OBJECTIVE. IN
ADDITION TO THIS SECTOR-SPECIFIC COMPARISON, HOWEVER, THE FUND WILL CONTINUE
TO COMPARE ITS PERFORMANCE AGAINST MORE BROADLY-BASED SECURITIES MARKET
INDEXES WHICH ARE REQUIRED TO BE INCLUDED IN THIS REPORT. PAST PERFORMANCE
IS NOT INDICATIVE OF FUTURE RESULTS. PLEASE NOTE THAT AN INVESTOR CANNOT
INVEST DIRECTLY IN AN INDEX.
4 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
Our fundamental, proprietary research looks to add value to active portfolio
management by providing timely and unbiased information to their decision-making
processes. Our team conducts on-site company visits and exhaustive research to
uncover the companies that they think have:
o Superior products or services
o Outstanding managements
o Solid balance sheets
o Market leadership
o Leading innovation
In our opinion, these are the companies' strengths that can potentially create
real value and lead to strong earnings and sales growth, which ultimately drives
stock prices.
--------------------------------------------------------------------------------
ACCORDING TO A REPORT BY THE WORLD TRADE
ORGANIZATION: "THE PROLIFERATION OF
ELECTRONIC COMMERCE IS PREDICTED TO
LOWER TRANSACTION COSTS, FACILITATE ENTRY
AND INCREASE COMPETITION. THIS, IN TURN, MAY
LOWER PRICES, INCREASE QUALITY AND CREATE
NEW AND MORE DIVERSE PRODUCTS, THEREBY
INCREASING ECONOMIC GROWTH AND WELFARE."
SOURCE: "ELECTRONIC COMMERCE AND THE ROLE OF THE WTO,"
1998 WORLD TRADE ORGANIZATION.
--------------------------------------------------------------------------------
THE CGAM RESEARCH PROCESS DEFINED
We look to differentiate ourself from the traditional approach to investment
management in a number of ways that we think we can add value to clients'
portfolios. Our management style can best be described as disciplined, yet
flexible. Our formidable global reach and local expertise enable us to nurture
research teams with direct access to the regions and industries where they do
business. Our research organization is centered on a team approach to stock
research and selection by covering hundreds of companies and working closely
together both within and across industry teams in a seamless fashion to reach a
prudent consensus.
Each stock 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 within the industry, quality of
product offerings, costs and risks. These intensive models detail the analyst's
assumptions for potential profitability for the company going forward and
provides some of the necessary information to forecast company fundamentals and
make stock recommendations. The research team looks to ensure consistency in
industry and accounting assumptions and that in turn can allow for better
comparisons of earnings forecasts.
5 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
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.
We believe this is a valuable and consistent method to provide current
valuations to securities. The DDM-based valuation process, in our 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 with other fundamental factors such as earnings
surprises to come up with an investment rating on a company's stock.
THE SMITH BARNEY GLOBAL TECHNOLOGY FUND
Unlike many "thematic" technology research efforts, our technology team uses
both "top-down" and "bottom-up" strategies to identify promising companies they
believe may offer long-term growth potential.
Our "top-down" assessment involves looking closely at the major trends, current
events, high-level growth drivers and the structural assessment of profitability
impacting the technology industry. This assessment also involves examining a
company's competitive position by determining what drives demand and management
capability.
--------------------------------------------------------------------------------
OUR SECTOR FUND MANAGEMENT STYLE CAN BEST
BE DESCRIBED AS DISCIPLINED, YET FLEXIBLE.
--------------------------------------------------------------------------------
The team's "bottom-up" assessment relies on looking at individual companies'
participation in the marketplace, their market share projections, cost structure
and investment requirements, in addition to growth estimates and treatment of
market share tradeoffs. To ensure internal consistency in assessing technology
companies, our team has developed an integrated view of technology consistent
across regions and within sub-sectors of the technology industry.
GLOBAL TECHNOLOGY SECTOR UPDATE
The global technology sector was characterized by higher volatility during the
period, as investors began to reassess the valuations placed on many companies
in the sector that had yet to post earnings. However, despite this reassessment
by many investors during the beginning of the period, technology stocks began to
make up some of the losses they had experienced in April and in May. Yet,
technology remains to be characterized by record volatility, as the slowing
growth of the U.S. economy began to have a negative impact on earnings growth.
However, we believe the reasons for owning technology stocks over the long term
remain compelling. We think that the technological revolution is still in its
infancy and we remain confident that advances may continue to impact the world
in many positive ways, especially in higher productivity. In particular,
technology demand for enterprise servers and storage remains extremely robust.
Industry leaders such as Sun Microsystems, EMC, and Network Appliances continue
to see accelerating demand for their products as global corporations further
embrace the Internet. All three companies have recently delivered earnings ahead
of expectations and have caused analysts to revise their forecasts higher.
We have built the Fund's portfolio by carefully following our analysts' best
global ideas within the hardware, software, electronic equipment, Internet and
information services industries, while at the same time looking to control risk
in the portfolio. We strive for the highest return possible above the sector
return, taking into account the risks associated with each industry and
sub-sector within the sector.
6 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
Our positions favor the infrastructure providers and established players --
hardware and software -- rather than the current "themes" in the sector. To help
control risk, we apply bottom-up stock selection to each industry and
sub-sector, ensuring that we are capturing our analyst's best ideas within each
area. Small deviations reflect our relative opinions of one industry versus
another within the sector, but are managed to control portfolio risk that arises
from industry volatility.
--------------------------------------------------------------------------------
THE MANAGEMENT OF THE FUND IS DRIVEN BY
ANALYST RECOMMENDATIONS, LONG-TERM
EARNINGS AND EARNINGS MOMENTUM FACTORS
THAT FORM THE BASIS OF EXPECTED FUTURE
RETURNS WITHIN THE TECHNOLOGY SECTOR.
--------------------------------------------------------------------------------
The Fund is presently slightly overweight in hardware companies International
Business Machines Corp. ("IBM") and Canon, and storage component manufacturer
EMC Corporation relative to the benchmark. The Fund is also underweight in
equipment manufacturers, although we see opportunities in Cisco Systems and
Nortel Networks, two equipment manufacturers whose products provide the
"backbone" for Internet traffic.
Relative to the benchmark, we are slightly overweight in the information
services and software sectors, and underweight in equipment manufacturers.
Though underweight in equipment, we do like cellular phone provider Nokia. Nokia
has been gaining share at the expense of Ericsson, and though almost
fairly-priced, we feel its strong momentum in a sector where many names are
showing negative momentum will keep the stock strong.
We identify technology companies we are currently holding in the Fund's
portfolio through our bottom-up fundamental research and stock selection, yet
the overall industry mix is consistent with the top-down strategic industry
themes, which we use for estimate forecasting and rating formulation. Since
industries within this sector are quick to innovate and consolidate, we
carefully monitor the Fund's holdings to reflect any changes that may have an
impact on performance.
EXPERIENCED SECTOR FUND PORTFOLIO MANAGEMENT
The management of the sector funds is driven by analyst recommendations,
long-term earnings and earnings momentum, which form the basis of expected
future returns within any given sector. These expected returns, coupled with
detailed risk forecasts, determine what holdings will be selected. In building
and maintaining the Fund's portfolio, we look to avoid a high risk-to-return on
their investments, and carefully monitor sector performance, constantly looking
for any material changes and/or developments.
Thank you for investing in the Smith Barney Sector Series Inc.-Smith Barney
Global Technology Fund. We look forward to helping you pursue your financial
goals in the years ahead.
Sincerely,
The Investment Team at
Citibank N.A.
