<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2000.
SECURITIES ACT FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
388 GREENWICH STREET, NEW YORK, NY 10013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 451-2010
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
HEATH B. MCLENDON
SSB CITI FUND MANAGEMENT LLC
388 GREENWICH STREET
NEW YORK, NY 10013
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
BURTON M. LEIBERT, ESQ. CHRISTINA T. SYDOR, ESQ.
WILLKIE FARR & GALLAGHER SSB CITI FUND MANAGEMENT LLC
787 SEVENTH AVENUE 388 GREENWICH STREET
NEW YORK, NY 10019-6099 NEW YORK, NY 10013
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Registrant proposes that
the Registration Statement become effective on October 18, 2000 (30 days after
filing) pursuant to Rule 488 under the Securities Act of 1933, as amended.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Common Stock ($.001 par value) of the Registrant
-------------------
The Registrant has registered an indefinite amount of securities under
the Securities Act of 1933 pursuant to Section 24(f) under the Investment
Company Act of 1940; accordingly, no fee is payable herewith because of reliance
upon Section 24(f).
================================================================================
<PAGE>
PART A
INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
<PAGE>
SMITH BARNEY SECTOR SERIES INC.
Smith Barney Natural Resources Fund
388 Greenwich Street
New York, New York 10013
October __, 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby all of the assets of Smith Barney Natural Resources Fund (the "Fund"), a
series of Smith Barney Sector Series Inc. ("Sector Series"), would be
transferred in a tax-free reorganization to Smith Barney Fundamental Value Fund
Inc. (the "Acquiring Fund"), in exchange for shares of the corresponding class
of common stock of the Acquiring Fund. If the Agreement and Plan of
Reorganization is approved and consummated, you would no longer be a shareholder
of the Fund, but would become a shareholder of the corresponding class of the
Acquiring Fund, which has a similar investment objective and policies to your
Fund, except as described in the Prospectus/Proxy Statement.
AFTER CAREFUL REVIEW, THE MEMBERS OF YOUR FUND'S BOARD HAVE APPROVED
THE PROPOSED REORGANIZATION. THE BOARD MEMBERS OF YOUR FUND BELIEVE THAT THE
PROPOSAL SET FORTH IN THE NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND
RECOMMEND THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE
PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT TO SIGN AND RETURN YOUR
PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. For more
information, please call 1-800-451-2010. If you prefer, you can fax the proxy
card (both sides) to (888) 796-9932; or vote by telephone by calling (800)
597-7836 using the 14-digit control number located on your proxy card or vote
through the internet by going to www.[website].com using the 14-digit control
number on your proxy card. The Fund may also solicit proxies from shareholders
by letter, telephone and/or telegraph. Voting by fax, telephone or through the
internet will reduce the time and costs associated with the proxy solicitation.
When the Fund records proxies by telephone or through the internet, it will use
procedures designed to (i) authenticate shareholders' identities, (ii) allow
shareholders to authorize the voting of their shares in accordance with their
instructions and (iii) confirm that their instructions have been properly
recorded.
Whichever voting method you choose, please read the full text of the
accompanying Prospectus/Proxy Statement before you vote.
Respectfully,
/s/ Heath B. McLendon
Heath B. McLendon
Chairman of the Board, President and Chief Executive Officer
Smith Barney Sector Series Inc.
<PAGE>
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS OF
THE NUMBER OF SHARES YOU OWN.
<PAGE>
SMITH BARNEY SECTOR SERIES INC.
Smith Barney Natural Resources Fund
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Smith Barney Sector Series Inc. ("Sector Series"), on behalf of its
series, Smith Barney Natural Resources Fund (the "Fund"), will be held at the
offices of SSB Citi Fund Management LLC, 7 World Trade Center, New York, New
York 10048, on November 22, 2000, at [ ] a.m./p.m., Eastern time, for the
following purposes:
PROPOSAL 1: To approve an Agreement and Plan of
Reorganization for the Fund;
PROPOSAL 2: To transact such other business as may properly
come before the meeting or any adjournment(s)
thereof.
The appointed proxies will vote in their discretion on any other
business as may properly come before the Special Meeting or any adjournments
thereof.
Holders of record of shares of the Fund at the close of business on
October 13, 2000 are entitled to vote at the Special Meeting and at any
adjournments thereof.
If the necessary quorum to transact business or the vote required to
approve a Proposal is not obtained at the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's shares present in person or by proxy at the Special
Meeting. The persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of the Proposal and will
vote against any such adjournment those proxies to be voted against the
Proposal. For more information, please call 1-800-451-2010.
By Order of the Board of Directors
/s/ Christina T. Sydor
Christina T. Sydor
Secretary
October __, 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S)
MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND WISH TO VOTE
YOUR SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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<S> <C>
GENERAL...........................................................................................................1
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION.......................................................4
SYNOPSIS..........................................................................................................4
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND...........................................................7
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND.....................................................................9
INVESTMENT MANAGEMENT FEES AND EXPENSES..........................................................................11
DISTRIBUTION OF SHARES AND OTHER SERVICES........................................................................17
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION....................................................................18
DIVIDENDS AND OTHER DISTRIBUTIONS................................................................................18
TAX CONSEQUENCES.................................................................................................18
PRINCIPAL INVESTMENTS AND RISK FACTORS...........................................................................19
THE PROPOSED TRANSACTION.........................................................................................24
REASONS FOR THE PROPOSED TRANSACTION.............................................................................25
DESCRIPTION OF THE SECURITIES TO BE ISSUED.......................................................................26
FEDERAL INCOME TAX CONSEQUENCES..................................................................................28
LIQUIDATION AND TERMINATION OF SERIES............................................................................28
PORTFOLIO SECURITIES.............................................................................................28
PORTFOLIO TURNOVER...............................................................................................29
CAPITALIZATION AND PERFORMANCE...................................................................................29
ADDITIONAL INFORMATION ABOUT THE FUNDS...........................................................................31
INTERESTS OF CERTAIN PERSONS.....................................................................................31
ADDITIONAL INFORMATION...........................................................................................32
</TABLE>
i
<PAGE>
ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated October __, 2000
relating to this Prospectus/Proxy Statement and the Reorganization, will be sent
to all shareholders of the Fund requesting a copy of such Statement of
Additional Information.
1. The Statement of Additional Information for the Acquiring Fund,
dated January 28, 2000.
2. The Statement of Additional Information for the Fund, dated
February 14, 2000.
3. Annual Report of the Acquiring Fund for the year ended September
30, 1999 and the Semi-Annual Report of the Acquiring Fund for the
six-month period ended March 31, 2000.
4. Annual Report of the Fund for the year ended October 31, 1999 and
the Semi-Annual Report of the Fund for the six-month period ended
April 30, 2000.
<PAGE>
Merger Q&A
Natural Resources Fund into Smith Barney Fundamental Value Fund Inc.
October __, 2000
The enclosed materials include a combined Prospectus/Proxy Statement containing
information you need to make a more informed decision. However, we thought it
would also be helpful for you to have, at the start, answers to some of the
important questions you might have about the proposed reorganization.
We hope you find these explanations useful as you review your materials before
voting. For more detailed information about the proposed reorganization, please
refer to the enclosed combined Prospectus/Proxy Statement.
What will happen to my shares if the proposed reorganization is approved?
You will become a shareholder of the Smith Barney Fundamental Value Fund Inc. on
or about December 1, 2000 ("Closing Date") and will no longer be a shareholder
of the Smith Barney Natural Resources Fund, which will be terminated pursuant to
the proposed reorganization. You will receive shares of the Smith Barney
Fundamental Value Fund Inc. with a total net asset value equal to the total net
asset value of your investment in the Smith Barney Natural Resources Fund at the
time of the transaction.
If the reorganization is approved and you do not wish to become a shareholder of
the Smith Barney Fundamental Value Fund Inc., you may redeem your shares prior
to the Closing Date. Please note that any redemption will be subject to all
applicable sales charges and redemption fees and will result in a taxable event
for federal income tax purposes.
What is the key reason for this fund reorganization?
The portfolio manager has managed the Smith Barney Natural Resources Fund with a
broader focus than traditional sector funds, which is reflected in the
similarities of the current holdings of both Funds. The Smith Barney Natural
Resources Fund has not been successful in attracting investors and its
relatively small size hampers the management of its portfolio securities and
also results in a higher expense ratio than would be the case for a larger fund.
The proposed reorganization will create one single larger sized fund and provide
shareholders of the Smith Barney Natural Resources Fund with a fund that has
lower annual expenses and a broader investment mandate.
Do the funds have similar investment objectives?
Yes. The Smith Barney Natural Resources Fund seeks long-term capital
appreciation, while the Smith Barney Fundamental Value Fund Inc. seeks long-term
capital growth, with current income as a secondary consideration. John G. Goode,
the portfolio manager of your Fund, has also been the portfolio manager of the
Smith Barney Fundamental Value Fund Inc. since November 1995. There are
differences in the investment practices and limitations of each Fund (and
<PAGE>
related risks. For additional information regarding the differences between the
two Funds, please refer to the enclosed proxy statement.
Do both Funds have the same dividend and other distribution payment schedules?
Yes. Each Fund generally pays dividends and makes capital gain distributions, if
any, once a year, typically in December.
What are the tax consequences of this proposed reorganization?
Subject to shareholder approval, the proposed reorganization will not be a
taxable event. Shareholders will not realize any capital gain or loss as a
direct result of the proposed reorganization.
However, if the proposed reorganization is approved by the Smith Barney Natural
Resources Fund's shareholders, then as soon as practicable before the Closing
Date, the Smith Barney Natural Resources Fund will pay or have paid its
shareholders a cash distribution of substantially all undistributed 2000 net
investment income and undistributed realized net capital gains. We ask that you
consult your tax advisor or other tax professional for assistance.
Will I enjoy the same privileges as a shareholder of the Smith Barney
Fundamental Value Fund Inc. that I currently have as a shareholder of the Smith
Barney Natural Resources Fund?
Yes. You will continue to enjoy substantially the same shareholder privileges
such as systematic investment, automatic cash withdrawal and dividend
reinvestment as well as access to professional service representatives.
How does the Board of Directors recommend I vote?
The Directors recommend that you vote FOR the reorganization. Although no
guarantees can be given, the Directors believe the reorganization is in the best
interest of the Smith Barney Natural Resources Fund and its shareholders.
Why is my vote important?
Shareholders have a responsibility to vote on important matters affecting their
fund investments. No matter how many shares you own, your vote --- and its
timeliness--are also important. Please complete and sign the enclosed proxy card
today!
Please note if you sign and date your proxy card, but do not provide voting
instructions, your shares will be voted FOR the proposal. Thank you in advance
for your vote.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2000
PROSPECTUS/PROXY STATEMENT
388 Greenwich Street
New York, New York 10013
(800) 451-2010
OCTOBER __, 2000
RELATING TO THE ACQUISITION BY
SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
(THE "ACQUIRING FUND")
OF THE ASSETS OF
SMITH BARNEY NATURAL RESOURCES FUND (THE "FUND"),
A SERIES OF SMITH BARNEY SECTOR SERIES INC. ("SECTOR SERIES").
GENERAL
This Prospectus/Proxy Statement is furnished to shareholders of the
Fund in connection with a proposed reorganization in which all of the assets of
the Fund would be acquired by the Acquiring Fund, in exchange solely for voting
shares of the corresponding class of common stock of the Acquiring Fund and the
assumption by the Acquiring Fund of all of the stated liabilities of the Fund
(collectively, the "Reorganization"). Shares of the Acquiring Fund thereby
received would then be distributed to the shareholders of the Fund in complete
liquidation of the Fund, and the Fund would be terminated as a series of Sector
Series. As a result of the Reorganization, each shareholder of the Fund would
receive that number of full and fractional shares of the corresponding class of
the Acquiring Fund having an aggregate net asset value equal to the aggregate
net asset value of such shareholder's shares of the Fund held as of the close of
business on the Closing Date (as defined herein) of the Reorganization.
Shareholders of the Fund are being asked to vote on an Agreement and Plan of
Reorganization pursuant to which such transactions, as described more fully
below, would be consummated.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of the
Acquiring Fund, see the prospectus for the Acquiring Fund, dated
-----------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS/PROXY
STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND,
IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE FUNDS.
<PAGE>
January 28, 2000, as supplemented from time to time, which is included herewith
and incorporated herein by reference. This Prospectus/Proxy Statement is also
accompanied by the Acquiring Fund's annual report to shareholders for the year
ended September 30, 1999, and the semi-annual report to shareholders for the six
months ended March 31, 2000, each of which is included herewith and incorporated
herein by reference. For a more detailed discussion of the investment
objectives, policies, restrictions and risks of the Fund, see the prospectus for
the Fund, dated February 14, 2000, the annual report to shareholders for the
year ended October 31, 1999, and the semi-annual report to shareholders for the
six months ended April 30, 2000, each of which is incorporated herein by
reference and a copy of which may be obtained without charge by writing to Smith
Barney Mutual Funds, 388 Greenwich Street, New York, New York 10013, or by
calling toll-free (800) 451-2010. A Statement of Additional Information of the
Fund and the Acquiring Fund dated October __, 2000 containing additional
information about the Reorganization and the parties thereto has been filed with
the Securities and Exchange Commission (the "SEC" or the "Commission") and is
incorporated by reference into this Prospectus/Proxy Statement. A copy of the
Statement of Additional Information is available upon request and without charge
by writing to or calling Smith Barney Mutual Funds at the address or phone
number listed above. Shareholder inquiries regarding the Fund or the Acquiring
Fund may also be made by calling the phone number listed above. The information
contained herein concerning the Fund has been provided by, and is included
herein in reliance upon, Sector Series on behalf of the Fund. The information
contained herein concerning the Acquiring Fund has been provided by, and is
included herein in reliance upon, the Acquiring Fund.
The Acquiring Fund is a diversified open-end management investment
company organized as a Maryland corporation. The Fund is a diversified series of
Sector Series, an open-end management investment company organized as a Maryland
corporation. The principal investment objective of the Acquiring Fund is
long-term capital growth, with current income as a secondary consideration. The
Acquiring Fund seeks to achieve its primary objective by investing in common
stocks and common stock equivalents, such as preferred stocks and securities
convertible into common stocks, of companies that SSB Citi Fund Management LLC
("SSB Citi") believes are undervalued in the market place. The investment
objective of the Fund is long-term capital appreciation. The Fund invests
primarily in equity and debt securities of U.S. and foreign companies in natural
resources industries. Natural resources include gold and other precious metals,
base metals, minerals, water, timberland and forest products, agricultural
commodities, oil, gas, coal and other energy resources. Both Funds benefit from
advisory services rendered by SSB Citi and have the same portfolio manager, John
G. Goode.
-----------------------
In the descriptions of the Proposal below, the word "fund" is sometimes
used to mean investment companies or series thereof in general, and not the Fund
whose proxy statement this is. In addition, in this Proxy Statement/ Prospectus,
for simplicity, actions are described as being taken by either the Fund or the
Acquiring Fund (each, a "Fund," and collectively, the "Funds"), although all
actions are actually taken by Sector Series, on behalf of the Fund, or by the
Acquiring Fund, respectively.
2
<PAGE>
This Prospectus/Proxy Statement, the Notice of Special Meeting and the
proxy card(s) are first being mailed to shareholders on or about October __,
2000 or as soon as practicable thereafter. Any shareholder of the Fund giving a
proxy has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of Sector Series at the address shown at the
beginning of this Prospectus/Proxy Statement) or in person at the Special
Meeting by executing a superseding proxy or by submitting a notice of revocation
to the Fund. All properly executed proxies received in time for the Special
Meeting will be voted as specified in the proxy or, if no specification is made,
in favor of the Proposal referred to in the Proxy Statement.
The presence at any shareholders' meeting, in person or by proxy, of
the holders of shares of the Fund holding a majority of the votes of the Fund
entitled to be cast shall be necessary and sufficient to constitute a quorum for
the transaction of business. If the necessary quorum to transact business or the
vote required to approve any Proposal is not obtained at the Special Meeting,
the persons named as proxies may propose one or more adjournments of the Special
Meeting in accordance with applicable law to permit further solicitation of
proxies with respect to the Proposal that did not receive the vote necessary for
its passage or to obtain a quorum. Any such adjournment as to a matter will
require the affirmative vote of the holders of a majority of the Fund's shares
present in person or by proxy at the Special Meeting. The persons named as
proxies will vote in favor of such adjournment those proxies which they are
entitled to vote in favor of that Proposal and will vote against any such
adjournment those proxies to be voted against that Proposal. For purposes of
determining the presence of a quorum for transacting business at the Special
Meeting, abstentions and broker "non-votes" will be treated as shares that are
present but which have not been voted. Broker non-votes are proxies received by
the Fund from brokers or nominees when the broker or nominee has neither
received instructions from the beneficial owner or other persons entitled to
vote nor has discretionary power to vote on a particular matter. Accordingly,
shareholders are urged to forward their voting instructions promptly.
The Proposal requires the affirmative vote of the holders of a majority
of the Fund's shares outstanding and entitled to vote thereon. Abstentions and
broker non-votes will have the effect of a "no" vote on the Proposal.
Holders of record of the shares of the Fund at the close of business on
October 13, 2000 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of the
Special Meeting. As of October 13, 2000, there were [INSERT] shares of the Fund
outstanding.
To the best of the Acquiring Fund's knowledge, as of October 13, 2000,
[no person owned beneficially more than 5% of any class of the Acquiring Fund'
outstanding shares]. To the best of Sector Series' knowledge, as of October 13,
2000, [no person owned beneficially more than 5% of any class of the Fund'
outstanding shares].
[As of October 13, 2000, less than 1% of the outstanding shares of the
Fund and the Acquiring Fund were owned directly or beneficially by the Directors
of Sector Series and the Acquiring Fund, respectively.]
3
<PAGE>
Each of the Fund and the Acquiring Fund provides periodic reports to
all of its shareholders which highlight relevant information, including
investment results and a review of portfolio changes. You may receive an
additional copy of the most recent annual report for each of the Fund and the
Acquiring Fund and a copy of any more recent semi-annual report, without charge,
by calling 800-451-2010 or writing to the Fund or the Acquiring Fund at the
address shown at the beginning of this Prospectus/Proxy Statement.
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of Directors of each of Sector Series and the Acquiring Fund,
including all of the Directors who are not "interested persons" of such Funds
(as defined in the Investment Company Act of 1940, as amended (the "1940 Act"))
(the "Non-Interested Directors" or "Non-Interested Board Members"), approved on
September 12, 2000 and September 7, 2000, respectively, an Agreement and Plan of
Reorganization (the "Plan"). Subject to its approval by the shareholders of the
Fund, the Plan provides for (a) the transfer of all of the assets of the Fund to
the Acquiring Fund in exchange for shares of the corresponding class of the
Acquiring Fund and assumption of the Fund's stated liabilities; (b) the
distribution of such Acquiring Fund shares to the shareholders of the Fund in
complete liquidation of the Fund and the cancellation of the Fund's outstanding
shares; and (c) the liquidation and termination of the Fund as a series of
Sector Series (collectively, the "Reorganization"). As a result of the
Reorganization, each shareholder of the Fund will become a shareholder of the
corresponding class of the Acquiring Fund and will hold, immediately after the
closing of the Reorganization (the "Closing"), that number of full and
fractional shares of the corresponding class of the Acquiring Fund having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares held in the Fund as of the close of business on the Closing
Date (as defined below). The Closing is expected to occur on December 1, 2000,
or on such later date as the parties may agree in writing (the "Closing Date").
SYNOPSIS
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary is qualified by reference to the more
complete information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Acquiring Fund, the Prospectus of the Fund and the Plan, the
form of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Shareholders of the Fund should read this entire Prospectus/Proxy Statement
carefully.
Introduction. Like your Fund, the Acquiring Fund is managed and
administered by SSB Citi, an affiliate of Salomon Smith Barney Inc. ("Salomon
Smith Barney"). The investment objective of the Acquiring Fund is long-term
capital growth (with current income as a secondary consideration) and the
investment objective of the Fund is long-term capital appreciation. John G.
Goode is the portfolio manager of your Fund as well as the Acquiring Fund. The
distributor, transfer agent and sub-transfer agents of each of the Fund and the
Acquiring Fund are identical. The Fund has retained KPMG LLP as its independent
auditors, while the Acquiring Fund has retained Deloitte & Touche LLP as its
independent auditors. The Acquiring Fund's custodian is PNC Bank, National
Association, while the Fund's custodian is The Chase Manhattan Bank, N.A.
4
<PAGE>
If the Plan is consummated, shareholders of the Fund will become
shareholders of the corresponding class of the Acquiring Fund. The
Reorganization has been proposed in an effort to provide shareholders with
exposure to a broader investment mandate than currently available to the Fund,
while also providing shareholders of the Fund the benefit of a lower expense
ratio. The Fund has not been successful in attracting investors and its
relatively small size hampers the management of its portfolio securities and
also results in a higher expense ratio than would be the case for a larger fund.
Although past performance is not necessarily indicative of future returns, the
Acquiring Fund has also outperformed the Fund in the 5 and 10 year and since
inception periods. After the Reorganization, shareholders of the Fund will
continue to enjoy many of the same shareholder privileges, such as systematic
investment, automatic cash withdrawal and automatic dividend reinvestment, and
access to professional service representatives as shareholders of the Acquiring
Fund. Each of the Fund and the Acquiring Fund declares dividends from net
investment income and pays distributions of net realized capital gains, if any,
annually. See "Dividends and Other Distributions." It is a condition of the
Reorganization that each Fund receive an opinion of independent legal counsel
that the Reorganization will be tax-free. This means that shareholders will not
realize any capital gain or loss as a direct result of the Reorganization.
Proposed Transaction. The aggregate net asset value of each class of
voting shares of the Acquiring Fund (the "Shares") issued in exchange for the
assets and liabilities of the corresponding class of the Fund will be equal to
the net asset value of that class of the Fund as of the Closing Date.
Immediately following the transfer of Shares to the Fund, the Shares received by
the Fund will be distributed pro rata to the shareholders of record of the Fund
on the Closing Date and the shares of the Fund will be cancelled.
For the reasons described below under "The Proposed Transaction-Reasons
for the Proposed Transaction," the Board of Directors of Sector Series,
including the Non-Interested Directors, on behalf of the Fund, has concluded the
following:
- the Reorganization is in the best interests of the Fund and
its shareholders; and
- the interests of the existing shareholders of the Fund will
not be diluted as a result of the Reorganization.
Accordingly, the Directors recommend approval of the Plan. If the Plan
is not approved, the Fund will continue in existence unless other action is
taken by the Directors; such other action may include resubmitting the Plan for
shareholder approval and termination and liquidation of the Fund.
Comparison of Investment Objectives and Policies. The principal
investment objective of the Acquiring Fund is long-term capital growth, with
current income as a secondary consideration. The Acquiring Fund seeks to achieve
its primary objective by investing in common stocks and common stock
equivalents, such as preferred stocks and securities convertible into common
stocks, of companies that SSB Citi believes are undervalued in the market place.
The Acquiring Fund may also invest in securities, such as preferred stocks and
convertible securities, that provide dividend or interest income. The Acquiring
Fund may invest
5
<PAGE>
up to 25% of its assets in foreign securities (including, among other things,
American Depository Receipts).
The investment objective of the Fund is long-term capital appreciation.
The Fund seeks to achieve its objective by investing primarily (at least 65% of
its assets) in equity and debt securities of issuers in natural resources
industries. Natural resources include gold and other precious metals, base
metals, minerals, water, timberland and forest products, agricultural
commodities, oil, gas, coal and other energy resources. The Fund may invest up
to 35% of its assets in securities of U.S. and foreign issuers not engaged in
natural resources industries, as well as in gold bullion and gold coins.
Each Fund may purchase short-term investments, money market instruments
and repurchase agreements and may lend portfolio securities. Each Fund also may
invest in small, medium and large capitalization companies. Under normal
circumstances, the Fund may hold up to 20% of its assets in cash and in
short-term investments, but it may hold such instruments without limitation when
SSB Citi determines that it is appropriate to maintain a temporary defensive
position. Each Fund may also invest in warrants, restricted securities and may
engage in short sales against the box and borrowing. With respect to short sales
against the box, the Fund will segregate the common stock or convertible or
exchangeable preferred stock or debt securities in a special account with its
custodian; not more than 10% of the Fund's net assets (taken at current value)
may be held as collateral for such sales at any one time.
Each Fund may borrow for temporary or emergency (not leveraging)
purposes, including for the meeting of redemption requests, in an amount up to
10% of its total assets. The Fund may also pledge its assets in connection with
such borrowings. Whenever these borrowings exceed 5% of the Fund's total assets,
however, the Fund will not make any additional investments.
Both Funds may invest in medium- or low-rated securities and unrated
securities of comparable quality (sometimes referred to as "junk bonds").
Whereas each Fund may use derivative contracts, such as futures and options on
securities indices or currencies, options on these futures, forward currency
contracts and interest rate or currency swaps for hedging purposes or as a
substitute for buying or selling securities, the Acquiring Fund may also use
these instruments, in some limited cases, to enhance return. The Fund may
utilize up to 10% of its assets to purchase put options on securities owned by
the Fund and up to an additional 10% of its assets to purchase call options on
securities the Fund may acquire in the future. The Fund may purchase only put
options that are traded on a regulated exchange. The Fund may purchase and write
put and call options on domestic and foreign stock indexes to hedge against
risks of market-wide movements affecting that portion of its assets invested in
the country whose stocks are subject to the hedges. The Fund may also purchase
put and call options on gold, purchase gold futures contracts and write covered
call options on gold.
For hedging purposes, the Acquiring Fund may write covered call
options, purchase put and call options on currencies and debt securities and use
interest rate futures contracts and options thereon. The Acquiring Fund may
write call options on securities and currencies only if they are covered and
such options must remain covered so long as the Acquiring Fund is obligated as a
writer. The Acquiring Fund may write covered call options on securities for
6
<PAGE>
hedging purposes and to enhance return. The Acquiring Fund may purchase put and
call options and write call options on domestic stock indexes listed on domestic
exchanges and may invest in stock index futures contracts and options on futures
contracts that are traded on a domestic exchange or board of trade.
Each Fund has substantially similar fundamental investment restrictions
with respect to its diversified status; issuing senior securities; industry
concentration (except natural resources investments with respect to the Fund);
underwriting securities; borrowing money; purchasing or selling real estate,
real estate mortgages, commodities or commodity contracts (except that the Fund
may also invest in gold bullion and coins or receipts for gold); and making
loans. Investment restrictions of each Fund which are fundamental policies may
not be changed without the approval of the applicable Fund's shareholders.
With respect to non-fundamental policies (those which may be changed by
a Fund's Board of Directors without shareholder approval), both Funds (i) may
not invest more than 5% of their assets in issuers which have been in continuous
operations for less than three years; (ii) may invest up to 15% of their net
assets in illiquid securities; and (iii) may not invest in any issuer for the
purpose of exercising control or management. The Acquiring Fund (i) may not
invest in other open-end investment companies; (ii) purchase or sell real estate
limited partnership interests; and (iii) purchase or retain the securities of
any issuer if it has knowledge that any officer or director of the Acquiring
Fund or SSB Citi owns beneficially more than 1/2 of 1% of the outstanding
securities of the issuer and the persons so owning more than 1/2 of 1% of such
securities together own beneficially more than 5% of such securities. While the
Acquiring Fund may only invest up to 2% of its net assets in warrants, the Fund
may invest up to 5% of its net assets in warrants. The foregoing limitations do
not include warrants acquired by a Fund as part of a unit or attached to
securities at the time of purchase.
Investors should refer to the respective prospectuses and statements of
additional information of the Fund and the Acquiring Fund for a fuller
description of each Fund's investment policies and restrictions.
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND
Principal Investment Strategies. As stated above, the Acquiring Fund
seeks long-term capital growth, with current income as a secondary
consideration. The Acquiring Fund invests primarily in common stocks and common
stock equivalents, such as preferred stocks and securities convertible into
common stocks, of companies that SSB Citi believes are undervalued in the market
place. While SSB Citi selects investments primarily for their capital
appreciation potential, secondary consideration is given to a company's dividend
record and the potential for an improved dividend return. The Acquiring Fund
generally invests in securities of large, well-known companies but may also
invest a significant portion of its assets in securities of small to
medium-sized companies when SSB Citi believes smaller companies offer more
attractive value opportunities. The Acquiring Fund's primary objective is
fundamental and may not be changed without the approval of the holders of a
majority of the Acquiring Fund's outstanding shares. There is no guarantee that
the Acquiring Fund will achieve its investment objective.
7
<PAGE>
The Acquiring Fund may also invest in securities, such as preferred
stocks and convertible securities, that provide dividend or interest income. The
Acquiring Fund may also invest up to 25% of its assets in securities of foreign
issuers and may, but need not, use derivative contracts, such as futures and
options on securities, securities indices or currencies, options on these
futures, forward currency contracts and interest rate or currency swaps for any
of the following purposes:
. To hedge against the economic impact of adverse changes in the
market value of its securities, because of changes in stock market
prices, currency exchange rates or interest rates;
. As a substitute for buying or selling securities; or
. To enhance return.
The Acquiring Fund may also depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in money market and short-term debt
securities.
Selection Process. On behalf of the Acquiring Fund, SSB Citi employs a
two-step stock selection process in its search for undervalued stocks of
temporarily out of favor companies. First, SSB Citi uses proprietary models and
fundamental research to try to identify stocks that are underpriced in the
market relative to their fundamental value. Next, SSB Citi looks for a positive
catalyst in the company's near term outlook which SSB Citi believes will
accelerate earnings or improve the value of the company's assets. SSB Citi also
emphasizes companies in those sections of the economy which SSB Citi believes
are undervalued relative to other sectors.