NOVEMBER 6, 2000
7 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==============================================================================================================
<S> <C> <C>
COMMON STOCK -- 97.6%
CANADA -- 3.3%
3,694 Nortel Networks Corp. (Telecommunications) $167,796
--------------------------------------------------------------------------------------------------------------
FINLAND -- 5.3%
6,573 Nokia Oyj (Telecommunications) 270,470
--------------------------------------------------------------------------------------------------------------
FRANCE -- 3.7%
1,503 Alcatel (Telecommunications) 91,705
338 Cap Gemini (IT Consulting & Services) 53,923
233 Sagem SA (Telecommunications) 42,708
--------------------------------------------------------------------------------------------------------------
188,336
--------------------------------------------------------------------------------------------------------------
GERMANY -- 1.9%
484 SAP AG (Computer Software) 97,551
--------------------------------------------------------------------------------------------------------------
JAPAN -- 9.8%
200 Advantest (Semiconductor Equipment & Products) 26,083
2,000 Canon Inc. (Office Electronics) 79,366
2,000 Fujitsu Group (Computers & Peripherals) 35,632
400 Fujitsu Support and Services Inc. (Computers & Peripherals) 48,609
4,000 Hitachi (Electronic Equipment & Instruments) 42,891
300 Kyocera Corp. (Electronic Equipment & Instruments) 39,041
300 Murata Manufacturing Co., Ltd. (Semiconductor Equipment & Products) 35,907
2,000 NEC Corp. (Computers & Peripherals) 38,125
300 Rohm Co.* (Semiconductor Equipment & Products) 75,636
400 SoftBank Corp. (Internet Software & Services) 24,011
300 Tokyo Electronics Ltd. (Semiconductor Equipment & Products) 23,480
4,000 Toshiba Corp. (Computers & Peripherals) 28,594
--------------------------------------------------------------------------------------------------------------
497,375
--------------------------------------------------------------------------------------------------------------
NETHERLANDS -- 0.6%
1,192 ASM Lithography Holdings * (Semiconductor Equipment & Products) 32,581
--------------------------------------------------------------------------------------------------------------
SWEDEN -- 2.8%
10,521 Ericsson Telecommunications (Telecommunications) 140,037
--------------------------------------------------------------------------------------------------------------
UNITED KINGDOM -- 1.1%
4,396 Marconi Plc (Telecommunication) 55,492
--------------------------------------------------------------------------------------------------------------
UNITED STATES -- 69.1%
2,820 America Online Inc.* (Internet Software & Services) 142,213
1,569 Applied Materials Inc.* (Electronic Product Equipment) 83,353
2,761 Avaya Inc.* (Telecommunication) 37,101
272 Broadcom Corp.* (Semiconductor Equipment & Products) 60,486
8,177 Cisco Systems Inc.* (Computer Softwares) 440,536
1,144 Corning Inc. (Telecommunications) 87,516
3,219 Dell Computer Corp.* (Electronic Data Processing Services) 94,961
2,811 EMC Corp.* (Computers & Peripherals) 250,355
1,352 Electronics Data Systems Corp. (Electronic Data Processing Service) 63,460
2,161 First Data Corp. (Electronic Data Processing Services) 108,320
1,191 General Motors Corp.* (Automobile) 38,588
2,418 Hewlett Packard Co. (Computers & Peripherals) 112,286
7,705 Intel Corp. (Semiconductor Equipment & Products) 346,725
2,256 International Business Machines Corp. (Computers & Peripherals) 222,216
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
8 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
SCHEDULE OF INVESTMENTS OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
==============================================================================================================
<S> <C> <C>
UNITED STATES (CONT'D)
1,273 JDS Uniphase Corp.* (Electronic Products) $ 103,590
4,039 Lucent Technologies Inc. (Telecommunications) 94,159
999 Microchip Technology Inc.* (Semiconductor Equipment & Products) 31,593
905 Micron Technology Inc.* (Semiconductor Equipment & Products) 31,449
7,180 Microsoft Corp.*(Computer Softwares) 494,523
5,062 Motorola Inc. (Telecommunications) 126,234
6,070 Oracle Corp.* (Computer Softwares) 200,310
1,401 Peoplesoft Inc.* (Computer Software) 61,140
1,014 Qualcomm Inc.* (Telecommunications) 66,021
894 Solectron Corp.* (Electronic Equipment & Instruments) 39,336
1,004 Symbol Technologies Inc. (Electrical Equipment) 45,619
1,879 Texas Instruments Inc. (Semiconductor Equipment & Products) 92,188
775 Yahoo! Inc.* (Internet Software & Services) 45,434
--------------------------------------------------------------------------------------------------------------
3,519,712
--------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK
(Identified Cost -- $6,211,422) 4,969,350
==============================================================================================================
FACE
AMOUNT SECURITY VALUE
==============================================================================================================
DISCOUNT NOTE -- 2.4%
$122,000 Student Loan Marketing Discount Note
6.45% due 11/01/00
(Identified Cost -- $122,000) 122,000
==============================================================================================================
TOTAL INVESTMENTS -- 100%
(Identified Cost -- $6,333,422**) $5,091,350
==============================================================================================================
</TABLE>
* NON-INCOME PRODUCING SECURITY.
** AGGREGATE COST FOR FEDERAL INCOME TAX PURPOSES IS SUBSTANTIALLY THE SAME.
SEE NOTES TO FINANCIAL STATEMENTS.
9 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES OCTOBER 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Investments, at value (Cost--$6,333,422) $5,091,350
Foreign currency, at value (Cost--$28,308) 28,086
Cash 212
Receivable for Fund shares sold 65,412
Receivable for open forward foreign currency contract (Note 4) 43
Receivable for securities sold 13,395
Dividends and interest receivables 886
Receivable from the Administrator (Note 10) 66,776
--------------------------------------------------------------------------------------------
TOTAL ASSETS 5,266,160
--------------------------------------------------------------------------------------------
LIABILITIES:
Payable for Fund shares purchased 106,241
Payable for securities purchased 2,284
Distribution fees payable 3,401
Accrued expenses and other liabilities 61,088
--------------------------------------------------------------------------------------------
TOTAL LIABILITIES 173,014
--------------------------------------------------------------------------------------------
TOTAL NET ASSETS $5,093,146
============================================================================================
NET ASSETS:
Par value of capital shares 581
Capital paid in excess of par value 6,402,550
Undistributed net investment income 21,242
Accumulated net realized loss
from security transactions and foreign currencies (88,867)
Net unrealized depreciation
of investments and foreign currencies (1,242,360)
--------------------------------------------------------------------------------------------
TOTAL NET ASSETS $5,093,146
============================================================================================
SHARES OUTSTANDING:
Class A 137,418
---------------------------------------------------------------------------------------
Class B 171,423
---------------------------------------------------------------------------------------
Class L 271,774
---------------------------------------------------------------------------------------
NET ASSET VALUE:
Class A (and redemption price) $8.78
---------------------------------------------------------------------------------------
Class B * $8.77
---------------------------------------------------------------------------------------
Class L ** $8.77
---------------------------------------------------------------------------------------
MAXIMUM PUBLIC OFFERING PRICE PER SHARE:
Class A (net asset value plus 5.26% of net asset value per share) $9.24
---------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $8.86
============================================================================================
</TABLE>
* REDEMPTION PRICE IS NAV OF CLASS B SHARES REDUCED BY A 5.00% CDSC IF SHARES
ARE REDEEMED LESS THAN ONE YEAR FROM 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.