When evaluating an individual stock, SSB Citi looks for:
. Low market valuations measured by SSB Citi's valuation models
. Positive changes in earnings prospects because of factors such
as:
. New, improved or unique products and services
. New or rapidly expanding markets for the company's products
. New management
. Changes in the economic, financial, regulatory or political
environment particularly affecting the company
. Effective research, product development and marketing
. A business strategy not yet recognized by the market place
Principal risks of investing in the Acquiring Fund. Investors could
lose money on their investment in the Acquiring Fund, or the Acquiring Fund may
not perform as well as other investments, if:
. Stock prices decline generally
8
<PAGE>
. SSB Citi's judgment about the attractiveness, value or
potential appreciation of a particular stock proves to be
incorrect
. An adverse event, such as negative press reports about a
company in which the Acquiring Fund invests, depresses the
value of the company's stock
. The markets strongly favor growth stocks over stocks with
value characteristics
. Small or medium capitalization companies fall out of favor
with investors
Compared to funds that focus only on large capitalization
companies, the Acquiring Fund's share price may be more volatile because the
Acquiring Fund also invests a significant portion of its assets in small and
medium capitalization companies.
Compared to large companies, small and medium capitalization
companies are more likely to have:
. More limited product lines
. Fewer capital resources
. More limited management depth
Further, securities of small and medium capitalization companies
are more likely to:
. Experience sharper swings in market values
. Be harder to sell at times and at prices SSB Citi believes
appropriate
. Offer greater potential for gains and losses
INVESTMENT OBJECTIVE AND POLICIES OF THE FUND
Principal Investment Strategies. The Fund seeks long-term capital
appreciation by investing primarily in equity and debt securities of issuers in
natural resources industries. The Fund invests primarily in equity securities of
U.S. and foreign companies in natural resources industries. Natural resources
include gold and other precious metals, base metals, minerals, water, timberland
and forest products, agricultural commodities, oil, gas, coal and other energy
resources. A natural resources company derives at least 50% of its revenue from:
. Owning, producing or processing natural resources or leases or
rights to natural resources
. Exploring for, developing, transporting or distributing
natural resources
. Providing services or supplies to a natural resources industry
. Developing energy efficient technologies
. Upgrading or processing raw commodities into intermediate
products
Selection Process. The Fund invests in a broad range of natural
resources industries that have the potential for long-term capital appreciation.
SSB Citi considers the risks associated with investing in the countries where
these industries are located.
9
<PAGE>
In allocating assets among these industries, SSB Citi considers:
. The likely impact of expected economic development on industry
demand
. Expected changes in industry supply relative to demand
. The degree to which expected positive or negative industry
developments are reflected in the market price of industry
securities
. Domestic or international political factors that may influence
natural resource companies
In selecting the securities of specific companies, SSB Citi looks for:
. Consistently high return on capital
. Growth in cash flow and earnings
. A low stock price relative to private market valuation, or
historical valuation measures
. Experienced and effective management whose interests are aligned
with those of shareholders
. Events that cause a security to be temporarily undervalued
The Fund may lend its securities to earn income for the Fund. The Fund may, but
need not, use derivative contracts, such as futures and options on securities,
securities, securities indices or currencies, options on these futures, forward
currency contracts and interest rate or currency swaps for any of the following
purposes:
. To hedge against the economic impact of adverse changes in the
market value of its securities, because of changes in stock market
prices, currency exchange rates or interest rates;
. Settle transactions in securities quoted in foreign currencies; or
. As a substitute for buying or selling securities.
The Fund may engage in foreign currency transactions solely to manage its
exposure to foreign securities.
The Fund may invest up to 35% of its assets in securities of U.S. and foreign
issuers not engaged in natural resources industries, as well as in gold bullion
and gold coins. The Fund may also invest in debt securities of U.S. and foreign
corporate and governmental issuers rated as low as B by the major rating
agencies or, if unrated, of comparable quality. The Fund may depart from its
principal investment strategies in response to adverse market, economic or
political conditions by taking temporary defensive positions in all types of
money market and short-term debt securities.
Principal risks of investing in the Fund. Investors could lose money on their
investment in the Fund, or the Fund may not perform as well as other
investments, because:
10
<PAGE>
. Stock markets are volatile and can decline significantly in
response to adverse issuer, political, regulatory, market or
economic developments. Different parts of the market can react
differently to these developments.
. Foreign markets can be more volatile than the U.S. market
because of increased risks of adverse issuer, political,
regulatory, market or economic developments and can perform
differently than the U.S. market. Currency fluctuations may
adversely impact the Fund's investments.
. The natural resources industries can be significantly affected
by events relating to international, political and economic
developments, energy conservation, the success of exploration
projects, and tax and other government regulations.
. The value of an individual security or particular type of
security can be more volatile than the market as a whole and
can perform differently than the market as a whole. The value
of smaller capitalized companies may involve greater risks,
such as limited product lines, markets and financial or
managerial resources.
. The Fund's investments are spread across the sector on which
it focuses. However, because those investments are limited to
a comparatively narrow segment of the economy, the Fund's
investments are not as diversified as most mutual funds, and
far less diversified than the broad securities markets. This
means that the Fund tends to be more volatile than other
mutual funds, and the value of its portfolio investments tend
to go up and down more rapidly. As a result, the value of your
investment in the Fund may rise or fall rapidly.
. SSB Citi's judgment about the attractiveness, growth
prospects, value or potential appreciation of a particular
stock may prove to be incorrect.
INVESTMENT MANAGEMENT FEES AND EXPENSES
Sector Series, on behalf of the Fund, and the Acquiring Fund each
retain SSB Citi pursuant to separate contracts, to manage the daily investment
and business affairs of the Fund and the Acquiring Fund, respectively, subject
to the policies established by their respective Board of Directors. All expenses
of the Funds, including the investment advisory fees, are paid by each Fund.
Shareholders pay no direct charges or fees for investment services.
The Acquiring Fund. SSB Citi, located at 388 Greenwich Street, New
York, New York 10013, serves as the Acquiring Fund's investment adviser and
administrator. SSB Citi (through its predecessor entities) has been in the
investment counseling business since 1968 and renders investment management and
administration services to a wide variety of individual, institutional and
investment company clients having aggregate assets under management as of June
30, 2000 in excess of $388 billion. SSB Citi and Salomon Smith Barney are
subsidiaries of Citigroup Inc. Citigroup businesses provide a broad range of
financial services -- asset management, banking and consumer finance, credit and
charge cards, insurance, investments, investment banking and trading -- and use
diverse channels to make them available to consumer and corporate customers
around the world.
Subject to the supervision and direction of the Acquiring Fund's Board
of Directors, SSB Citi manages the Fund's portfolio in accordance with the
Acquiring Fund's stated investment
11
<PAGE>
objective and policies, makes investment decisions for the Acquiring Fund,
places orders to purchase and sell securities and employs professional portfolio
managers and securities analysts who provide research services to the Acquiring
Fund. Under an investment advisory agreement, the Acquiring Fund pays SSB Citi a
fee, computed daily and paid monthly, at the annual rate of 0.55% of the value
of its average daily net assets up to $1.5 billion, 0.50% of the value of its
average daily net assets up to $2.0 billion, 0.49% of the value of its average
daily net assets up to $2.5 billion, 0.46% of its average daily net assets up to
$3 billion and 0.38% of its average daily net assets in excess of $3.5 billion.
The fee is graduated so that increases in the Acquiring Fund' net assets may
result in a lower annual fee rate and decreases in its net assets may result in
a higher annual fee rate. As administrator, SSB Citi oversees all aspects of the
Acquiring Fund's administration and operation. For administration services
rendered to the Acquiring Fund, the Acquiring Fund pays SSB Citi a fee, computed
daily and paid monthly, at the annual rate of 0.20% of the value of the
Acquiring Fund's average daily net assets up to $2 billion, 0.16% of the value
of its average daily net assets in excess of $2.5 billion, 0.14% of the value of
its average daily net assets in excess of $3 billion and 0.12% of its average
daily net assets in excess of $3.5 billion. For its management and
administration services, SSB Citi received a fee during the Fund's last fiscal
year equal to 0.75% of the Acquiring Fund's average daily net assets. The total
investment management and administration fees incurred and paid by the Acquiring
Fund for the year ended September 30, 1999 were $12,219,483.
The Acquiring Fund's total expense ratio (total annual operating
expenses as a percentage of average net assets) for each class of its shares for
the period ended August 31, 2000 is set forth below under "Annual Fund
Operating Expenses." SSB Citi projects that if the proposed Reorganization is
effected, the expense ratio for each class of the Acquiring Fund will be
unchanged for the year ending September 30, 2001. The actual expense ratio for
the Acquiring Fund for the year ending September 30, 2001 may be higher or lower
than as set forth below, depending upon the Acquiring Fund' performance, general
stock market and economic conditions, sales and redemptions of the Acquiring
Fund shares (including redemptions by former shareholders of the Fund), and
other factors.
John G. Goode, Chairman and Chief Investment Officer of Davis Skaggs
Investment Management, a division of SSB Citi, and a managing director of
Salomon Smith Barney has been responsible for the day-to-day management of the
Acquiring Fund since November 1990. Mr. Goode has 16 years of experience with
SSB Citi or its predecessors. Mr. Goode's management discussion and analysis of
the Acquiring Fund's performance during the fiscal year ended September 30, 1999
is included in the Fund's Annual Report to Shareholders dated September 30,
1999.
The Fund. The Fund's investment manager is SSB Citi. SSB Citi selects
the Fund's investments and oversees its operations. For its management services
(investment advisory and administration), SSB Citi received a fee during the
Fund's last fiscal year equal to 0.75% of the Fund's average daily net assets.
The total investment management fees incurred and paid by the Fund for the year
ended October 31, 1999 were $400,065.
John G. Goode (described above) has been responsible for the day-to-day
management of the Fund since November 1995.
12
<PAGE>
The expenses of the Fund and the Acquiring Fund for the fiscal year
ended October 31, 1999 and the period ended August 31, 2000, respectively, and
pro forma expenses following the proposed restructuring are outlined below.
As a result of the Reorganization, shareholders of the Fund will be investing in
the corresponding class of the Acquiring Fund with expenses that are currently
between 0.44% and 0.71% lower than those of the relevant class of the Fund.
13
<PAGE>
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
Smith Barney Fundamental Value Fund Inc. Class A Class B Class L Class Y
----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
<S> <C> <C> <C> <C>
Maximum sales charge imposed on purchases 5.00% None 1.00% None
(as a percentage of offering price)
Maximum Deferred Sales Charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None* 5.00% 1.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.73% 0.73% 0.73% 0.73%
12b-1 fees 0.25 1.00 1.00 None
Other expenses 0.14 0.16 0.16 0.04
----------------------------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.12% 1.89% 1.89% 0.77%
======================================================================================================================
Smith Barney Natural Resources Fund Class A Class B Class L Class Y
----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases 5.00% None 1.00% None
(as a percentage of offering price)
Maximum Deferred Sales Charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None* 5.00% 1.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.75% 0.75% 0.75% 0.75%
12b-1 fees 0.25 1.00 1.00 None
Other expenses** 0.73 0.67 0.58 0.73
----------------------------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.73% 2.42% 2.33% 1.48%
======================================================================================================================
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Smith Barney Fundamental Value Fund Inc. Class A Class B Class L Class Y
----------------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Smith Barney Fundamental Value Fund Inc. (Pro Forma) Class A Class B Class L Class Y
----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge imposed on purchases 5.00% None 1.00% None
(as a percentage of offering price)
Maximum Deferred Sales Charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None* 5.00% 1.00% None
Annual Fund Operating Expenses
(as a percentage of average net assets)
Management fees 0.73% 0.73% 0.73% 0.73%
12b-1 fees 0.25 1.00 1.00 None
Other expenses 0.14 0.16 0.16 0.04
----------------------------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.12% 1.89% 1.89% 0.77%
======================================================================================================================
</TABLE>
* You may buy Class A Shares in amounts of $1 million or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge
of 1.00%
** For Class Y Shares, "Other Expenses" have been estimated based on
expenses incurred by Class A Shares because no Class Y Shares were
outstanding for the year ended October 31, 1999.
Example. This Example is intended to help you compare the cost of
investing in each of the Funds. The Example assumes you invest $10,000 in each
Fund for the time periods indicated and then redeem all of your shares at the
end of those periods. The Example also assumes your investment has a 5% return
each year and that each Fund's annual operating expenses remain the same.
Although your actual costs may be higher or lower, based on these assumptions
your costs would be:
<TABLE>
<CAPTION>
Smith Barney Fundamental Value Fund Inc. 1 year 3 years 5 years 10 years*
----------------------------------------------------------------------------------------------------------------------
An Investor would pay the following expenses on a $10,000 investment, assuming
(1) 5.00% annual return and (2) redemption at the end of each time period:
<S> <C> <C> <C> <C>
Class A............................................... $608 $838 $1,086 $1,795
Class B............................................... 692 894 1,121 2,019
Class L............................................... 392 694 1,121 2,326
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Smith Barney Fundamental Value Fund Inc. 1 year 3 years 5 years 10 years*
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class Y............................................... 79 246 428 954
An Investor would pay the following expenses
on the same investment, assuming the same
annual return and no redemption:
Class A............................................... $ 608 $838 $1,086 $1,795
Class B............................................... 192 594 1,021 2,019
Class L............................................... 292 694 1,121 2,326
Class Y............................................... 79 246 428 954
----------------------------------------------------------------------------------------------------------------------
Smith Barney Natural Resources Fund 1 year 3 years 5 years 10 years
----------------------------------------------------------------------------------------------------------------------
An Investor would pay the following expenses on a $10,000 investment, assuming
(1) 5.00% annual return and (2) redemption at the end of each time period:
Class A............................................... $667 $1,018 $1,392 $2,439
Class B............................................... 745 1,055 1,391 2,586
Class L............................................... 434 820 1,333 2,739
Class Y............................................... 151 468 808 1,768
An Investor would pay the following expenses on the same investment, assuming
the same annual return and no redemption:
Class A............................................... $ 667 $1,018 $1,392 $2,439
Class B............................................... 245 755 1,291 2,586
Class L............................................... 334 820 1,333 2,739
Class Y............................................... 151 468 808 1,768
----------------------------------------------------------------------------------------------------------------------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Smith Barney Fundamental Value Fund Inc. 1 year 3 years 5 years 10 years*
----------------------------------------------------------------------------------------------------------------------
Pro Forma Pro Forma Pro Forma Pro Forma
Smith Barney Fundamental Value Fund Inc. (Pro Forma)(unaudited) 1 year 3 years 5 years 10 years*
----------------------------------------------------------------------------------------------------------------------
An Investor would pay the following expenses on a $10,000 investment, assuming
(1) 5.00% annual return and (2) redemption at the end of each time period:
Class A............................................... $608 $838 $1,086 $1,795
Class B............................................... 692 894 1,121 2,019
Class L............................................... 392 694 1,121 2,326
Class Y............................................... 79 246 428 954
An Investor would pay the following expenses on the same investment, assuming
the same annual return and no redemption:
Class A............................................... $ 608 $838 $1,086 $1,795
Class B............................................... 192 594 1,021 2,019
Class L............................................... 292 694 1,121 2,326
Class Y............................................... 79 246 428 954
----------------------------------------------------------------------------------------------------------------------
</TABLE>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
This example assumes reinvestment of all dividends and distributions. These
examples should not be considered representations of past or future expenses.