10 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
<TABLE>
<CAPTION>
INVESTMENT INCOME:
<S> <C>
Interest $ 10,132
Dividends 1,220
Less: Foreign withholding tax (116)
--------------------------------------------------------------------------------------------
TOTAL INVESTMENT INCOME 11,236
--------------------------------------------------------------------------------------------
EXPENSES:
Management fees(Note 2) 8,085
Distribution fees (Note 2) 6,660
Shareholder communications 30,509
Custody fees 20,748
Audit fees 17,667
Legal fees 3,068
Directors' fees 2,957
Registration fees 1,502
Other 1,314
--------------------------------------------------------------------------------------------
TOTAL EXPENSES 92,510
Less: Aggregate amount waived by the Manager (Note 2) (8,085)
Less: Expenses assumed by the administrator (Note 10) (66,776)
--------------------------------------------------------------------------------------------
NET EXPENSES 17,649
--------------------------------------------------------------------------------------------
NET INVESTMENT LOSS (6,413)
--------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS (NOTE 3):
Realized Loss From:
Security (excluding short-term securities)
and foreign currency transactions (67,872)
--------------------------------------------------------------------------------------------
NET REALIZED LOSS (67,872)
--------------------------------------------------------------------------------------------
INCREASE IN NET UNREALIZED DEPRECIATION (1,242,360)
--------------------------------------------------------------------------------------------
NET LOSS ON INVESTMENTS (1,310,232)
--------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS $(1,316,645)
============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
11 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
FOR THE PERIOD AUGUST 31, 2000 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31, 2000
<TABLE>
<CAPTION>
OPERATIONS:
<S> <C>
Net investment loss $ (6,413)
Net realized loss (67,872)
Increase in net unrealized depreciation (1,242,360)
--------------------------------------------------------------------------------------------
DECREASE IN NET ASSETS FROM OPERATIONS (1,316,645)
--------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 9):
Net proceeds from sale of shares 8,937,999
Net asset value of shares issued for reinvestment of dividends --
Cost of shares reacquired (2,528,208)
--------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS FROM FUND SHARE TRANSACTIONS 6,409,791
--------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS 5,093,146
NET ASSETS:
Beginning of period --
--------------------------------------------------------------------------------------------
END OF PERIOD* $5,093,146
============================================================================================
* Includes undistributed net investment income: $21,242
============================================================================================
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
12 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
1. Significant Accounting Policies
The Smith Barney Global Technology Fund is a non-diversified investment fund of
the Smith Barney Sector Series Inc. (the "Company"), a Maryland corporation. The
Company is registered under the Investment Company of 1940, as amended, as an
open-end management investment company and consists of this Fund and five other
separate investment funds: Smith Barney Financial Services Fund, Smith Barney
Health Sciences Fund, Smith Barney Technology Fund, Smith Barney Global
Biotechnology Fund and Smith Barney Global Media & Telecommunications Fund. On
August 31, 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; (m) 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, 2000, reclassifications
were made to the Fund's capital accounts to reflect permanent book/tax
differences and income and gains available for distributions under income tax
regulations. Accordingly, the Fund reclassified $6,660 from paid in capital,
$21,168 from accumulated net realized loss and $27,828 to undistributed net
investment income. Net investment income, net realized gains and net assets were
not affected by this change; and (n) estimates and assumptions are required to
be made regarding assets, liabilities and changes in net assets resulting from
operations when financial statements are prepared. Changes in 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.
13 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
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 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 Portfolio 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 $8,085, of which all was waived for the period ended October 31, 2000.
Salomon Smith Barney Inc. acts as the Fund 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. CFTCreceives 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 October 31, 2000, the Fund paid
transfer agent fees of $453 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 also have a 1.00% CDSC, which applies if redemption
occurs within the first year of purchase.
For the period ended October 31, 2000, CDSCs paid to SSB and sales charges
received by SSB were approximately:
CLASS A CLASS B CLASS L
================================================================================
CDSCs $ -- $ -- $ --
--------------------------------------------------------------------------------
Sales Charges $48,000 $ -- $30,000
================================================================================
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 October 31, 2000, total Distribution Plan fees incurred
were:
CLASS A CLASS B CLASS L
================================================================================
Distribution Plan Fees $617 $2,363 $3,680
================================================================================
All officers and one Director of the Fund are employees of SSB.
3. Investments
During the period ended October 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $ 6,520,665
--------------------------------------------------------------------------------
Sales $ 244,576
================================================================================
At October 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 61,858
Gross unrealized depreciation (1,304,152)
--------------------------------------------------------------------------------
Net unrealized depreciation $(1,242,294)
================================================================================
<PAGE>
4. Forward Foreign Currency Contracts
At October 31, 2000, the Fund had open forward foreign currency contracts as
described below. The Fund bears the market risk that arises from changes in
foreign currency exchange rates. The unrealized loss on the contracts reflected
in the accompanying financial statements were as follows:
14 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
LOCAL MARKET SETTLEMENT UNREALIZED
FOREIGN CURRENCY CURRENCY VALUE DATE LOSS
================================================================================
TO BUY
Euro 18,179 15,428 11/2/00 $43
--------------------------------------------------------------------------------
Net Unrealized Loss
on Forward Foreign
Currency Contracts $43
================================================================================
5. Option Contracts
Premiums paid when put or call options are purchased by the Fund represent
investments, which are marked-to-market daily. When a purchased option expires,
the Fund will realize a loss in the amount of the premium paid. When the Fund
enters into a closing sales transaction, the Fund 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 Fund 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 amount of the premium
originally paid. When the Fund exercises a call option, the cost of the security
that the Fund purchases upon exercise will be increased by the premium
originally paid.
At October 31, 2000, the Fund had no open purchased call or put options.
When a Fund writes a call or put option, an amount equal to the premium received
by the Fund is recorded as a liability, the value of which is marked-to-market
daily. When a written option expired, the Fund realizes a gain. When the Fund
enters into a closing purchase transaction, the Fund 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 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 Fund 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 Fund enters into options for hedging purposes. The risk in writing a
call option is that the Fund 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 Fund is exposed to the risk of loss if
the market price of the underlying security declines.
At October 31, 2000, the Fund did not write any options.
6. Futures Contracts
Initial margin deposits made upon entering into futures are recognized as
assets. Securities equal to the initial margin amount are segregated 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 contracts are recognized as unrealized gains
or losses by "marking-to-market" on a daily basis to reflect the market value of
the contract at the end of each day's trading. Variation margin payments are
received or made and recognized as assets due from or liabilities due to broker,
depending upon whether unrealized gains or losses are incurred. When the
contract is closed, the Fund records a realized gain or loss equal to the
differences between the proceeds from (or cost of) the closing transactions and
the Fund's basis in the contract.
The Fund enters into such contracts to hedge a portion of its portfolio. The
Fund bears the market risk that arises from changes in the value of the
financial instruments and securities indices (futures contracts).
At October 31, 2000, the Fund had no open futures contracts.
7. 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
15 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
higher repurchase price. The Fund requires continual maintenance of the market
value of the collateral (plus accrued interest) in amounts at least equal to the
repurchase price.
8. Concentration of Risk
The Fund normally invests 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 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.
9. Capital Shares
At October 31, 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 October 31, 2000, total paid-in capital amounted to the following for each
class:
CLASS A CLASS B CLASS L
================================================================================
Total Paid-in Capital $1,582,454 $1,871,687 $2,955,650
================================================================================
10. Assumption of Expenses
SSBC has voluntarily agreed to pay a portion of the expenses of the Fund for the
period ended October 31, 2000, which amounted to $66,776 to maintain a voluntary
expense limitation of 0.80% for a Class A average daily net assets. This
voluntary expense limitation may be discontinued at any time.
Transactions in shares of each class were as follows:
AUGUST 31, 2000
(COMMENCEMENT OF OPERATIONS)
TO OCTOBER 31, 2000
--------------------------------
SHARES AMOUNT
================================================================================
CLASS A
Shares sold 357,900 $4,023,235
Shares issued on reinvestment -- --
Shares reacquired (220,482) (2,440,781)
--------------------------------------------------------------------------------
Net Increase 137,418 $1,582,454
================================================================================
CLASS B
Shares sold 174,643 $1,902,738
Shares issued on reinvestment -- --
Shares reacquired (3,220) (31,051)
--------------------------------------------------------------------------------
Net Increase 171,423 $1,871,687
================================================================================
CLASS L
Shares sold 278,101 $3,012,026
Shares issued on reinvestment -- --
Shares reacquired (6,327) (56,376)
--------------------------------------------------------------------------------
Net Increase 271,774 $2,955,650
================================================================================
16 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK FROM AUGUST 31, 2000 (COMMENCEMENT OF
OPERATIONS) TO OCTOBER 31, 2000
CLASS A SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.11)
Net realized and unrealized loss (2.51)
--------------------------------------------------------------------------------
Total Loss From Operations (2.62)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.78
--------------------------------------------------------------------------------
TOTAL RETURN (22.98)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $1,206
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 1.56%+
Net investment income 0.39%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 5%
================================================================================
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 $(0.11)
RATIOS:
Expenses to average net assets 10.36%+
Net investment loss to average net assets (8.41)%+
================================================================================
NOTE: THE PER SHARE AMOUNTS WERE COMPUTED USING MONTHLY AVERAGE SHARES DURING
THE PERIOD.
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
17 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK FROM AUGUST 31, 2000 (COMMENCEMENT OF
OPERATIONS) TO OCTOBER 31, 2000
CLASS B SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.16)
Net realized and unrealized loss (2.47)
--------------------------------------------------------------------------------
Total Loss From Operations (2.63)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.77
--------------------------------------------------------------------------------
TOTAL RETURN (23.07)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $1,503
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.29%+
Net investment loss (1.15)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 5%
================================================================================
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 $(0.16)
RATIOS:
Expenses to average net assets 11.08%+
Net investment loss to average net assets (9.95)%+
================================================================================
NOTE: THE PER SHARE AMOUNTS WERE COMPUTED USING MONTHLY AVERAGE OF SHARES DURING
THE PERIOD.
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
18 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
--------------------------------------------------------------------------------
FOR A SHARE OF EACH CLASS OF CAPITAL STOCK FROM AUGUST 31, 2000 (COMMENCEMENT OF
OPERATIONS) TO OCTOBER 31, 2000
CLASS L SHARES
================================================================================
NET ASSET VALUE, BEGINNING OF PERIOD $11.40
--------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS:
Net investment loss (0.16)
Net realized and unrealized loss (2.47)
--------------------------------------------------------------------------------
Total Loss From Operations (2.63)
--------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM:
Net investment income --
Net realized gain --
--------------------------------------------------------------------------------
Total Distributions --
--------------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $ 8.77
--------------------------------------------------------------------------------
TOTAL RETURN (23.07)%++
--------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD (000'S) $2,383
--------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS:
Expenses 2.28%+
Net investment loss (1.23)%+
--------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 5%
================================================================================
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 $(0.16)
RATIOS:
Expenses to average net assets 11.08%+
Net investment loss to average net assets (10.03)%+
================================================================================
NOTE: THE PER SHARE AMOUNTS WERE COMPUTED USING MONTHLY AVERAGE OF SHARES DURING
THE PERIOD.
+ ANNUALIZED.
++ TOTAL RETURN IS NOT ANNUALIZED, AS IT MAY NOT BE REPRESENTATIVE OF THE TOTAL
RETURN FOR THE YEAR.
SEE NOTES TO FINANCIAL STATEMENTS.
19 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
--------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
--------------------------------------------------------------------------------
TO THE SHAREHOLDERS AND BOARD OF TRUSTEES
OF THE SMITH BARNEY SECTOR SERIES INC.:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Global Technology Fund of Smith
Barney Sector Series Inc. as of October 31, 2000, the related statements of
operations, the statements of changes in net assets and financial highlights for
the period August 31, 2000 (Commencement of Operations) through October 31,
2000. These financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
As to securities purchased or sold but not yet received or delivered, we
performed other appropriate auditing procedures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Global Technology Fund of Smith Barney Sector Series Inc., as of October
31, 2000, the results of its operations, the changes in its net assets and
financial highlights for the period August 31, 2000 through October 31, 2000, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ KPMG LLP
------------
New York, New York
December 11, 2000
20 SMITH BARNEY GLOBAL TECHNOLOGY FUND | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY
GLOBAL TECHNOLOGY FUND
DIRECTORS INVESTMENT MANAGER
Herbert Barg SSB Citi Fund Management LLC
Alfred J. Bianchetti
Martin Brody INVESTMENT SUBADVISER
Dwight B. Crane Citibank, N.A.
Burt N. Dorsett
Elliot S. Jaffe DISTRIBUTORS
Stephen E. Kaufman Salomon Smith Barney Inc.
Joseph J. McCann PFS Distributors Inc.
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr. CUSTODIAN
James J. Crisona, Emeritus State Street Bank & Trust Co.
TRANSFER AGENT
OFFICERS Citi Fiduciary Trust Company
Heath B. McLendon 125 Broad Street, 11th Floor
President and Chief Executive Officer New York, New York 10004
Lewis E. Daidone SUB-TRANSFER AGENT
Senior Vice President and Treasurer PFPC Global Fund Services
P.O. Box 9699
Irving P. David Providence, Rhode Island
Controller 02940-9699
Christina T. Sydor
Secretary
<PAGE>
SMITH BARNEY GLOBAL TECHNOLOGY FUND
================================================================================
This report is submitted for general information of the shareholders of Smith
Barney Sector Series Inc. -- Smith Barney Global Technology Fund, but it may
also be used as sales literature when preceded or accompanied by the current
Prospectus, which gives details about charges, expenses, investment objectives
and operating policies of the Fund. If used as sales material after January 31,
2001, this report must be accompanied by performance information for the most
recently completed calendar quarter.
SMITH BARNEY GLOBAL TECHNOLOGY FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any Smith Barney Mutual Funds, including management
fees and expenses, call or write your financial professional for a free
prospectus. Read it carefully before you invest or send money.
WWW.SMITHBARNEY.COM/MUTUALFUNDS
[SALOMON SMITH BARNEY LOGO]
Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
FD02130 12/00
<PAGE>
-------------------------------------------------------------------
SMITH BARNEY
SECTOR SERIES INC.
NATURAL RESOURCES FUND
-------------------------------------------------------------------
RESEARCH SERIES | ANNUAL REPORT | OCTOBER 31, 2000
[LOGO] Smith Barney Mutual Funds
Your Serious Money. Professionally Managed.(SM)
-------------------------------------------------------
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
October 31, 2000
Without Sales Charges/(1)/
----------------------------------------------------------
Class A Class B Class L
================================================================================
One-Year 2.02% 1.32% 1.43%
--------------------------------------------------------------------------------
Five-Year 3.57 2.94 3.01
--------------------------------------------------------------------------------
Ten-Year 3.80 N/A N/A
--------------------------------------------------------------------------------
Since Inception+ 2.37 4.29 (1.59)
================================================================================
With Sales Charges/(2)/
----------------------------------------------------------
Class A Class B Class L
================================================================================
One-Year (3.07)% (3.68)% (0.56)%
--------------------------------------------------------------------------------
Five-Year 2.51 2.77 2.81
--------------------------------------------------------------------------------
Ten-Year 3.27 N/A N/A
--------------------------------------------------------------------------------
Since Inception+ 1.99 4.29 (1.76)
================================================================================
(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.
+ Inception dates for Class A, B and L shares are November 24, 1986, November
6, 1992 and November 7, 1994, respectively.
FUND HIGHLIGHT
On Tuesday, December 5, 2000, the shareholders of Smith Barney Sector Series
Inc. -- Smith Barney Natural Resources Fund approved a reorganization of the
Portfolio into Smith Barney Fundamental Value Fund, Inc., whose portfolio
manager is also John Goode. The merger is currently scheduled to occur on
Friday, December 8, 2000.
NASDAQ SYMBOL
Class A SPMMX
Class B SPMBX
Class L SPMLX
WHAT'S INSIDE
Shareholder Letter.................................................. 1
Historical Performance.............................................. 4
Smith Barney Natural Resources Fund at a Glance..................... 6
Schedule of Investments............................................. 7
Statement of Assets and Liabilities................................. 9
Statement of Operations............................................. 10
Statements of Changes in Net Assets................................. 11
Notes to Financial Statements....................................... 12
Financial Highlights................................................ 17
Independent Auditors' Report........................................ 20
<PAGE>
Shareholder Letter
[PHOTO] [PHOTO]
Heath B. John G.
McLendon Goode
Chairman Vice President and
Investment Officer
Dear Shareholder:
We are pleased to provide the annual report for the Smith Barney Sector Series
Inc. -- Smith Barney Natural Resources Fund ("Portfolio") for the year ended
October 31, 2000. In this report we have summarized the period's prevailing
economic and market conditions and outlined the Portfolio's investment strategy.
We hope you find this report useful and informative.
Special Shareholder Notice
On Tuesday, December 5, 2000, the shareholders of Smith Barney Sector Series
Inc. -- Smith Barney Natural Resources Fund approved a reorganization of the
Portfolio into Smith Barney Fundamental Value Fund, Inc. ("Fundamental Value
Fund") whose portfolio manager is also John Goode. The merger is currently
scheduled to occur on Friday, December 8, 2000.
There are several reasons for taking this direction. Originally, the Portfolio
was focused primarily on gold stocks and then its charter was broadened to
include natural resources companies in general. Even though this expanded the
range of investment alternatives, the Portfolio's focus continued to be rather
narrow. As such, it performed well when natural resources stocks were performing
well and the Portfolio underperformed when they were out-of-favor.