Actual Fund expenses can vary from year to year and may be higher or lower than
those shown. Please refer to each Fund's prospectus and statement of additional
information for a more detailed discussion of the fees and expenses applicable
to each class of shares of a Fund.
DISTRIBUTION OF SHARES AND OTHER SERVICES
As of June 5, 2000, Salomon Smith Barney distributes shares of each
Fund as principal underwriter and as such conducts a continuous offering
pursuant to a "best efforts" arrangement requiring Salomon Smith Barney to take
and pay for only such securities as may be sold to the public. Prior to that
time, CFBDS, Inc. acted as distributor of each Fund's shares. Each Fund has
adopted a plan of distribution under Rule 12b-1 under the 1940 Act (the "Plan"),
pursuant to which Salomon Smith Barney is paid a service fee with respect to
Class A, Class B and Class L shares of each Fund at the annual rate of 0.25% of
the average daily net assets of the respective Class. Salomon Smith Barney is
also paid a distribution fee with respect to Class B and Class L shares of each
Fund at the annual rate of 0.75% of the average daily net assets attributable to
those Classes. Class B shares of each Fund that automatically convert to Class A
shares eight
17
<PAGE>
years after the date of original purchase will no longer be subject to a
distribution fee. The fees are used by Salomon Smith Barney to pay its Financial
Consultants for servicing shareholder accounts and, in the case of Class B and
Class L shares, to cover expenses primarily intended to result in the sale of
those shares.
Payments under the Plan are not tied exclusively to the distribution
and shareholder service expenses actually incurred by Salomon Smith Barney and
the payments may exceed distribution expenses actually incurred. Please refer to
each Fund's prospectus and statement of additional information for a more
detailed discussion of the distribution and shareholder servicing arrangements
applicable to each class of shares of the Funds.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges with
respect to the Fund are substantially similar to those of the Acquiring Fund.
DIVIDENDS AND OTHER DISTRIBUTIONS
Each of the Fund and the Acquiring Fund declares dividends from net
investment income and pays distributions of net realized capital gains, if any,
annually. Each Fund intends to distribute any net realized capital gains after
utilization of capital loss carryforwards, if any, in November or December to
prevent application of a federal excise tax. An additional distribution may be
made if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year in which it is
declared. Dividends and distributions of each Fund will be invested in
additional shares of the applicable Fund at net asset value and credited to the
shareholder's account on the payment date or, at the shareholder's election,
paid in cash.
If the Plan is approved by the Fund's shareholders, then as soon as
practicable before the Closing Date, the Fund will pay or have paid its
shareholders a cash distribution of substantially all undistributed net
investment income and undistributed realized net capital gains for the current
taxable year through the Closing Date.
TAX CONSEQUENCES
The Fund and the Acquiring Fund will have received an opinion of
Willkie Farr & Gallagher, counsel to Sector Series and the Acquiring Fund, in
connection with the Reorganization, to the effect that, based upon certain
facts, assumptions and representations, the Reorganization will constitute a
tax-free reorganization within the meaning of section 368(a)(1) of the Internal
Revenue Code of 1986, as amended (the "Code"). If the Reorganization constitutes
a tax-free reorganization, no gain or loss will be recognized by the Fund or its
shareholders as a direct result of the Reorganization. See "The Proposed
Transaction -- Federal Income Tax Consequences."
18
<PAGE>
PRINCIPAL INVESTMENTS AND RISK FACTORS
General. Although the Funds have similar investment objectives, the
investment practices and limitations of each Fund (and the risks related
thereto) are not identical. A more complete description of the investment
practices and limitations of the Acquiring Fund is contained in the prospectus
and statement of additional information of the Acquiring Fund, dated January 28,
2000, as supplemented from time to time, a copy of which is included herewith,
and in the Statement of Additional Information of the Fund and the Acquiring
Fund dated October __, 2000 (relating to the proposed Reorganization) which is
incorporated herein by reference. Please refer to each Fund's prospectus and
statement of additional information for a more detailed discussion of the
specific investment practices and risks of the applicable Fund.
In addition to those already described above, the following summarizes
the principal risk factors for the Funds. The Fund's investments may be subject
to greater risk and market fluctuation than those of the Acquiring Fund which
invests in securities representing a broader range of investment alternatives.
Short-Term Investments. As noted above, in certain circumstances each
Fund may invest in short-term corporate and government money market instruments,
such as obligations of the U.S. government, its agencies and instrumentalities
("U.S. government securities"), high-quality commercial paper, bank certificates
of deposit ("CDs"), time deposits ("TDs"), and bankers' acceptances, and may
engage in repurchase agreement transactions with respect to such instruments.
Obligations of foreign branches of domestic banks, such as CDs and TDs,
may be general obligations of the parent bank in addition to the issuing branch,
or may be limited by the terms of a specific obligation and government
regulation. Such obligations are subject to different risks than are those of
domestic banks or domestic branches of foreign banks. These risks include
foreign economic and political developments, foreign governmental restrictions
that may adversely affect payment of principal and interest on the obligations,
foreign exchange controls and foreign withholding and other taxes on interest
income. Foreign branches of domestic banks are not necessarily subject to the
same or similar regulatory requirements that apply to domestic banks, such as
mandatory reserve requirements, loan limitations, and accounting, auditing and
financial recordkeeping requirements. In addition, less information may be
publicly available about a foreign branch of a domestic bank than about a
domestic bank. CDs issued by wholly owned Canadian subsidiaries of domestic
banks are guaranteed as to repayment of principal and interest (but not as to
sovereign risk) by the domestic parent bank.
Obligations of domestic branches of foreign banks may be general
obligations of the parent bank in addition to the issuing branch, or may be
limited by the terms of a specific obligation and by government regulation as
well as governmental action in the country in which the foreign bank has its
head office. A domestic branch of a foreign bank with assets in excess of $1
billion may or may not be subject to reserve requirements imposed by the Federal
Reserve System or by the state in which the branch is located if the branch is
licensed in that state. In addition, branches licensed by the Comptroller of the
Currency and branches licensed by certain states ("State Branches") may or may
not be required to: (a) pledge to the regulator by depositing assets with a
designated bank within the sate, an amount of its assets equal to 5% of its
total
19
<PAGE>
liabilities; and (b) maintain assets within the state in an amount equal to a
specified percentage of the aggregate amount of liabilities of the foreign bank
payable at or through all of its agencies or branches within the state. The
deposits of State Branches may not necessarily be insured by the FDIC. In
addition, there may be less publicly available information about a domestic
branch of a foreign bank than about a domestic bank.
Repurchase Agreements. Each Fund may enter into repurchase agreements
with certain member banks of the Federal Reserve System and certain dealers on
the Federal Reserve Bank of New York's list of reporting dealers. Under the
terms of a typical repurchase agreement, a Fund would acquire securities for a
relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase, and the Fund to resell, the securities
at an agreed-upon price and time, thereby determining the yield during a Fund's
holding period. This arrangement results in a fixed rate of return that is not
subject to market fluctuations during a Fund's holding period. Repurchase
agreements could involve certain risks in the event of default or insolvency of
the other party, including possible delays or restrictions upon a Fund's ability
to dispose of the underlying securities, the risk of a possible decline in the
value of the underlying securities during the period in which a Fund seeks to
assert its rights to them, the risk of incurring expenses associated with
asserting those rights and the risk of losing all or part of the income from the
agreement. SSB Citi, acting under the supervision of the Board of Directors,
reviews on an ongoing basis the value of the collateral and the creditworthiness
of those dealers and banks with which a Fund enters into repurchase agreements
to evaluate potential risks.
Lending of Portfolio Securities. Consistent with applicable regulatory
requirements, each Fund may lend its portfolio securities to brokers, dealers
and other financial organizations. Loans of portfolio securities by a Fund will
be collateralized by cash, letters of credit or U.S. government securities which
are maintained at all times in an amount equal to at least 100% of the current
market value of the loaned securities. The risks in lending portfolio
securities, like those associated with other extensions of secured credit,
consist of possible delays in receiving additional collateral or in the recovery
of the securities or possible loss of rights in the collateral should the
borrower fail financially. Loans will be made to firms deemed by SSB Citi to be
of good standing and will not be made unless, in the judgment of SSB Citi, the
consideration to be earned from such loans would justify the risk.
Options, Futures and Currency Strategies. Although a Fund might not
employ the use of forward currency contracts, options and futures, the use of
any of these strategies would involve certain investment risks and transaction
costs to which it might not otherwise be subject. These risks include:
dependence on SSB Citi's ability to predict movement in the prices of individual
debt securities, fluctuations in the general fixed-income markets and movements
in interest rates and currency markets, imperfect correlation between movements
in the price of currency, options, futures contracts or options thereon and
movements in the price of the currency or security hedged or used for cover; the
fact that skills and techniques needed to trade options, futures contracts and
options thereon or to use forward currency contracts are different from those
needed to select the securities in which a Fund invests; lack of assurance that
a liquid market will exist for any particular option, futures contract or
options thereon at any particular time and possible need to defer or accelerate
closing out certain options, futures contracts and options thereon in order to
continue to qualify for the beneficial tax treatment afforded "regulated
investment companies" under the Code.
20
<PAGE>
There are several risks in connection with the use of futures contracts
as a hedging device. Successful use of futures contracts by a Fund is subject to
the ability of SSB Citi to predict correct movements in the stock market or in
the direction of interest rates. These predictions involve skills and techniques
that may be different from those involved in the management of investments in
securities. In addition, there can be no assurance that there will be a perfect
correlation between movements in the price of the securities underlying the
futures contract and movements in the price of the securities that are the
subject of the hedge. A decision of whether, when and how to hedge involves the
exercise of skill and judgment, and even a well-conceived hedge may be
unsuccessful to some degree because of market behavior or unexpected trends in
market behavior or interest rates.
Positions in futures contracts may be closed out only on the exchange
on which they were entered into (or through a linked exchange) and no secondary
market exists for those contracts. In addition, although each Fund intends to
enter into futures contracts only if there is an active market for the
contracts, there is no assurance that an active market will exist for the
contracts at any particular time. Most futures exchanges and boards of trade
limit the amount of fluctuation permitted in futures contract prices during a
single trading day. Once the daily limit has been reached in a particular
contract, no trades may be made that day at a price beyond that limit. It is
possible that futures contract prices could move to the daily limit for several
consecutive trading days with little or no trading, thereby preventing prompt
liquidation of futures positions and subjecting some futures traders to
substantial losses. In such event, and in the event of adverse price movements,
a Fund would be required to make daily cash payments of variation margin; in
such circumstances, an increase in the value of the portion of the portfolio
being hedged, if any, may partially or complete offset losses on the futures
contract. As described above, however, no assurance can be given that the price
of the securities being hedged will correlate with the price movements in a
futures contract and thus provide an offset to losses on the futures contract.
Foreign Securities. Investing in the securities of foreign companies
involves special risks and considerations not typically associated with
investing in U.S. companies. These include differences in accounting, auditing
and financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investments in foreign securities,
and potential restrictions on the flow of international capital. Additionally,
foreign securities often trade with less frequency and volume than domestic
securities and therefore may exhibit greater price volatility. Many of the
foreign securities held by each Fund will not be registered with, nor will the
issuers thereof be subject to the reporting requirements of, the SEC.
Accordingly, there may be less publicly available information about the
securities and about the foreign company issuing them than is available about a
domestic company and its securities. Moreover, individual foreign economies may
differ favorably or unfavorably from the U.S. economy in such respects as growth
of gross domestic product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payment positions. Each Fund may invest in
securities of foreign governments (or agencies or subdivisions thereof), and
therefore many, if not all, of the foreign considerations apply to such
investments as well.
Securities of Developing Countries. A developing country is generally
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and
21
<PAGE>
fixed-income markets of developing countries involves exposure to economic
structures that are generally less diverse and mature, and to political systems
that can be expected to have less stability, than those of developed countries.
Historical experience indicates that the markets of developing countries have
been more volatile than the markets of the more mature economies of developed
countries; however, such markets often have provided higher rates of return to
investors.
Preferred Stocks and Convertible Securities. Convertible debt
securities and preferred stock entitle the holder to acquire the issuer's stock
by exchange or purchase at a predetermined rate. Convertible securities are
subject both to the credit and interest rate risks associated with fixed income
securities and to the stock market risk associated with equity securities.
Warrants. Warrants acquired entitle a Fund to buy common stock from the
issuer at a specified price and time. Warrants are subject to the same market
risks as stocks, but may be more volatile in price. A Fund's investment in
warrants will not entitle it to receive dividends or exercise voting rights and
will become worthless if the warrants cannot be profitably exercised before the
expiration dates.
Lower-Rated Securities. Generally, lower-rated securities offer a
higher current yield than the yield offered by higher-rated securities but
involve greater volatility of price and risk of loss of income and principal,
including the probability of default by or bankruptcy of the issuers of such
securities. Medium- and low-rated and comparable unrated securities (a) will
likely have some quality and protective characteristics that, in the judgment of
the rating organization, are outweighed by large uncertainties or major risk
exposures to adverse conditions and (b) are predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligation. Accordingly, it is possible that
these types of factors could, in certain instances, reduce the value of
securities held by a Fund, with a commensurate effect on the value of a Fund's
shares.
While the market values of medium- and lower-rated securities and comparable
unrated securities tend to react less to fluctuations in interest rate levels
than do those of higher-rated securities, the market values of certain of these
securities also tend to be more sensitive to individual corporate developments
and changes in economic conditions than higher-rated securities. In addition,
medium- and lower-rated securities and comparable unrated securities generally
present a higher degree of credit risk. Issuers of medium- and lower-rated
securities and comparable unrated securities are often highly leveraged and may
not have more traditional methods of financing available to them so that their
ability to service their debt obligations during an economic downturn or during
sustained periods of rising interest rates may be impaired. The risk of loss due
to default by such issuers is significantly greater because medium- and
lower-rated securities and comparable unrated securities generally are unsecured
and frequently are subordinated to the prior payment of senior indebtedness. A
Fund may incur additional expenses to the extent required to seek recovery upon
a default in the payment of principal or interest on its portfolio holdings. In
addition, the markets in which medium- and lower-rated or comparable unrated
securities are traded generally are more limited than those in which
higher-rated securities are traded. The existence of limited markets for these
securities may restrict the availability of securities for a Fund to purchase
and also may have the effect of limiting the ability of a Fund to (a) obtain
accurate market quotations for purposes of valuing
22
<PAGE>
securities and calculating net asset value and (b) sell securities at their fair
value either to meet redemption requests or to respond to changes in the economy
or the financial markets. The market for some medium- and lower-rated and
comparable unrated securities is relatively new and has not fully weathered a
major economic recession. Any such economic downturn could adversely affect the
ability of the issuers of such securities to repay principal and pay interest
thereon.