The Fundamental Value Fund has a broader investment charter. Its primary
investing philosophy is to "buy leading franchises at depressed prices for
reasons thought to be temporary." In other words, price plays a key role in
making new investment decisions. And while no guarantees can be given, we
believe this approach benefits from the highly volatile nature, in recent years,
of the sectors making up a leading index such as the Standard & Poor's 500 Index
("S&P 500")./1/ As an example, earlier this year technology stocks reached
exceedingly high valuations and major sales were made in the January through
February period in the Fundamental Value Fund. These assets were re-deployed
into depressed health care, financial, and energy stocks, which have
subsequently performed well. These decisions, based in part on the extraordinary
volatility between market segments, contributed to the solid relative
performance of the Fundamental Value Fund year-to-date. At this time, the
Fundamental Value Fund has outperformed the S&P 500 by 22%. (Please note past
performance is not indicative of future results.)
The Fundamental Value Fund can and does invest in natural resources companies
when we believe them to be attractive. Most of these investments are carried in
the basic materials segment of the portfolio. Basic materials account for about
2% of the S&P 500 and the Fundamental Value Fund now holds about 9% of its
assets in natural resources (basic materials) companies, indicating we find
their values compelling at this time.
Smith Barney Sector Series Inc. -- Smith Barney Natural Resources Performance
Update
For the year ended October 31, 2000, the Portfolio's Class A shares, without and
with sales charges, returned 2.02% and a negative 3.07%, respectively. In
comparison, the Morgan Stanley Capital International World Index ("MSCI World
Index")/2/ returned 1.09% for the same period.
__________________
1 S&P 500 is a market capitalization-weighted measure of 500 widely held
common stocks. Please note that an investor cannot invest directly in an
index.
__________________
2 MSCI World Index is an unmanaged index of foreign stocks. Please note that
an investor cannot invest directly in an index.
1 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
Natural Resources-As Mark Twain Said, "The Rumors of Their Death Have Been
Greatly Exaggerated."
Given all the rhetoric about "New Economy"/3/ products and services, classic raw
materials have been consigned by many to a position reserved for buggy whips a
century ago. However, we still need to get around in automobiles that require
gasoline and we find ourselves dependent on heating and air conditioning to keep
warm in winter and cool in summer. Energy clearly has not gone out of style.
People continue to live in homes, many of which are even larger than those built
in recent decades. For all the talk of a paperless society, the desks around our
offices seem strangely littered with the "white stuff." Remarkably, eating has
not gone out of style and each day six billion plus people in the world need to
feed themselves!
It is true is that our economy is becoming less dependent on things such as
steel, copper, fertilizer, chemicals and oil but demand continues to grow. Some
natural resources, such as aluminum, are benefiting as they are substituted for
other heavier or most costly alternatives. The world, however, still is much
more dependent on natural resources than the U.S. Incremental increases in gross
domestic product ("GDP")/4/ require proportionately more natural resources
inputs than in this country.
The supply side is changing as well. Mergers and consolidations are reducing
capacity as facilities that are marginally economic are shutting down. Beginning
about five years ago, shareholders and consultants advised many producers of
natural resources that they were destroying shareholder wealth, more often
than not, when they built new facilities. As a result, many segments within
natural resources have seen limited increases in capacity in recent years.
Consolidation and limited capacity increases suggest to us that the business
cycle for many natural resources companies may be less severe in the future.
Prices should be stronger over the next cycle than in previous ones where there
were substantial capacity additions that created "boom-bust" conditions.
Economic "Tailwinds" May Be Close At Hand
We believe the U.S. dollar may peak shortly and that this may benefit many
natural resources. As of October 31, 2000, the Portfolio had 19% of its assets
in paper and forest products stocks. We believe these companies have been
adversely affected by the strong U.S. dollar even though their operating rates
have reached levels that historically would have suggested the return of pricing
power. Foreign competitors operating in weaker currency environments have had a
competitive advantage and have been able to limit U.S. companies' ability to
raise prices. We believe this is about to change.
Recently, for the first time in a number of years, we added a 7% position in
gold stocks. These too could benefit from a weaker dollar. However, we also
think the timing is good for a substantial move in this much maligned sector of
the market. Sentiment, as measured by market vane, is at historically low
bullish levels. In other words, expectations are exceedingly low. Stocks are
selling at five-year lows, which often are 70 to 80% below their peaks.
Recently there has been much discussion about weakness in the "Old Economy"/5/
area of the stock market. In our opinion, a considerable amount of this
weakness may be traceable to the remarkable strength of the U.S. dollar. A
somewhat weaker dollar could translate into much better price action for many
natural resource companies whose shares are very depressed at this time.
Oil & Natural Gas Prices - An Aberration or Harbinger of Things to Come?
Oil prices have risen substantially in the last few years. Moving from $12 a
barrel to about $35 a barrel recently. The Organization of the Petroleum
Exporting Countries ("OPEC") is viewed as having had much to do with this but
the fact is that world demand has recovered to the point that there is not a
large amount of spare capacity. The Portfolio has approximately 31% of its
assets invested in energy services and oil stocks.
___________________
3 The New Economy represents those companies in the technology,
telecommunications and Internet sectors.
4 GDP is the market value of the goods and services produced by labor and
property in the U.S. GDP is comprised of consumer and government purchases,
private domestic investments and net exports of goods and services.
5 The Old Economy represents more established, "blue-chip" companies.
2 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
Natural gas for years was priced at $2/MCF (1,000 cubic feet) or less. Even with
3-D seismic and other technological innovations, new supplies did not keep pace
with demand and the country's reserve/production ratio deteriorated. At the same
time, demand for clean burning fuels increased. Natural gas prices may average
about $4/MCF this year and even more in 2001. A cold winter could push prices
above $5/MCF. Natural gas still is a commodity but it seems clear that prices
are likely to remain well above the 1989-1999 average price for the foreseeable
future.
We believe much tighter supply-demand conditions may be characteristic of many
segments within natural resources in the next few years. Price changes for
paper, lumber, aluminum, copper, nickel, steel, chemicals, and gold, to name a
few, may not be as extreme as those now occurring in natural gas, but the trend
should be higher over time.
In summary, a weaker dollar, somewhat higher annual inflation rates (3% to
4%), increasing demand, and limited capacity additions portend better times
ahead for natural resources companies. We also are encouraged that many of them
are utilizing excess cash flow to repurchase their shares.
In closing, thank you for your investment in the Smith Barney Sector Series
Inc. -- Smith Barney Natural Resources Fund.
Sincerely,
/s/ Heath B. McLendon /s/ John G. Goode
------------------------- --------------------------
Heath B. McLendon John G. Goode
Chairman Vice President and
Investment Officer
November 21, 2000
The information provided in this letter 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. Please refer to pages 7 and 8
for a list and percentage breakdown of the Portfolio's holdings. Also, please
note any discussion of the Portfolio's holdings is as of October 31, 2000 and is
subject to change.
3 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
Historical Performance -- Class A Shares
===================================================================================================================================
Net Asset Value
-----------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns/(1)/
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/00 $ 18.85 $ 19.23 $ 0.00 $ 0.00 $ 0.00 2.02%
------------------------------------------------------------------------------------------------------------------------------------
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
===================================================================================================================================
Total $ 0.39 $ 0.16 $ 0.03
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Historical Performance -- Class B Shares
====================================================================================================================================
Net Asset Value
----------------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns/(1)/
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/00 $ 18.15 $ 18.39 $ 0.00 $ 0.00 $ 0.00 1.32%
-----------------------------------------------------------------------------------------------------------------------------------
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>
4 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
Historical Performance -- Class L Shares
====================================================================================================================================
Net Asset Value
----------------------
Beginning End Income Capital Gain Return Total
Year Ended of Year of Year Dividends Distributions of Capital Returns/(1)/
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
10/31/00 $ 18.20 $ 18.46 $ 0.00 $ 0.00 $ 0.00 1.43%
------------------------------------------------------------------------------------------------------------------------------------
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>
<TABLE>
<CAPTION>
====================================================================================================================================
Average Annual Total Returns
====================================================================================================================================
Without Sales Charges/(1)/
--------------------------------------------
Class A Class B Class L
====================================================================================================================================
<S> <C> <C> <C>
Year Ended 10/31/00 2.02% 1.32% 1.43%
------------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 10/31/00 3.57 2.94 3.01
------------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 10/31/00 3.80 N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
Inception* through 10/31/00 2.37 4.29 (1.59)
====================================================================================================================================
<CAPTION>
With Sales Charges/(2)/
-----------------------------------------------
Class A Class B Class L
====================================================================================================================================
<S> <C> <C> <C>
Year Ended 10/31/00 (3.07)% (3.68)% (0.56)%
-----------------------------------------------------------------------------------------------------------------------------------
Five Years Ended 10/31/00 2.51 2.77 2.81
------------------------------------------------------------------------------------------------------------------------------------
Ten Years Ended 10/31/00 3.27 N/A N/A
------------------------------------------------------------------------------------------------------------------------------------
Inception* through 10/31/00 1.99 4.29 (1.76)
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Cumulative Total Returns
====================================================================================================================================
Without Sales Charges/(1)/
====================================================================================================================================
<S> <C>
Class A (10/31/90 through 10/31/00) 38.61%
------------------------------------------------------------------------------------------------------------------------------------
Class B (Inception* through 10/31/00) 39.86
------------------------------------------------------------------------------------------------------------------------------------
Class L (Inception* through 10/31/00) (9.15)
====================================================================================================================================
</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 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.