Fixed income securities, including medium- and lower-rated and comparable
unrated securities, frequently have call or buy-back features that permit their
issuers to call or repurchase the securities from their holders, such as the
Funds. If an issuer exercises these rights during periods of declining interest
rates, a Fund may have to replace the security with a lower yielding security,
resulting in a decreased return to the Fund.
Securities which are rated Ba by Moody's Investors Service, Inc. or BB by
Standard & Poor's Ratings Group have speculative characteristics with respect to
capacity to pay interest and repay principal. Securities which are rated B
generally lack characteristics of the desirable investment and assurance of
interest and principal payments over any long period of time may be small.
Gold Futures Contracts and Related Options (applicable solely to the
Fund). The use of gold futures contracts as a hedging device involves several
risks. Losses incurred in hedging transactions and the costs of these
transactions will affect the Fund's performance. There are several risks in
connection with the use of gold futures contracts and related options as hedging
devices. Successful use of gold futures contracts and related options by the
Fund is subject to the ability of SSB Citi to predict correctly movements in the
price of gold and other factors affecting markets for gold. These predictions
involve skills and techniques that are different from those generally involved
in the management of the Fund. In addition, there can be no assurance that there
will be a correlation between movements in the price of gold futures contracts
or an option on a gold futures contract and movements in the price of the hedged
assets. A decision of whether, when and how to hedge involves the exercise of
skill and judgment, and even a well conceived hedge may be unsuccessful to some
degree because of market behavior or unexpected trends in the price of gold or
the hedged securities.
Although the Fund intends to purchase gold futures contracts and related options
only if there is an active market for the contracts, there is no assurance that
an active market will exist for the contracts or options at any particular time.
Most futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. Once the daily limit has been
reached in a particular contract, no trades may be made that day at a price
beyond that limit. It is possible that gold futures contract prices could move
to the daily limit for several consecutive trading days with little or no
trading, thereby preventing prompt liquidation of gold futures positions and
subjecting the Fund to substantial losses. In such event, and in the event of
adverse price movements, the Fund would be required to make daily cash payments
of maintenance margin, and an increase, if any, in the value of the portion of
the portfolio being hedged may partially or completely offset losses on the
futures contract. As described above, however, there is no guarantee that the
price of the assets being hedged will, in fact, correlate with the price
movements in a gold futures contract or an option thereon and thus provide an
offset to losses on the futures contract or option.
23
<PAGE>
If the Fund has hedged against the possibility of a change in the price of gold
adversely affecting the value of its assets and prices move in a direction
opposite to that which was anticipated, the Fund will probably lose part or all
of the benefit of the increased value of the assets hedged because of offsetting
losses in its futures positions. In addition, in such a situation, if the Fund
has insufficient cash, it might have to sell assets to meet daily maintenance
margin requirements at a time when it would be disadvantageous to do so. These
sales of assets could, but will not necessarily, be at increased prices which
reflect the change in the value of gold.
THE PROPOSED TRANSACTION
Description of the Plan. As stated above, the Plan provides for the
transfer of all of the assets of the Fund to the Acquiring Fund in exchange for
that number of full and fractional shares of the corresponding class of the
Acquiring Fund having an aggregate net asset value equal to the aggregate net
asset value of the shareholder's shares held in the Fund as of the close of
regular trading on the New York Stock Exchange, Inc. on the date of the Closing.
The Acquiring Fund will assume all of the stated liabilities of the Fund. In
connection with the Closing, the Fund will distribute the shares of the
corresponding class of common stock of the Acquiring Fund received in the
exchange to the shareholders of the Fund in complete liquidation of the Fund.
The Fund will be terminated as a series of Sector Series.
Upon completion of the Reorganization, each shareholder of the Fund
will own that number of full and fractional shares of the corresponding class of
the Acquiring Fund having an aggregate net asset value equal to the aggregate
net asset value of such shareholder's shares held in the Fund as of the close of
trading on the Closing Date. Each Fund shareholder's account with the Acquiring
Fund will be substantially similar in all material respects to the accounts
currently maintained by the Fund's sub-transfer agent for such shareholder. Some
of the outstanding shares of the Fund are represented by physical certificates;
however, in the interest of economy and convenience, shares of the Fund
generally are not represented by physical certificates, and shares of the
Acquiring Fund issued to Fund shareholders similarly will be in uncertificated
form.
Until the Closing, shareholders of the Fund will, of course, continue
to be able to redeem their shares at the net asset value next determined after
receipt by the Fund's sub-transfer agent of a redemption request in proper form.
Redemption requests received by the sub-transfer agent thereafter will be
treated as requests received for the redemption of shares of the Acquiring Fund
received by the shareholder in connection with the Reorganization.
The obligations of Sector Series, on behalf of the Fund, and the
Acquiring Fund, under the Plan are subject to various conditions, as stated
therein. Among other things, the Plan requires that all filings be made with,
and all authority be received from, the SEC and state securities commissions as
may be necessary in the opinion of counsel to permit the parties to carry out
the transactions contemplated by the Plan. The Fund and the Acquiring Fund are
in the process of making the necessary filings. To provide against unforeseen
events, the Plan may be terminated or amended at any time prior to the Closing
(in accordance with the Plan), notwithstanding the approval of the Plan by the
shareholders of the Fund. However, no amendment may be made that materially
adversely affects the interests of the shareholders of the Fund without
obtaining the approval of the Fund's shareholders. The Fund and the Acquiring
24
<PAGE>
Fund may at any time waive compliance with certain of the covenants and
conditions contained in the Plan. For a complete description of the terms and
conditions of the Reorganization, see the Plan at Exhibit A.
SSB Citi will assume and pay all of the expenses that are solely and
directly related to the Reorganization which expenses are estimated to be
approximately $[INSERT]. Shareholders have no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
Prior to a telephonic meeting of Sector Series' Board of Directors held
on September 12, 2000, the Directors of the Fund, including a majority of the
Non-Interested Directors, were presented with materials discussing the benefits
which would accrue to the shareholders of the Fund if the Fund were to
reorganize with and into the Acquiring Fund. These materials, and other matters
of concern to the Directors, were discussed at the telephonic meeting held on
September 12, 2000, at which time the Directors were assisted by independent
counsel. For the reasons discussed below, the Board of Directors of Sector
Series, including a majority of the Non-Interested Directors, has determined
that the proposed Reorganization is in the best interests of the Fund and its
shareholders and that the interests of the shareholders of the Fund will not be
diluted as a result of the proposed Reorganization.
The proposed combination of the Fund and the Acquiring Fund will allow
the shareholders of the Fund to continue to participate in a portfolio that is
professionally managed by the same portfolio manager, but will provide them with
an opportunity to participate in a Fund with a broader investment mandate and
with lower total annual operating expenses. The Directors of the Fund believe
that shareholders of the Fund will benefit from the proposed Reorganization
because the Acquiring Fund offers the following benefits:
Enhanced Flexibility with Respect to Portfolio Investments. As stated
previously, the Reorganization is being proposed in an effort to provide
shareholders of the Fund with exposure to a broader investment mandate than
currently available to the Fund, while also providing shareholders of the Fund
the benefit of a lower expense ratio. As discussed in detail herein, the total
operating expenses of the Acquiring Fund are also currently (and are projected
to be following the Closing of the Reorganization) lower than the corresponding
fees and expenses incurred by the Fund.
While past performance is not necessarily indicative of future results,
the Acquiring Fund has generally produced better total returns than the Fund
over the 5 and 10 year and since inception periods ended December 31, 1999.
Lower Fees and Expenses. If the proposed transaction is approved,
shareholders of the Fund will benefit from lower total fund expenses. Please
refer to "Investment Management Fees and Expenses" and "Annual Fund Operating
Expenses" set forth above.
As set forth above, as of their most recent fiscal year end, each class
of shares of the Fund has higher gross operating expenses than the corresponding
class of the Acquiring Fund. As a result of the Reorganization, shareholders of
the Fund will be investing in the corresponding class of the Acquiring Fund with
expenses that are currently between 0.44% and 0.71% lower
25
<PAGE>
than those of the relevant class of the Fund. If the Reorganization is approved
by shareholders of the Fund, the Acquiring Fund's net expense ratio for each
class of its shares is estimated to remain unchanged for the year ending
September 30, 2001.
Going forward, shareholders should benefit from economies of scale
through lower expense ratios and higher net income distributions over time since
some of the fixed expense currently paid by the Acquiring Fund, such as
accounting, legal and printing costs, would also be spread over a larger asset
base.
Due to a combination of factors, including the relatively small size of
the Fund, past and prospective sales of shares of the Fund and current market
conditions, the Directors and management of Sector Series believe the Fund and
its shareholders would benefit from a tax-free reorganization with a larger fund
with a broader investment mandate and with a lower total annual expense ratio.
Accordingly, it is recommended that the shareholders of the Fund approve the
Reorganization with the Acquiring Fund.
The Board of Directors of Sector Series, in recommending the proposed
transaction, considered a number of factors, including the following:
(1) the lower total annual expense ratio of the Acquiring Fund;
(2) the Funds have substantially similar investment objectives and
the portfolio manager has managed the Fund with a broader
focus than traditional sector funds which is reflected in the
similarities of the current holdings of the Funds; the
Reorganization will afford shareholders of the Fund with an
opportunity to invest in a fund with a broader investment
mandate;
(3) the tax-free nature of the Reorganization;
(4) the terms and conditions of the Reorganization and that it
should not result in a dilution of Fund shareholder interests;
(5) the level of costs and expenses to the Fund of the proposed
Reorganization; and
(6) a larger asset base could provide portfolio management
benefits, such as greater diversification and the ability to
command more attention from brokers and underwriters.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
Sector Series was incorporated under the laws of the State of Maryland
on July 16, 1986 under the name Shearson Precious Metals and Minerals Fund Inc.,
which was changed to Shearson Lehman Precious Metals and Minerals Fund Inc. on
October 30, 1986. Since that time, as its sponsor has changed, the Fund's name
has been changed to Smith Barney Precious Metals and Minerals Fund Inc. and
Smith Barney Natural Resources Fund Inc. On November 29, 1999, the Board of
Directors voted to amend the Fund's Charter to change its name to Smith Barney
Sector Series Inc., with Smith Barney Natural Resources Fund, Smith Barney
Financial Services Fund, Smith Barney Health Sciences Fund and Smith Barney
Technology Fund each classified
26
<PAGE>
as a separate series of Sector Series. Smith Barney Global Biotechnology Fund,
Smith Barney Global Technology Fund and Smith Barney Global Media and
Telecommunications Fund are also separate series of Sector Series. Sector Series
is registered with the SEC as a diversified, open-end management investment
company. The Acquiring Fund was originally incorporated under the laws of the
State of Washington on March 17, 1981, and is registered with the SEC as a
diversified, open-end management investment company. On January 27, 1995,
shareholders approved the reincorporation of the Acquiring Fund as a Maryland
corporation, which subsequently occurred on May 24, 1995.
Each Fund currently offers shares of common stock classified into four
Classes, A, B, L and Y. Each Class of shares represents an identical pro rata
interest in the relevant Fund's investment portfolio. As a result, the Classes
of each Fund have the same rights, privileges and preferences, except with
respect to: (a) the designation of each Class; (b) the effect of the respective
sales charges, if any, for each Class; (c) the distribution and/or service fees
borne by each Class; (d) the expenses allocable exclusively to each Class; (e)
voting rights on matters exclusively affecting a single Class; (f) the exchange
privilege of each Class; and (g) the conversion feature of the Class B Shares.
Each share of each class of a Fund represents an interest in that class
of the Fund that is equal to and proportionate with each other share of that
class of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote. Neither Fund is required to hold shareholder
meetings annually, although shareholder meetings may be called for purposes such
as electing or removing Directors, changing fundamental policies or approving an
investment management contract. Special meetings of shareholders of the
Acquiring Fund will be called at the request in writing of shareholders entitled
to cast at least 10% of the votes entitled to be cast at the meeting. Unless
requested by shareholders entitled to cast a majority of all the votes entitled
to be cast at the meeting, a special meeting of shareholders of the Acquiring
Fund need not be called to consider any matter which is substantially the same
as a matter voted on at any special meeting of shareholders of the Acquiring
Fund held during the preceding 12 months. Special meetings of shareholders of
Sector Series for the purpose of removing a Director will be called at the
request in writing of shareholders entitled to cast at least 10% of the votes
entitled to be cast at the meeting, and for all other purposes at the request in
writing of shareholders entitled to cast at least 25% of the votes entitled to
be cast at the meeting.
Shares of the Acquiring Fund issued to the shareholders of the Fund
pursuant to the Reorganization will be fully paid and nonassessable when issued,
transferable without restrictions and will have no preemptive rights.
The foregoing is only a summary of certain characteristics of the
operations of Sector Series and the Acquiring Fund. The foregoing is not a
complete description of the documents cited. Shareholders should refer to the
provisions of charter documents and state law governing each Fund for a more
thorough description.
27
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by Sector Series, on
behalf of the Fund, and the Acquiring Fund of an opinion from Willkie Farr &
Gallagher, substantially to the effect that, based upon certain facts,
assumptions and representations of the parties, for federal income tax purposes:
(i) the transfer to the Acquiring Fund of all of the assets of the Fund in
exchange solely for shares and the assumption by the Acquiring Fund of all of
the stated liabilities of the Fund, followed by the distribution of such shares
to Fund shareholders in exchange for their shares of the Fund in complete
liquidation of the Fund, will constitute a "reorganization" within the meaning
of Section 368(a)(1) of the Code, and the Acquiring Fund and the Fund will each
be "a party to a reorganization" within the meaning of Section 368(b) of the
Code; (ii) no gain or loss will be recognized by the Fund upon the transfer of
the Fund's assets to the Acquiring Fund in exchange for the Acquiring Fund
shares and the assumption by the Acquiring Fund of all of the stated liabilities
of the Fund or upon the distribution (whether actual or constructive) of the
Acquiring Fund shares to the Fund's shareholders in exchange for their shares of
the Fund; (iii) the basis of the assets of the Fund in the hands of the
Acquiring Fund will be the same as the basis of such assets of the Fund
immediately prior to the transfer; (iv) the holding period of the assets of the
Fund in the hands of the Acquiring Fund will include the period during which
such assets were held by the Fund; (v) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Fund in exchange for shares
and the assumption by the Acquiring Fund of all of the stated liabilities of the
Fund; (vi) no gain or loss will be recognized by the shareholders of the Fund
upon the receipt of shares solely in exchange for their shares of the Fund as
part of the transaction; (vii) the basis of shares received by the shareholders
of the Fund will be the same as the basis of the shares of the Fund exchanged
therefor; and (viii) the holding period of shares received by the shareholders
of the Fund will include the holding period during which the shares of the Fund
exchanged therefor were held, provided that at the time of the exchange the
shares of the Fund were held as capital assets in the hands of the shareholders
of the Fund.
While neither Sector Series nor the Acquiring Fund is aware of any
adverse state or local tax consequences of the proposed Reorganization, they
have not requested any ruling or opinion with respect to such consequences and
shareholders may wish to consult their own tax adviser with respect to such
matters.
LIQUIDATION AND TERMINATION OF SERIES
If the Reorganization is effected, the Fund will be liquidated and
terminated as a series of Sector Series, and the Fund's outstanding shares will
be cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, SSB Citi will analyze and evaluate
the portfolio securities of the Fund being transferred to the Acquiring Fund.
Consistent with the Acquiring Fund's investment objective and policies, any
restrictions imposed by the Code and the best interests of the Acquiring Fund's
shareholders (including former shareholders of the Fund), SSB Citi will
determine the extent and duration to which the Fund's portfolio securities will
be maintained by the Acquiring Fund. Subject to market conditions at the time of
any such
28
<PAGE>
rebalancing, the disposition of the Fund's portfolio securities may result in a
capital gain or loss. The actual tax consequences of any disposition of
portfolio securities will vary depending upon the specific security(ies) being
sold.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund (i.e., the ratio of
the lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less)), for the year ended
September 30, 1999 was 43%. The portfolio turnover rate for the Fund for the
year ended October 31, 1999 was 133%.
CAPITALIZATION AND PERFORMANCE
Pro Forma Capitalization (Unaudited). The following table sets forth
the unaudited capitalization of each class of each of the Acquiring Fund and the
Fund as of June 30, 2000 as adjusted giving effect to the Reorganization
discussed herein:1
<TABLE>
<CAPTION>
Smith Barney
Smith Barney Fundamental Pro Forma
Natural Resources Value after
Fund Fund Reorganization
----------------- --------------- ---------------
(In thousands, except per share values)
(Unaudited)
Class A
<S> <C> <C> <C>
Net Assets $ 18,404 $ 950,667 $ 969,071
Net asset value per share $ 18.81 $ 15.17 $ 15.17
Shares outstanding 978 62,649 63,862
Class B
Net Assets $ 17,737 $ 1,202,831 $ 1,220,568
Net asset value per share $ 18.03 $ 14.88 $ 14.88
Shares outstanding 984 80,834 82,026
Class L
Net Assets $ 2,834 $ 186,089 $ 188,923
Net asset value per share $ 18.08 $ 14.87 $ 14.87
Shares outstanding 157 12,512 12,703
Class Y
Net Assets $ - $ 80,204 $ 80,204
Net asset value per share $ - $ 15.26 $ 15.26
Shares outstanding - 5,256 5,256
------------------
</TABLE>
1 Assumes the Reorganization had been consummated on June 30, 2000, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by shareholders of the Fund
on the
29
<PAGE>
date the Reorganization takes place, and the foregoing should not be relied
upon to reflect the number of shares of the Acquiring Fund that actually
will be received on or after such date.
Total return is a measure of the change in value of an investment in a
fund over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the fund rather than
paid to the investor in cash. The formula for total return used by a fund is
prescribed by the SEC and includes three steps: (1) adding to the total number
of shares of the fund that would be purchased by a hypothetical $1,000
investment in the fund all additional shares that would have been purchased if
all dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the redeemable value of the
hypothetical initial investment as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset value per
share on the last trading day of the period; and (3) dividing this account value
for the hypothetical investor by the amount of the initial investment, and
annualizing the result for periods of less than one year. Total return may be
stated with or without giving effect to any expense limitations in effect for a
fund.
The following table reflects the average annual total returns of Class
A Shares for the 1, 3, 5 and 10 year (or since inception) periods, as
applicable, ending December 31, 1999 for each of the Fund and the Acquiring
Fund:
30
<PAGE>
<TABLE>
<CAPTION>
THE FUND THE ACQUIRING FUND
Average Annual Total Return:/1/
<S> <C> <C>
1-year..................................... 29.13% 24.29%
5-year..................................... 1.10% 20.49%
10-year.................................... 1.54% 15.62%
Since Inception............................ 2.85% 14.80%
Inception Date............................. 11/24/86 11/12/81
</TABLE>
------------------
/1/ The average annual total returns for other classes of each Fund's shares
would be similar to the returns of the Class A Shares of the relevant Fund,
but would differ to the extent that the other class of shares had a higher
or lower total annual expense ratio during the relevant periods.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about Sector Series with respect
to the Fund, the Acquiring Fund, and the Reorganization has been filed with the
SEC and may be obtained without charge by writing to Smith Barney Mutual Funds,
388 Greenwich Street, New York, New York 10013, or by calling (800) 451-2010.
Each Fund is subject to the informational requirements of the
Securities Exchange Act of 1934 and the 1940 Act, and in accordance therewith,
files reports, proxy material and other information about the applicable Fund
with the Commission.
Such reports, proxy material and other information can be inspected and
copied at the Public Reference Room maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549. Copies of such material can also be
obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates or without charge from the Commission
at [email protected]. Copies of such material can also be obtained from Smith
Barney Mutual Funds, 388 Greenwich Street, New York, New York 10013, or by
calling (800) 451-2010.
INTERESTS OF CERTAIN PERSONS
SSB Citi and certain of the Acquiring Fund's service providers have a
financial interest in the Reorganization, arising from the fact that their
respective fees under their respective agreements with the Acquiring Fund will
increase as the amount of the Acquiring Fund's assets increases; the amount of
those assets will increase by virtue of the Reorganization.
31
<PAGE>
THE BOARD MEMBERS OF SECTOR SERIES RECOMMEND THAT THE SHAREHOLDERS OF THE FUND
VOTE IN FAVOR OF THIS PROPOSAL.
ADDITIONAL INFORMATION
General. The cost of preparing, printing and mailing the enclosed proxy
card(s) and Prospectus/Proxy Statement and all other costs incurred in
connection with the solicitation of proxies, including any additional
solicitation made by letter, telephone or telegraph, will be paid by SSB Citi.
In addition to solicitation by mail, certain officers and representatives of
Sector Series, officers and employees of SSB Citi and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telegram or personally.
When the Fund records proxies by telephone, it will use procedures
designed to (i) authenticate shareholders' identities, (ii) allow shareholders
to authorize the voting of their shares in accordance with their instructions
and (iii) confirm that their instructions have been properly recorded.
To participate in the Special Meeting, the shareholder may submit the
proxy card originally sent with the Prospectus/Proxy Statement or attend in
person. Any proxy given by a shareholder is revocable until voted at the Special
Meeting.
Proposals of Shareholders. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a shareholder meeting subsequent to the
Special Meeting, if any, should send their written proposals to the Secretary of
Sector Series, c/o Smith Barney Mutual Funds, 388 Greenwich Street, New York,
New York 10013, within a reasonable time before the solicitation of proxies for
such meeting. The timely submission of a proposal does not guarantee its
inclusion.
Other Matters to Come Before the Special Meeting. No Board member is
aware of any matters that will be presented for action at the Special Meeting
other than the matters set forth herein. Should any other matters requiring a
vote of shareholders arise, the proxy in the accompanying form will confer upon
the person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of Sector Series and/or the
Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Directors,
/s/ Christina T. Sydor
Christina T. Sydor
Secretary
32
<PAGE>
INDEX OF EXHIBITS
Exhibit A: Form of Agreement and Plan of Reorganization
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as
of this ____ day of _________, 2000, between Smith Barney Sector Series Inc.
("Sector Series"), a Maryland corporation with its principal place of business
at 388 Greenwich Street, New York, New York 10013, on behalf of its series,
Smith Barney Natural Resources Fund (the "Acquired Fund"), and Smith Barney
Fundamental Value Fund Inc. (the "Acquiring Fund"), a Maryland corporation with
its principal place of business at 388 Greenwich Street, New York, New York
10013, and solely for purposes of Section 10.2 hereof, SSB Citi Fund Management
LLC ("SSB Citi").
This Agreement is intended to be and is adopted as a plan of
reorganization and liquidation within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all of the assets of the
Acquired Fund to the Acquiring Fund in exchange solely for voting shares of the
corresponding class of common stock($.001 par value per share) of the Acquiring
Fund (the "Acquiring Fund Shares"), the assumption by the Acquiring Fund of all
of the stated liabilities of the Acquired Fund and the distribution of the
Acquiring Fund Shares to the shareholders of the Acquired Fund in complete
liquidation of the Acquired Fund as provided herein, all upon the terms and
conditions hereinafter set forth in this Agreement.
All representations, warranties, agreements or covenants made or
undertaken by the Acquired Fund in this Agreement are actually made or
undertaken by Sector Series on behalf of the Acquired Fund.
NOW, THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND STATED
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all of the Acquired Fund's assets as set forth
in section 1.2, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund that number of full and fractional Acquiring Fund
Shares determined by dividing the value of the Acquired Fund's assets, computed
in the manner and as of the time and date set forth in section 2.1, by the net
asset value of one Acquiring Fund Share, computed in the manner and as of the
time and date set forth in section 2.2; and (ii) to assume all of the stated
liabilities of the Acquired Fund, as set forth in section 1.3. Such transactions
shall take place at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash
<PAGE>
equivalents, securities, commodities and futures interests and dividends or
interest or other receivables that are owned by the Acquired Fund and any
deferred or prepaid expenses shown on the unaudited statement of assets and
liabilities of the Acquired Fund prepared as of the effective time of the
closing (the "Effective Time Statement"), prepared in accordance with generally
accepted accounting principles ("GAAP") applied consistently with those of the
Acquired Fund's most recent audited balance sheet.
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date as defined in
section 3.1, other than those liabilities and obligations which would otherwise
be discharged at a later date in the ordinary course of business.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of assets provided for in section 1.1
(the "Liquidation Time"), Sector Series will distribute to the Acquired Fund's
shareholders of record (the "Acquired Fund Shareholders"), determined as of the
Valuation Time (as defined herein), on a pro rata basis, the Acquiring Fund
Shares received by the Acquired Fund pursuant to section 1.1 and will completely
liquidate. Such distribution and liquidation will be accomplished by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Acquiring Fund Shares to be so credited to
Acquired Fund Shareholders shall be equal to the aggregate net asset value of
each class of the Acquired Fund shares owned by such shareholders as of the
Valuation Time (as defined herein). All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of the Acquired
Fund, although share certificates representing interests in shares of the
Acquired Fund will represent a number of Acquiring Fund Shares after the Closing
Date as determined in accordance with section 2.3. The Acquiring Fund will not
issue certificates representing Acquiring Fund Shares in connection with such
exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund. Shares of the Acquiring Fund will be issued in the manner
described in the Acquiring Fund's then-current prospectus and statement of
additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and
A-2
<PAGE>
after the Closing Date and shall be turned over to the Acquiring Fund as soon as
practicable following the closing date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. ("NYSE") on the Closing Date, as
defined in Section 3.1 (such time and date also being hereinafter called the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
the Acquiring Fund's Articles of Incorporation, as amended, and then-current
prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share of each class computed as of the Valuation Time using the
valuation procedures referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of each class of the
Acquired Fund determined in accordance with section 2.1 by the net asset value
by class of an Acquiring Fund Share determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall
be December __, 2000, or such later date as the parties may agree in writing
(the "Closing Date"). All acts taking place at the Closing shall be deemed to
take place simultaneously as of 4:00 P.M., Eastern time, on the Closing Date,
unless otherwise agreed to by the parties. The Closing shall be held at the
offices of SSB Citi or at such other place and time as the parties may agree.
3.2. The Acquired Fund shall deliver to Acquiring Fund on the Closing Date
a schedule of assets.
3.3. The Chase Manhattan Bank, N.A., as custodian for the Acquired Fund,
shall deliver at the Closing a certificate of an authorized officer stating that
(a) the Assets shall have been delivered in proper form to The Chase Manhattan
Bank, N.A., custodian for the Acquiring Fund, prior to or on the Closing Date
and (b) all necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Acquired Fund's portfolio
securities represented by a certificate or other written instrument shall be
presented by Custodian for Acquired Fund to Custodian for Acquiring Fund for
examination no later than five business days preceding the Closing Date and
transferred and delivered by the Acquired Fund as of the Closing Date by the
Acquired Fund for the account of Acquiring Fund duly endorsed in proper form for
A-3
<PAGE>
transfer in such condition as to constitute good delivery thereof. The Acquired
Fund's portfolio securities and instruments deposited with a securities
depository, as defined in Rule 17f-4 under the 1940 Act, shall be delivered as
of the Closing Date by book entry in accordance with the customary practices of
such depositories and Custodian for Acquiring Fund. The cash to be transferred
by the Acquired Fund shall be delivered by wire transfer of federal funds on the
Closing Date.