5 Smith Barney Natural Resources Fund | 2000 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+
--------------------------------------------------------------------------------
[GRAPH]
Natural MSCI S&P
Resources World 500
Fund Inc. Index Index
10/90 9,498 10,000 10,000
10/91 9,707 11,643 13,342
10/92 9,310 11,099 14,669
10/93 13,253 14,172 16,855
10/94 15,042 15,329 17,507
10/95 11,576 16,866 22,130
10/96 16,101 19,706 27,461
10/97 16,531 23,106 36,277
10/98 11,880 26,730 44,261
10/99 13,523 33,460 55,619
10/00 13,796 34,009 58,998
+ Hypothetical illustration of $10,000 invested in Class A shares on October 31,
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 October 31, 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.............................................. 93.3%
United Kingdom............................................. 4.6
Russia..................................................... 2.1
Top Ten Common Stock Holdings*
Nucor Corp................................................. 5.2%
Weyerhaeuser Co............................................ 4.9
Rio Tinto PLC.............................................. 4.6
Anadarko Petroleum Corp.................................... 4.5
Mead Corp.................................................. 4.4
Engelhard Corp............................................. 4.4
Schlumberger Ltd........................................... 4.3
Georgia-Pacific Group...................................... 4.3
Alcoa Inc.................................................. 4.1
Brush Engineered Materials Inc............................. 4.1
* As a percentage of total investments. Please note these holdings are as of
October 31, 2000 and are subject to change.
Portfolio Breakdown*
19.5% Paper Products
2.0% Electronics - Semiconductor
5.2% Steel
5.3% Machinery
2.1% Telephone
7.0% Aluminum
14.7% Metals
6.1% Chemicals
10.1% Energy
Service & Equipment
21.1% Oil Exploration & Products
6.9% Gold
6 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments October 31, 2000
================================================================================
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
====================================================================================================================
<S> <C> <C>
COMMON STOCK -- 100.0%
Aluminum -- 7.0%
50,700 Alcoa Inc. $ 1,454,456
196,000 Kaiser Aluminum Corp.*+ 992,250
--------------------------------------------------------------------------------------------------------------------
2,446,706
--------------------------------------------------------------------------------------------------------------------
Chemicals -- 6.1%
50,000 Advanced Polymer Systems, Inc.* 159,375
74,100 Engelhard Corp. 1,546,838
15,000 Rohm & Haas Co. 450,937
--------------------------------------------------------------------------------------------------------------------
2,157,150
--------------------------------------------------------------------------------------------------------------------
Electronics- Semiconductor -- 2.0%
71,000 MEMC Electronic Materials, Inc.* 705,563
--------------------------------------------------------------------------------------------------------------------
Energy Service & Equipment -- 10.1%
40,000 Baker Hughes Inc. 1,375,000
20,000 Schlumberger Ltd. 1,522,500
39,200 Varco International, Inc.* 676,200
--------------------------------------------------------------------------------------------------------------------
3,573,700
--------------------------------------------------------------------------------------------------------------------
Gold -- 6.9%
40,000 AngloGold Ltd., Sponsored ADR 575,000
40,000 Barrick Gold Corp. 535,000
55,000 Newmont Mining Corp. 745,937
70,000 Placer Dome Inc. 568,750
--------------------------------------------------------------------------------------------------------------------
2,424,687
--------------------------------------------------------------------------------------------------------------------
Machinery -- 5.3%
20,000 Caterpillar Inc. 701,250
31,800 Deere & Co. 1,170,638
--------------------------------------------------------------------------------------------------------------------
1,871,888
--------------------------------------------------------------------------------------------------------------------
Metals -- 14.7%
70,100 Brush Engineered Materials Inc. 1,432,669
110,000 Freeport-McMoRan Copper & Gold, Inc., Class B Shares* 873,125
100,000 Rio Tinto PLC 1,623,442
86,000 RTI International Metals, Inc.* 1,247,000
--------------------------------------------------------------------------------------------------------------------
5,176,236
--------------------------------------------------------------------------------------------------------------------
Oil Exploration & Products -- 21.1%
26,000 Abacan Resource Corp., Canada* 78
25,000 Anadarko Petroleum Corp. 1,601,250
25,000 Apache Corp. 1,382,812
37,900 Burlington Resources Inc. 1,364,400
48,000 Conoco Inc., Class B Shares 1,305,000
21,200 Texaco Inc. 1,252,125
20,000 USX-Marathon Group 543,750
--------------------------------------------------------------------------------------------------------------------
7,449,415
--------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Financial Statements.
7 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Schedule of Investments (continued) October 31, 2000
================================================================================
<TABLE>
<CAPTION>
SHARES SECURITY VALUE
=====================================================================================================================
<S> <C> <C>
Paper Products -- 19.5%
55,900 Georgia-Pacific Group $ 1,502,313
53,000 Mead Corp. 1,533,688
135,200 PT Inti Indorayon Utama Tbk, Sponsored ADR* 135
88,200 Smurfit-Stone Container Corp.* 1,190,700
90,000 Stora Enso Oyj, Sponsored ADR* 911,250
36,900 Weyerhaeuser Co. 1,731,994
---------------------------------------------------------------------------------------------------------------------
6,870,080
---------------------------------------------------------------------------------------------------------------------
Steel -- 5.2%
52,600 Nucor Corp. 1,824,573
---------------------------------------------------------------------------------------------------------------------
Telephone -- 2.1%
84,000 Rostelecom, Sponsored ADR+ 735,000
---------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 100%
(Cost-- $30,963,082**) $ 35,234,998
=====================================================================================================================
</TABLE>
* 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.
8 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
Statement of Assets and Liabilities October 31, 2000
=========================================================================================================
<S> <C>
ASSETS:
Investments, at value (Cost--$30,963,082) $ 35,234,998
Collateral for securities on loan (Note 6) 1,723,200
Cash 144,583
Dividends receivable 13,928
-------------------------------------------------------------------------------------------------------
Total Assets 37,116,709
-------------------------------------------------------------------------------------------------------
LIABILITIES:
Payable for securities on loan (Note 6) 1,723,200
Payable for Fund shares purchased 33,643
Management fees payable 11,936
Distribution fees payable 9,649
Accrued expenses 89,243
-------------------------------------------------------------------------------------------------------
Total Liabilities 1,867,671
-------------------------------------------------------------------------------------------------------
Total Net Assets $ 35,249,038
=======================================================================================================
NET ASSETS:
Par value of capital shares $ 1,875
Capital paid in excess of par value 49,187,975
Undistributed net investment income 4,416
Accumulated net realized loss from security transactions and foreign currencies (18,217,144)
Net unrealized appreciation of investments 4,271,916
-------------------------------------------------------------------------------------------------------
Total Net Assets $ 35,249,038
=======================================================================================================
Shares Outstanding:
Class A 884,827
-------------------------------------------------------------------------------------------------------
Class B 853,959
-------------------------------------------------------------------------------------------------------
Class L 136,642
-------------------------------------------------------------------------------------------------------
Net Asset Value:
Class A (and redemption price) $ 19.23
-------------------------------------------------------------------------------------------------------
Class B * $ 18.39
-------------------------------------------------------------------------------------------------------
Class L ** $ 18.46
-------------------------------------------------------------------------------------------------------
Maximum Public Offering Price Per Share:
Class A (net asset value plus 5.26% of net asset value per share) $ 20.24
-------------------------------------------------------------------------------------------------------
Class L (net asset value plus 1.01% of net asset value per share) $ 18.65
=======================================================================================================
</TABLE>
* Redemption price is NAV of Class B shares reduced by a 5.00% CDSC if shares
are redeemed within 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.