3.4. Citi Fiduciary Trust Company (the "Transfer Agent"), on behalf of the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the Acquired
Fund Shareholders and the number and percentage ownership (to three decimal
places) of outstanding Acquired Fund Shares owned by each such shareholder
immediately prior to the Closing. The Acquiring Fund shall issue and deliver a
confirmation evidencing the Acquiring Fund Shares to be credited on the Closing
Date to the Acquired Fund or provide evidence satisfactory to the Acquired Fund
that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request to effect the transactions contemplated by this
Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board of Directors
of either Fund, accurate appraisal of the value of the net assets with respect
to the Acquiring Fund Shares or the Acquired Fund Shares is impracticable, the
Closing Date shall be postponed until the first business day after the day when
trading shall have been fully resumed and reporting shall have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. Sector Series, on behalf of the Acquired Fund, represents and warrants
to the Acquiring Fund as follows:
(a) Sector Series is a corporation duly organized and validly existing
under the laws of the State of Maryland with power under Sector Series'
Articles of Incorporation, as amended, to own all of its properties and
assets and to carry on its business as it is now being conducted;
(b) Sector Series is registered with the Commission as an open-end
management investment company under the 1940 Act and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and such
as may be required by state securities laws;
A-4
<PAGE>
(d) Other than with respect to contracts entered into in connection
with the portfolio management of the Acquired Fund which shall terminate on
or prior to the Closing Date, Sector Series is not, and the execution,
delivery and performance of this Agreement by Sector Series will not
result, in violation of Maryland law or of Sector Series' Articles of
Incorporation, as amended, or By-Laws, or of any material agreement,
indenture, instrument, contract, lease or other undertaking known to
counsel to which the Acquired Fund is a party or by which it is bound, and
the execution, delivery and performance of this Agreement by the Acquired
Fund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquired Fund is a party
or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquired Fund or any
properties or assets held by it. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquired Fund at and for the year ended October 31, 1999,
has been audited by KPMG LLP, independent certified public accountants, and
are in accordance with GAAP consistently applied, and such statements
(copies of which have been furnished to the Acquiring Fund) present fairly,
in all material respects, the financial position, results of operations,
changes in net assets and financial highlights of the Acquired Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Fund required to be reflected on a statement of
assets and liabilities (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(g) Since October 31, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by the Acquiring Fund. For purposes of
this subsection (g), a decline in net asset value per share of the Acquired
Fund due to declines in market values of securities in the Acquired Fund's
portfolio, the discharge of Acquired Fund liabilities, or the redemption of
Acquired Fund shares by Acquired Fund Shareholders shall not constitute a
material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
A-5
<PAGE>
payment thereof, and, to the best of the Acquired Fund's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns;
(i) For each taxable year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will have distributed all of its investment company
taxable income and net capital gain (as defined in the Code) that has
accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws, (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable, and (iii) will be held at the time of the Closing
by the persons and in the amounts set forth in the records of the Transfer
Agent, as provided in section 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to section 1.2 and full right, power, and authority
to sell, assign, transfer and deliver such assets hereunder free of any
liens or other encumbrances, except those liens or encumbrances as to which
the Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and the 1940 Act, except those restrictions as to which the Acquiring
Fund has received notice and necessary documentation at or prior to the
Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Directors of Sector Series, and, subject to the approval
of the Acquired Fund Shareholders, this Agreement constitutes a valid and
binding obligation of Sector Series, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by the Acquired Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto; and
A-6
<PAGE>
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by the Acquiring Fund for use therein.
4.2. The Acquiring Fund represents and warrants to Sector Series, on behalf
of the Acquired Fund, as follows:
(a) The Acquiring Fund is a corporation duly organized and validly
existing under the laws of the State of Maryland with power under its
Articles of Incorporation, as amended, to own all of its properties and
assets and to carry on its business as it is now being conducted;
(b) The Acquiring Fund is registered with the Commission as an
open-end management investment company under the 1940 Act, and such
registration is in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement by the Acquiring Fund will not result, in
violation of Maryland law or of the Acquiring Fund's Articles of
Incorporation, as amended, or By-Laws, or of any material agreement,
indenture, instrument, contract, lease or other undertaking known to
counsel to which the Acquiring Fund is a party or by which it is bound, and
the execution, delivery and performance of this Agreement by the Acquiring
Fund will not result in the acceleration of any obligation, or the
imposition of any penalty, under any agreement, indenture, instrument,
contract, lease, judgment or decree to which the Acquiring Fund is a party
or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge
A-7
<PAGE>
threatened against the Acquiring Fund or any properties or assets held by
it. The Acquiring Fund knows of no facts which might form the basis for the
institution of such proceedings which would materially and adversely affect
its business and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which
materially and adversely affects its business or its ability to consummate
the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquiring Fund at and for the year ended September 30,
1999 has been audited by Deloitte & Touche LLP, independent certified
public accountants, and are in accordance with GAAP consistently applied,
and such statements (copies of which have been furnished to the Acquired
Fund) present fairly, in all material respects, the financial position,
results of operations, changes in net assets and financial highlights of
the Acquiring Fund as of such date in accordance with GAAP, and there are
no known contingent liabilities of the Acquiring Fund required to be
reflected on a statement of assets and liabilities (including the notes
thereto) in accordance with GAAP as of such date not disclosed therein;
(g) Since September 30, 1999, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by Sector Series on behalf of the
Acquired Fund. For purposes of this subsection (g), a decline in net asset
value per share of the Acquiring Fund due to declines in market values of
securities in the Acquiring Fund's portfolio, the discharge of Acquiring
Fund liabilities, or the redemption of Acquiring Fund shares by Acquiring
Fund shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's knowledge, no
such return is currently under audit and no assessment has been asserted
with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities
A-8
<PAGE>
laws and (ii) are, and on the Closing Date will be, duly and validly issued
and outstanding, fully paid and non-assessable. The Acquiring Fund does not
have outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquiring Fund shares, nor is there outstanding any
security convertible into any of the Acquiring Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant
to the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued and outstanding Acquiring Fund Shares, and will be fully paid and
non-assessable;
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Directors of the Acquiring Fund and this Agreement will
constitute a valid and binding obligation of the Acquiring Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(n) The information to be furnished by the Acquiring Fund for use in
applications for orders, registration statements or proxy materials or for
use in any other document filed or to be filed with any federal, state or
local regulatory authority (including the National Association of
Securities Dealers, Inc.), which may be necessary in connection with the
transactions contemplated hereby, shall be accurate and complete in all
material respects and shall comply in all material respects with federal
securities and other laws and regulations applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in this section shall not apply to statements in or omissions
from the Proxy Statement and
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<PAGE>
the Registration Statement made in reliance upon and in conformity with
information that was furnished or should have been furnished by the
Acquired Fund for use therein; and
(q) The Acquiring Fund agrees to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act, the 1940 Act and
such of the state securities laws as may be necessary in order to continue
its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. The Acquiring Fund and Sector Series, on behalf of the Acquired Fund,
each covenants to operate its business in the ordinary course between the date
hereof and the Closing Date, it being understood that (a) such ordinary course
of business will include (i) the declaration and payment of customary dividends
and other distributions and (ii) such changes as are contemplated by the Funds'
normal operations; and (b) each Fund shall retain exclusive control of the
composition of its portfolio until the Closing Date.
5.2. Upon reasonable notice, the Acquiring Fund's officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. Sector Series, on behalf of the Acquired Fund, covenants to call a
meeting of the Acquired Fund Shareholders entitled to vote thereon to consider
and act upon this Agreement and to take all other reasonable action necessary to
obtain approval of the transactions contemplated herein. Such meeting shall be
scheduled for no later than _______________, 2000 (or such other date as the
Acquired Fund and the Acquiring Fund may agree to in writing).
5.4. Sector Series, on behalf of the Acquired Fund, covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.5. Sector Series, on behalf of the Acquired Fund, covenants that it will
assist the Acquiring Fund in obtaining such information as the Acquiring Fund
reasonably requests concerning the beneficial ownership of the Acquired Fund
Shares and will provide the Acquiring Fund with a list of affiliates of the
Acquired Fund.
5.6. Subject to the provisions of this Agreement, the Acquiring Fund and
Sector Series, on behalf of the Acquired Fund, will each take, or cause to be
taken, all actions, and do or cause to be done, all things reasonably necessary,
proper, and/or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.7. Each Fund covenants to prepare the Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. The Acquiring Fund will file the Registration Statement,
including the Proxy Statement, with the Commission. The Acquired Fund will
provide the Acquiring Fund with information reasonably necessary for the
preparation
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of a prospectus, which will include the Proxy Statement referred to in section
4.1(o), all to be included in the Registration Statement, in compliance in all
material respects with the 1933 Act, the 1934 Act and the 1940 Act.
5.8. Sector Series, on behalf of the Acquired Fund, covenants that it will,
from time to time, as and when reasonably requested by the Acquiring Fund,
execute and deliver or cause to be executed and delivered all such assignments
and other instruments, and will take or cause to be taken such further action as
the Acquiring Fund may reasonably deem necessary or desirable in order to vest
in and confirm the Acquiring Fund's title to and possession of all the assets
and otherwise to carry out the intent and purpose of this Agreement.
5.9. The Acquiring Fund covenants to use all reasonable efforts to obtain
the approvals and authorizations required by the 1933 Act and 1940 Act, and such
of the state securities laws as it deems appropriate in order to continue its
operations after the Closing Date and to consummate the transactions
contemplated herein; provided, however, that the Acquiring Fund may take such
actions it reasonably deems advisable after the Closing Date as circumstances
change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by the Acquired Fund, execute and deliver or cause to
be executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as the Acquired Fund may reasonably deem necessary or desirable in order to (i)
vest and confirm to the Acquired Fund title to and possession of all Acquiring
Fund shares to be transferred to Acquired Fund pursuant to this Agreement and
(ii) assume the assumed liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. Sector Series, on behalf of the Acquired Fund, and the Acquiring Fund
shall each use its reasonable best efforts to fulfill or obtain the fulfillment
of the conditions precedent to effect the transactions contemplated by this
Agreement as promptly as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of the Acquired Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquiring Fund of all the obligations to be performed by it hereunder on or
before the Closing Date, and, in addition thereto, the following further
conditions:
6.1. All representations and warranties of the Acquiring Fund, contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date; and there shall be (i) no pending or
threatened litigation brought by any person (other than Acquired Fund, its
adviser or any of their affiliates) against the Acquiring Fund, the Acquired
Fund or their
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<PAGE>
advisers, trustees or officers arising out of this Agreement and (ii) no facts
known to the Acquired Fund which the Acquired Fund reasonably believes might
result in such litigation.
6.2. The Acquiring Fund shall have delivered to the Acquired Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquired Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
the Acquiring Fund made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request;
6.3. The Acquired Fund shall have received on the Closing Date an opinion
of Willkie Farr & Gallagher, in a form reasonably satisfactory to the Acquired
Fund, and dated as of the Closing Date, to the effect that:
(a) The Acquiring Fund has been duly formed and is a validly existing
Maryland corporation;
(b) The Acquiring Fund has the corporate power to carry on its
business as presently conducted in accordance with the description thereof
in the Acquiring Fund's registration statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
the Acquiring Fund, and constitutes a valid and legally binding obligation
of the Acquiring Fund, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
laws of general applicability relating to or affecting creditors' rights
and to general equity principles;
(d) the execution and delivery of the Agreement did not, and the
exchange of the Acquired Fund's assets for Acquiring Fund Shares pursuant
to the Agreement will not, violate the Acquiring Fund's Articles of
Incorporation, as amended, or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquiring Fund under the Federal laws of the United States or the laws of
the State of Maryland for the exchange of the Acquired Fund's assets for
Acquiring Fund Shares pursuant to the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of the Acquired Fund,
its Directors and its officers. Such counsel may rely as to matters governed by
the laws of the State of Maryland on an opinion of Maryland counsel and/or
certificates of officers or Directors of the Acquiring Fund. Such opinion also
shall include such other matters incident to the transaction contemplated hereby
as the Acquired Fund may reasonably request.
6.4. The Acquiring Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquiring Fund on or before the Closing Date.
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<PAGE>
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of the Acquiring Fund to consummate the transactions
provided for herein shall be subject, at its election, to the performance by the
Acquired Fund of all of the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following further
conditions:
7.1. All representations and warranties of Sector Series, with respect to
the Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund, the Acquiring Fund or their advisers, trustees or officers
arising out of this Agreement and (ii) no facts known to the Acquiring Fund
which the Acquiring Fund reasonably believes might result in such litigation.
7.2. Sector Series shall have delivered to the Acquiring Fund a statement
of the Acquired Fund's assets and liabilities as of the Closing Date, certified
by the Treasurer of Sector Series;
7.3. Sector Series shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or a Vice
President, in a form reasonably satisfactory to the Acquiring Fund and dated as
of the Closing Date, to the effect that the representations and warranties of
Sector Series with respect to the Acquired Fund made in this Agreement are true
and correct on and as of the Closing Date, except as they may be affected by the
transactions contemplated by this Agreement, and as to such other matters as the
Acquiring Fund shall reasonably request;
7.4. The Acquiring Fund shall have received on the Closing Date an opinion
of Willkie Farr & Gallagher, in a form reasonably satisfactory to the Acquiring
Fund, and dated as of the Closing Date, to the effect that:
(a) Sector Series has been duly formed and is a validly existing
Maryland corporation;
(b) Sector Series, with respect to the Acquired Fund, has the
corporate power to carry on its business as presently conducted in
accordance with the description thereof in Sector Series' registration
statement under the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Sector Series, on behalf of the Acquired Fund, and constitutes a valid and
legally binding obligation of Sector Series, on behalf of the Acquired
Fund, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and laws of
general applicability relating to or affecting creditors' rights and to
general equity principles;
A-13
<PAGE>
(d) the execution and delivery of the Agreement did not, and the
exchange of the Acquired Fund's assets for Acquiring Fund Shares pursuant
to the Agreement will not, violate Sector Series' Articles of
Incorporation, as amended, or By-laws; and
(e) to the knowledge of such counsel, all regulatory consents,
authorizations, approvals or filings required to be obtained or made by the
Acquired Fund under the Federal laws of the United States or the laws of
the State of Maryland for the exchange of the Acquired Fund's assets for
Acquiring Fund Shares pursuant to the Agreement have been obtained or made.
Such opinion may state that it is solely for the benefit of the Acquiring Fund,
its Directors and its officers. Such counsel may rely as to matters governed by
the laws of the State of Maryland on an opinion of Maryland counsel and/or
certificates of officers or Directors of the Acquired Fund. Such opinion also
shall include such other matters incident to the transaction contemplated
hereby, as the Acquiring Fund may reasonably request.
7.5. The Acquired Fund shall have performed all of the covenants and
complied with all of the provisions required by this Agreement to be performed
or complied with by the Acquired Fund on or before the Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
the Acquired Fund in accordance with the provisions of Sector Series' Articles
of Incorporation, as amended, and By-Laws, applicable Maryland law and the 1940
Act, and certified copies of the resolutions evidencing such approval shall have
been delivered to the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
conditions set forth in this section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
the Acquiring Fund or the Acquired Fund to permit consummation, in all material
respects, of the transactions contemplated hereby shall have been obtained,
except where failure to obtain any such consent, order or permit would not
involve a risk of a material adverse effect on the assets or properties of the
Acquiring Fund or the Acquired Fund, provided that either party hereto may for
itself waive any of such conditions;
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<PAGE>
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to Sector Series, on behalf of the Acquired Fund, and the Acquiring
Fund substantially to the effect that, based upon certain facts, assumptions and
representations, for Federal income tax purposes: (i) the transfer to the
Acquiring Fund of all of the assets of the Acquired Fund in exchange solely for
Shares and the assumption by the Acquiring Fund of all of the stated liabilities
of the Acquired Fund, followed by the distribution of such Shares to Acquired
Fund shareholders in exchange for their shares of the Acquired Fund in complete
liquidation of the Acquired Fund, will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the
Acquired Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring
Fund in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of all of the stated liabilities of the Acquired Fund or upon the
distribution (whether actual or constructive) of the Acquiring Fund Shares to
the Acquired Fund's shareholders in exchange for their shares of the Acquired
Fund; (iii) the basis of the assets of the Acquired Fund in the hands of the
Acquiring Fund will be the same as the basis of such assets of the Acquired Fund
immediately prior to the transfer; (iv) the holding period of the assets of the
Acquired Fund in the hands of the Acquiring Fund will include the period during
which such assets were held by the Acquired Fund; (v) no gain or loss will be
recognized by the Acquiring Fund upon the receipt of the assets of the Acquired
Fund in exchange for Shares and the assumption by the Acquiring Fund of all of
the stated liabilities of the Acquired Fund; (vi) no gain or loss will be
recognized by the shareholders of the Acquired Fund upon the receipt of Shares
solely in exchange for their shares of the Acquired Fund as part of the
transaction; (vii) the basis of Shares received by the shareholders of the
Acquired Fund will be the same as the basis of the shares of the Acquired Fund
exchanged therefor; and (viii) the holding period of Shares received by the
shareholders of the Acquired Fund will include the holding period during which
the shares of the Acquired Fund exchanged therefor were held, provided that at
the time of the exchange the shares of the Acquired Fund were held as capital
assets in the hands of the shareholders of the Acquired Fund. The delivery of
such opinion is conditioned upon receipt by Willkie Farr & Gallagher of
representations it shall request of each of Sector Series, on behalf of the
Acquired Fund, and the Acquiring Fund. Notwithstanding anything herein to the
contrary, neither the Acquiring Fund nor the Acquired Fund may waive the
condition set forth in this section 8.5.
9. INDEMNIFICATION
9.1. The Acquiring Fund agrees to indemnify and hold harmless the Acquired
Fund and each of the Acquired Fund's directors and officers from and against any
and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally the Acquired Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim damage
liability or expense (or actions with respect thereto) arises out of or is based
on any breach by the
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<PAGE>
Acquiring Fund of any of its representations, warranties, covenants or
agreements set forth in this Agreement.
9.2. The Acquired Fund agrees to indemnify and hold harmless the Acquiring
Fund and each of the Acquiring Fund's directors and officers from and against
any and all losses, claims, damages, liabilities or expenses (including, without
limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally the Acquiring Fund or any of its
trustees or officers may become subject, insofar as any such loss, claim damage
liability or expense (or actions with respect thereto) arises out of or is based
on any breach by the Acquired Fund of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
10. FEES AND EXPENSES
10.1. The Acquiring Fund and Sector Series, on behalf of the Acquired Fund,
represents and warrants to the other that it has no obligations to pay any
brokers or finders fees in connection with the transactions provided for herein.
10.2. Expenses of the Reorganization that relate to the Acquiring Fund and
the Acquired Fund will be borne by SSB Citi. Any such expenses which are so
borne by SSB Citi will be solely and directly related to the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. Sector Series, on behalf of the Acquiring Fund, and the Acquired Fund
agree that neither party has made any representation, warranty or covenant not
set forth herein and that this Agreement constitutes the entire agreement
between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.
The covenants to be performed after the Closing and the obligations of each
of the Acquired Fund and Acquired Fund in Sections 9.1 and 9.2 shall survive the
Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned by either party by (i) mutual agreement of the parties, or (ii)
by either party if the Closing shall not have occurred on or before
____________, 2001, unless such date is extended by mutual agreement of the
parties, or (iii) by either party if the other party shall have materially
breached its obligations under this Agreement or made a material and intentional
misrepresentation herein or in connection herewith. In the event of any such
termination, this Agreement shall become void and there shall be no liability
hereunder on the part of any party or their respective directors or officers,
except for any such material breach or intentional misrepresentation, as to each
of which all remedies at law or in equity of the party adversely affected shall
survive.
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<PAGE>
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of Sector
Series and the Acquiring Fund; provided, however, that following the meeting of
the Acquired Fund Shareholders called by the Acquired Fund pursuant to section
5.3 of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of the Acquiring Fund Shares to be issued
to the Acquired Fund shareholders under this Agreement to the detriment of such
shareholders without their further approval.
14. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be deemed duly given
if delivered by hand (including by Federal Express or similar express courier)
or transmitted by facsimile or three days after being mailed by prepaid
registered or certified mail, return receipt requested, addressed to the
Acquired Fund, c/o Smith Barney Sector Series Inc., 388 Greenwich Street, New
York, New York 10013, with a copy to Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, N.Y. 10019-6099, Attn.: Burton M. Leibert, Esq., or to the
Acquiring Fund, 388 Greenwich Street, New York, New York 10013, with a copy to
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, N.Y. 10019-6099, Attn.:
Burton M. Leibert, Esq., or to any other address that the Acquired Fund or the
Acquiring Fund shall have last designated by notice to the other party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to its
principles of conflicts of laws.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its President or Vice President and its seal to be affixed
thereto and attested by its Secretary or Assistant Secretary.
Attest: SMITH BARNEY SECTOR SERIES INC.
on behalf of Smith Barney Natural Resources Fund
By: _____________________________________
Name:
Title:
Attest: SMITH BARNEY FUNDAMENTAL VALUE FUND INC.
By: _____________________________________
Name:
Title:
Attest: SSB CITI FUND MANAGEMENT LLC
By: _____________________________________
Name:
Title:
A-18
<PAGE>
THE PROSPECTUS, ANNUAL REPORT AND SEMI-ANNUAL REPORT OF THE ACQUIRING FUND DATED
JANUARY 28, 2000, SEPTEMBER 30, 1999 AND MARCH 31, 2000, RESPECTIVELY, ARE
INCORPORATED BY REFERENCE TO THE MOST RECENT FILINGS
THEREOF BY THE ACQUIRING FUND
<PAGE>
PART B
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2000
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE ACQUISITION BY
SMITH BARNEY FUNDAMENTAL VALUE FUND, INC.
(THE "ACQUIRING FUND")
OF THE ASSETS OF
SMITH BARNEY NATURAL RESOURCES FUND (THE "FUND"),
A SERIES OF SMITH BARNEY SECTOR SERIES INC. ("SECTOR SERIES").
388 Greenwich Street
New York, New York 10013
(800) 451-2010
Dated: October __, 2000
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Fund, a series of Sector Series,
to the Acquiring Fund in exchange for shares of the corresponding class of the
Acquiring Fund and the assumption by the Acquiring Fund of the stated
liabilities of the Fund, consists of this cover page and the following described
documents, each of which accompanies this Statement of Additional Information
and is incorporated herein by reference.
1. Statement of Additional Information for the Acquiring Fund, dated
January 28, 2000.
2. Statement of Additional Information for the Fund, dated February 14,
2000.
3. Annual Report of the Acquiring Fund for the year ended September 30,
1999 and the Semi-Annual Report for the six-month period ended March
31, 2000.
4. Annual Report of the Fund for the year ended October 31, 1999, and the
Semi-Annual Report for the six-month period ended April 30, 2000.
This Statement of Additional Information is not a prospectus. A Prospectus/Proxy
Statement, dated October __, 2000, relating to the above-referenced matter may
be obtained without charge by calling or writing the Acquiring Fund at the
telephone number or address set forth above. This Statement of Additional
Information should be read in conjunction with the Prospectus/Proxy Statement.
B-1
<PAGE>
FINANCIAL STATEMENTS
The Annual Report of the Acquiring Fund for the year ended September 30,
1999 and the Annual Report of the Fund for the year ended October 31, 1999, each
including audited financial statements, notes to the financial statements and
report of the independent auditors, are incorporated by reference herein. To
obtain a copy of the Annual Reports (and, if applicable, any more recent
semi-annual report) without charge, please call 1-800-451-2010.
PRO FORMA FINANCIAL STATEMENTS
Because the net asset value of the Fund is less than 10% of the Acquiring
Fund's net asset value, pro forma financial statements are not required to be
and have not been prepared for inclusion in the Statement of Additional
Information filed in connection with the Reorganization.
<PAGE>
THE ANNUAL REPORT, SEMI-ANNUAL REPORT AND PROSPECTUS AND
STATEMENT OF ADDITIONAL INFORMATION OF THE ACQUIRING
FUND DATED
SEPTEMBER 30, 1999, MARCH 31, 2000, AND
JANUARY 28, 2000, RESPECTIVELY,
ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS
THEREOF BY THE ACQUIRING FUND
<PAGE>
THE ANNUAL REPORT, SEMI-ANNUAL REPORT AND PROSPECTUS AND
STATEMENT OF ADDITIONAL
INFORMATION OF THE FUND DATED OCTOBER 31, 1999, APRIL 30, 2000 AND
FEBRUARY 14,
2000, RESPECTIVELY, ARE INCORPORATED BY REFERENCE
TO THE MOST RECENT FILINGS THEREOF BY
SMITH BARNEY SECTOR SERIES INC.
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION -- The response to this item is incorporated by
reference to section 9 of the Agreement and Plan of Reorganization and to the
Registrant's Registration Statement on Form N-1A. Registrant is a named assured
on a joint insured bond pursuant to Rule 17g-1 of the Investment Company Act of
1940, as amended. Other assureds include SSB Cite Fund Management LLC
(Registrant's Adviser) and affiliated investment companies. The response to this
item is further incorporated by reference to Post-Effective Amendment No. 5 to
the Registration Statement on Form N-1A as filed with the Securities and
Exchange Commission.
ITEM 16. EXHIBITS
1(a) Registrant's Articles of Incorporation are incorporated by
reference to the Registration Statement on Form N-1A filed
May 26, 1995.
1(b) Registrant's Articles of Amendment are incorporated by
reference to the Registration Statement on Form N-1A filed on
February 1, 1996.
1(c) Registrant's Articles of Amendment are incorporated by
reference to the Registration Statement on Form N-1A filed on
November 24, 1998.
2 Registrant's By-Laws are incorporated by reference to the
Registration Statement on Form N-1A filed May 26, 1995.
3 Not Applicable.
4 Form of Agreement and Plan of Reorganization is filed herewith
as Exhibit A.
5(a) Registrant's form of stock certificate relating to Class A
shares are incorporated by reference to the Registration
Statement on Form N-1A filed May 26, 1995.
5(b) Registrant's form of stock certificate relating to Class B
shares are incorporated by reference to the Registration
Statement on Form N-1A filed May 26, 1995.
5(c) Registrant's form of stock certificate relating to Class C
shares are incorporated by reference to the Registration
Statement on Form N-1A filed May 26, 1995.
5(d) Registrant's form of stock certificate relating to Class Y
shares are incorporated by reference to the Registration
Statement on Form N-1A filed May 26, 1995.
6 Form of Investment Advisory Agreement is incorporated by
reference to the Registration Statement on Form N-1A filed
May 26, 1995.
7 Not Applicable.
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8 Prototype Self-Employed Retirement Plan is incorporated by
reference to the Registration Statement on Form N-1A filed
November 29, 1987.
9 Custodian Agreement with PNC Bank, National Association is
incorporated by reference to the Registration Statement on Form
N-1A filed May 26, 1995.
10(a) Services and Distribution Plan is incorporated by reference to
the Registration Statement on Form N-1A filed May 26, 1995.
10(b) Amended and Restated Shareholder Services and Distribution Plan
is incorporated by reference to the Registration Statement on
Form N-1A filed November 24, 1998.
10(c) Form of Distribution Agreement between the Registrant and Smith
Barney Inc. is incorporated by reference to the Registration
Statement on Form N-1A filed May 26, 1995.
10(d) Distribution Agreement between the Registrant and CFBDS, Inc. is
incorporated by reference to the Registration Statement on Form
N-1A filed November 24, 1998.
10(e) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to the Registration Statement on Form
N-1A filed February 1, 1996.
10(f) Form of Distribution Agreement between Registrant and Salomon
Smith Barney dated June 5, 2000 is filed herein.
10(g) Amended Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to the Registration Statement on Form
N-1A filed November 24, 1998.
11 Opinion and Consent of Willkie Farr & Gallagher is filed
herewith.
12 Form of Opinion of Willkie Farr & Gallagher supporting the
tax matters and consequences to shareholders discussed in the
prospectus is filed herewith.
13(a) Form of Transfer Agency Agreement is incorporated by reference
to the Registration Statement on Form N-1A filed February 1,
1996.
13(b) Form of Consent to Assignment is incorporated by reference to
the Registration Statement on Form N-1A filed May 26, 1995.
13(c) Form of Administration Agreement is incorporated by reference to
the Registration Statement on Form N-1A filed May 26, 1995.
14 Auditors' Consent is filed herewith.
15 Not Applicable.
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16 Power of Attorney is incorporated by reference to the
Registration Statement on Form N-1A filed on May 26, 1995.
17(a) Form of proxy card is filed herewith.
17(b) Annual Report of Smith Barney Sector Series Inc., dated October
31, 1999, and Semi-Annual Report dated April 30, 2000, are
incorporated herein by reference.
17(c) Prospectus and Statement of Additional Information of Smith
Barney Sector Series Inc., dated February 14, 2000, are
incorporated herein by reference.
17(d) Annual Report of Registrant, dated September 30, 1999, and
Semi-Annual Report dated March 31, 2000, are incorporated herein
by reference.
17(e) Prospectus and Statement of Additional Information of
Registrant, dated January 28, 2000, are incorporated herein by
reference.
17(f) Code of Ethics filed herein.
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ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of the Securities Act [17 CFR
230.145c], the reoffering prospectus will contain the information called for by
the applicable registration form for reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statement and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 18th
day of September, 2000.
SMITH BARNEY FUNDAMENTAL
VALUE FUND INC.
By: /s/ Heath B. McLendon
---------------------------------
Name: Heath B. McLendon
Title: Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/Heath B. McLendon Chairman of the Board September 18, 2000
----------------------------------
Heath B. McLendon (Chief Executive Officer)
/s/Lewis E. Daidone Senior Vice President and September 18, 2000
---------------------------------- Treasurer (Chief Financial and
Lewis E. Daidone Accounting Officer)
/s/Lloyd J. Andrews* Director September 18, 2000
----------------------------------
Lloyd J. Andrews
/s/Robert M. Frayn* Director September 18, 2000
----------------------------------
Robert M. Frayn
/s/Leon P. Gardner* Director September 18, 2000
----------------------------------
Leon P. Gardner
/s/David E. Maryatt* Director September 18, 2000
----------------------------------
David E. Maryatt
/s/Frederick O. Paulsell* Director September 18, 2000
----------------------------------
Frederick O. Paulsell
/s/Jerry A. Viscione* Director September 18, 2000
----------------------------------
Jerry A. Viscione
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
/s/Julie W. Weston* Director September 18, 2000
----------------------------------
Julie W. Weston
*By: /s/Heath B. McLendon
----------------------------------
Heath B. McLendon
</TABLE>
Attorney-in-fact pursuant to a power of attorney filed
herewith.
*Signed pursuant to power of attorney filed May 26, 1995, as an exhibit to
Post-Effective Amendment No. 27 to the Registration Statement on Form N-1A
(Securities File No. 2-71469).
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<PAGE>
Exhibits Index
Exhibits Index
--------------
10(f) Form of Distribution Agreement
(11) Opinion and consent of Willkie Farr & Gallagher
(12) Form of Opinion of Willkie Farr & Gallagher supporting tax matters
and consequences to shareholders
(14) Auditor's Consent
(17)(a) Form of Proxy Card
17(f) Code of Ethics