9 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================
Statement of Operations For the Year Ended October 31, 2000
==========================================================================================================
<S> <C>
INVESTMENT INCOME:
Dividends $ 736,473
Interest 37,079
Less: Foreign withholding tax (9,192)
-------------------------------------------------------------------------------------------------------
Total Investment Income 764,360
-------------------------------------------------------------------------------------------------------
EXPENSES:
Management fees (Note 2) 326,909
Distribution fees (Note 2) 284,064
Shareholder and system servicing fees 108,658
Audit and legal 53,946
Shareholder communications 47,376
Registration fees 37,377
Directors' fees 26,540
Custody 7,410
Other 5,734
-------------------------------------------------------------------------------------------------------
Total Expenses 898,014
-------------------------------------------------------------------------------------------------------
Net Investment Loss (133,654)
-------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS AND FOREIGN CURRENCIES (NOTE 3):
Realized Loss From:
Security transactions (excluding short-term securities) (4,220,767)
Foreign currency transactions (3,223)
-------------------------------------------------------------------------------------------------------
Net Realized Loss (4,223,990)
-------------------------------------------------------------------------------------------------------
Change in Net Unrealized Appreciation (Depreciation) of Investments:
Beginning of year (1,281,749)
End of year 4,271,916
-------------------------------------------------------------------------------------------------------
Increase in Net Unrealized Appreciation 5,553,665
-------------------------------------------------------------------------------------------------------
Net Gain on Investments and Foreign Currencies 1,329,675
-------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations $ 1,196,021
=======================================================================================================
</TABLE>
See Notes to Financial Statements.
10 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
<TABLE>
<CAPTION>
=======================================================================================================================
Statements of Changes in Net Assets For the Years Ended October 31,
=======================================================================================================================
2000 1999
=======================================================================================================================
<S> <C> <C>
OPERATIONS:
Net investment income (loss) $ (133,654) $ 18,905
Net realized loss (4,223,990) (318,093)
Increase in net unrealized appreciation 5,553,665 7,443,234
-----------------------------------------------------------------------------------------------------------------------
Increase in Net Assets From Operations 1,196,021 7,144,046
-----------------------------------------------------------------------------------------------------------------------
FUND SHARE TRANSACTIONS (NOTE 10):
Net proceeds from sale of shares 87,287,728 195,787,393
Cost of shares reacquired (101,221,864) (214,496,322)
-----------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets From Fund Share Transactions (13,934,136) (18,708,929)
-----------------------------------------------------------------------------------------------------------------------
Decrease in Net Assets (12,738,115) (11,564,883)
NET ASSETS:
Beginning of year 47,987,153 59,552,036
-----------------------------------------------------------------------------------------------------------------------
End of year* $ 35,249,038 $ 47,987,153
=======================================================================================================================
* Includes undistributed net investment income of: $ 4,416 $ 4,896
=======================================================================================================================
</TABLE>
See Notes to Financial Statements.
11 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements
================================================================================
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 six other separate investment
portfolios: Smith Barney Financial Services Fund, Smith Barney Health Sciences
Fund, Smith Barney Technology Fund, Smith Barney Global Biotechnology Fund,
Smith Barney Global Technology Fund and Smith Barney Global Media &
Telecommunications Fund. The financial statements and financial highlights for
the other portfolios are presented in 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, 2000, reclassifications were made
to the Portfolio's 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 and accumulated net
investment loss amounting to $1,319,840 and $136,988, respectively, 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.
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.
12 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
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 Portfolio's transfer agent and PFPC Global Fund Services ("PFPC") acts as
the Portfolio's sub-transfer agent. CFTC receives account fees and asset-based
fees that vary according to the size and type of account. PFPC is responsible
for shareholder recordkeeping and financial processing for all shareholder
accounts and is paid by CFTC. For the year ended October 31, 2000, the Portfolio
paid transfer agent fees of $93,642 to CFTC.
Effective June 5, 2000, Salomon Smith Barney Inc. ("SSB"), another subsidiary of
SSBH, became the Portfolio's distributor replacing CFBDS, Inc. ("CFBDS"). In
addition, SSB acts as the primary broker for the Portfolio's agency
transactions. Certain other broker-dealers, continue to sell Portfolio shares to
the public as members of the selling group. For the year ended October 31, 2000,
SSB received brokerage commissions of $18,111.
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 year ended October 31, 2000, CDSC's paid to SSB and sales charges
received by SSB and CFBDS were approximately:
Class A Class B Class L
================================================================================
CDSCs -- $ 57,000 --
--------------------------------------------------------------------------------
Sales Charges $ 15,000 -- $ 8,000
================================================================================
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 year ended October 31, 2000, total Distribution Plan fees incurred were:
Class A Class B Class L
================================================================================
Distribution Plan Fees $ 50,605 $204,325 $ 29,134
================================================================================
All officers and one Director of the Fund are employees of SSB.
13 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
3. Investments
During the year ended October 31, 2000, the aggregate cost of purchases and
proceeds from sales of investments (including maturities, but excluding
short-term securities) were as follows:
================================================================================
Purchases $26,192,780
--------------------------------------------------------------------------------
Sales 39,898,741
================================================================================
At October 31, 2000, aggregate gross unrealized appreciation and depreciation of
investments for Federal income tax purposes were substantially as follows:
================================================================================
Gross unrealized appreciation $ 5,983,392
Gross unrealized depreciation (1,711,476)
--------------------------------------------------------------------------------
Net unrealized appreciation $ 4,271,916
================================================================================
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 day's trading. Variation
margin payments are received or made and recognized as assets due from or
liabilities due to broker, depending upon whether unrealized gains or losses are
incurred. When the contract is closed, the Portfolio records a realized gain or
loss equal to the difference between the proceeds from (or cost of) the closing
transaction and the Portfolio's 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 October 31, 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 October 31, 2000, the Portfolio held no 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 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
14 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
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 year ended October 31, 2000, the Portfolio did not enter into any
written covered call or put option contracts.
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 October 31, 2000, the Portfolio loaned common stock having a value of
$1,524,348 and holds the following collateral for loaned securities:
Security Description Value
=============================================================================
Commercial Paper:
Associates Corp. of North America, 6.651% due 11/1/00 $ 85,117
GE Capital International, 6.661% due 11/1/00 85,361
UBS Finance (Delaware) Inc., 6.651% due 11/1/00 85,117
Repurchase Agreements:
Bear Stearns, 6.680% due 11/1/00 163,702
CS First Boston Corp., 6.680% due 11/1/00 183,476
J.P. Morgan Securities, 6.700% due 11/1/00 85,133
Morgan Stanley, 6.605% due 11/1/00 183,476
Time Deposits:
Banco Santander CH SA, London, 6.660% due 11/1/00 85,133
Bank of Austria, 6.656% due 11/1/00 85,133
Bank of Ireland, 6.688% due 11/1/00 85,133
Banque Bruxelles Lambert, London, 6.656% due 11/1/00 85,133
Barclays Bank PLC, 6.660% due 11/1/00 85,133
Caisse de Depots et Consign, Paris, 6.656% due 11/1/00 85,133
Firstar Bank, G.C., 6.656% due 11/1/00 85,377
Security Description (continued) Value
=============================================================================
Time Deposits:
Nordeutsche Landesbank, Singapore, 6.656% due 11/1/00 $ 85,133
Toronto Dominion, London, 6.660% due 11/1/00 85,133
Wells Fargo Bank, Minnesota N.A., GC, 6.656% due 11/1/00 85,377
-----------------------------------------------------------------------------
Total $1,723,200
=============================================================================
Income earned from securities lending for the year ended October 31, 2000 was
$6,462.
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 (plus accrued interest) in
amounts at least equal to the repurchase price.
8. Concentration of Risk
The Portfolio 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 Portfolio'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 Portfolio'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 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.
15 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
15
<PAGE>
================================================================================
Notes to Financial Statements (continued)
================================================================================
9. Capital Loss Carryforward
At October 31, 2000, the Portfolio had, for Federal income tax purposes,
approximately $ 18,154,000 of capital loss carry- forwards 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:
2006 2007 2008
================================================================================
Carryforward Amounts $12,873,000 $884,000 $4,397,000
================================================================================
10. Capital Shares
At October 31, 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 October 31, 2000, total paid-in capital amounted to the following for each
class:
Class A Class B Class L
================================================================================
Total Paid-in Capital $33,578,182 $12,895,129 $2,716,539
================================================================================
Transactions in shares of each class were as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
October 31, 2000 October 31, 1999
----------------------------- ----------------------------
Shares Amount Shares Amount
==============================================================================================
<S> <C> <C> <C> <C>
Class A
Shares sold 3,987,960 $ 79,167,747 9,164,942 $173,366,391
Shares reacquired (4,220,531) (83,858,673) (9,687,078) 183,016,775)
----------------------------------------------------------------------------------------------
Net Decrease (232,571) $ (4,690,926) (522,136) $ (9,650,384)
==============================================================================================
Class B
Shares sold 298,227 $ 5,757,486 1,093,758 $ 20,260,718
Shares reacquired (763,221) (14,511,305) (1,606,176) (28,799,467)
----------------------------------------------------------------------------------------------
Net Decrease (464,994) $ (8,753,819) (512,418) $ (8,538,749)
==============================================================================================
Class L
Shares sold 127,383 $ 2,362,495 119,290 $ 2,160,284
Shares reacquired (154,586) (2,851,886) (148,607) (2,680,080)
----------------------------------------------------------------------------------------------
Net Decrease (27,203) $ (489,391) (29,317) $ (519,796)
==============================================================================================
</TABLE>
16 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
16
<PAGE>
================================================================================
Financial Highlights
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class A Shares 2000/(1)/ 1999/(1)/ 1998/(1)/ 1997 1996/(1)/
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 18.85 $ 16.56 $ 23.23 $ 22.95 $ 16.50
-----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) 0.01 0.05 (0.01) (0.12) 0.08
Net realized and unrealized gain (loss) 0.37 2.24 (6.50) 0.73 6.37
-----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.38 2.29 (6.51) 0.61 6.45
-----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.33) --
Net realized gains -- -- (0.16) -- --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.16) (0.33) --
-----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 19.23 $ 18.85 $ 16.56 $ 23.23 $ 22.95
-----------------------------------------------------------------------------------------------------------------------
Total Return 2.02% 13.83% (28.13)% 2.67% 39.09%
-----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 17,019 $ 21,069 $ 27,147 $ 45,488 $ 50,521
-----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 1.71% 1.73% 1.57% 1.51% 1.62%
Net investment income (loss) 0.04 0.27 (0.05) (0.32) 0.15
-----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 133% 151% 101% 120%
=======================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
17 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class B Shares 2000/(1)/ 1999/(1)/ 1998/(1)/ 1997 1996/(1)/
=======================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 18.15 $ 16.00 $ 22.60 $ 22.32 $ 16.15
-----------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment loss (0.12) (0.03) (0.13) (0.27) (0.09)
Net realized and unrealized gain (loss) 0.36 2.18 (6.31) 0.70 6.26
-----------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.24 2.15 (6.44) 0.43 6.17
-----------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.15) --
Net realized gains -- -- (0.16) -- --
-----------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.16) (0.15) --
-----------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 18.39 $ 18.15 $ 16.00 $ 22.60 $ 22.32
-----------------------------------------------------------------------------------------------------------------------
Total Return 1.32% 13.44% (28.61)% 1.95% 38.20%
-----------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $15,708 $ 23,937 $ 29,309 $ 66,819 $ 73,969
-----------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.38% 2.42% 2.23% 2.18% 2.29%
Net investment loss (0.61) (0.17) (0.71) (0.99) (0.83)
-----------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 133% 151% 101% 120%
=======================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
18 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
================================================================================
Financial Highlights (continued)
================================================================================
For a share of each class of capital stock outstanding throughout each year
ended October 31:
<TABLE>
<CAPTION>
Class L Shares 2000/(1)/ 1999/(1)/ 1998/(1)(2)/ 1997 1996/(1)/
===============================================================================================================================
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 18.20 $ 16.03 $ 22.62 $ 22.32 $ 16.16
-------------------------------------------------------------------------------------------------------------------------------
Income (Loss) From Operations:
Net investment income (loss) (0.11) (0.02) (0.12) (0.23) 0.05
Net realized and unrealized gain (loss) 0.37 2.19 (6.31) 0.68 6.11
-------------------------------------------------------------------------------------------------------------------------------
Total Income (Loss) From Operations 0.26 2.17 (6.43) 0.45 6.16
-------------------------------------------------------------------------------------------------------------------------------
Less Distributions From:
Net investment income -- -- -- (0.15) --
Net realized gains -- -- (0.16) -- --
-------------------------------------------------------------------------------------------------------------------------------
Total Distributions -- -- (0.16) (0.15) --
-------------------------------------------------------------------------------------------------------------------------------
Net Asset Value, End of Year $ 18.46 $ 18.20 $ 16.03 $ 22.62 $ 22.32
-------------------------------------------------------------------------------------------------------------------------------
Total Return 1.43% 13.54% (28.54)% 2.04% 38.12%
-------------------------------------------------------------------------------------------------------------------------------
Net Assets, End of Year (000s) $ 2,522 $ 2,981 $ 3,096 $ 6,393 $ 7,602
-------------------------------------------------------------------------------------------------------------------------------
Ratios to Average Net Assets:
Expenses 2.30% 2.33% 2.17% 2.12% 2.25%
Net investment loss (0.56) (0.09) (0.63) (0.92) (0.21)
-------------------------------------------------------------------------------------------------------------------------------
Portfolio Turnover Rate 62% 133% 151% 101% 120%
===============================================================================================================================
</TABLE>
(1) Per share amounts have been calculated using the monthly average shares
method.
(2) On June 12, 1998, Class C shares were renamed Class L shares.
19 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
===============================================================================
Independent Auditors' Report
===============================================================================
The Shareholders and Board of Directors of
Smith Barney Natural Resources Fund:
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of Smith Barney Natural Resources Fund of Smith
Barney Sector Series Inc. as of October 31, 2000, and the related statement of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of October 31, 2000, by correspondence with the custodian.
As to securities purchased but not yet received, we performed other appropriate
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of Smith
Barney Natural Resources Fund as of October 31, 2000, and the results of its
operations for the year then ended, the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
New York, New York
December 11, 2000
20 Smith Barney Natural Resources Fund | 2000 Annual Report to Shareholders
<PAGE>
SMITH BARNEY
NATURAL RESOURCES FUND
<TABLE>
<S> <C>
DIRECTORS INVESTMENT MANAGER
Herbert Barg SSB Citi Fund Management LLC
Alfred J. Bianchetti
Martin Brody DISTRIBUTOR
Dwight B. Crane Salomon Smith Barney Inc.
Burt N. Dorsett
Elliot S. Jaffe CUSTODIAN
Stephen E. Kaufman The Chase Manhattan Bank, N.A.
Joseph J. McCann
Heath B. McLendon, Chairman
Cornelius C. Rose, Jr. TRANSFER AGENT
Citi Fiduciary Trust Company
James J. Crisona, Emeritus 125 Broad Street, 11th Floor
New York, New York 10004
OFFICERS
Heath B. McLendon SUB-TRANSFER AGENT
President and PFPC Global Fund Services
Chief Executive Officer P.O. Box 9699
Providence, Rhode Island
Lewis E. Daidone 02940-9699
Senior Vice President
and Treasurer
John G. Goode
Vice President and
Investment Officer
Paul A. Brook
Controller
Christina T. Sydor
Secretary
</TABLE>
<PAGE>
Smith Barney Natural Resources Fund
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 preceded 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 January 31, 2001,
this report must be accompanied by
performance information for the
most recently completed calendar
quarter.
SMITH BARNEY NATURAL RESOURCES FUND
Smith Barney Mutual Funds
388 Greenwich Street, MF-2
New York, New York 10013
For complete information on any
Smith Barney Mutual Funds,
including management fees and
expenses, call or write your
financial professional for a free
prospectus. Read it carefully
before you invest or send money.
www.smithbarney.com/mutualfunds
Salomon Smith Barney
--------------------------
A member of citigroup
Salomon Smith Barney is a
registered service mark of
Salomon Smith Barney Inc.
