As filed with the Securities and Exchange Commission on December 1, 1999
Registration No. 33 -7339
811-4757
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No.
[X] Post-Effective Amendment No. 25
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940, as amended
Amendment No. 26 [X]
Smith Barney Sector Series Inc.
(f/k/a Smith Barney Natural Resources Fund Inc.)
(a Maryland Corporation)
(Exact Name of Registrant as Specified in Charter)
388 Greenwich Street
New York, New York 10013
(Address of Principal Executive Offices)
(212) 816-6474
(Registrant's Telephone Number, including Area Code)
Christina T. Sydor, Secretary
Smith Barney Sector Series Inc.
(f/k/a Smith Barney Natural Resources Fund Inc.)
388 Greenwich Street
New York, New York 10013
(Name and Address of Agent for Service)
Approximate Date of Proposed Public Offering: Continuous.
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph b
[ ] on (date) pursuant to paragraph b
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a) (2) of Rule 485
If appropriate, check the following box:[ ] This post-effective amendment
designates a new effective date for a previously filed post-effective amendment
Part A-Prospectus
<PAGE>
[LOGO]
PROSPECTUS
Financial Services Fund
Health Sciences Fund
Technology Fund
Class A, B, L and Y Shares
February 14, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
<TABLE>
<S> <C>
Investments, risks and performance
Smith Barney Financial Services Fund...................................... 2
Smith Barney Health Sciences Fund......................................... 7
Smith Barney Technology Fund.............................................. 11
More on the funds' investments.............................................. 15
Management.................................................................. 17
Choosing a class of shares to buy........................................... 18
Comparing the fund's classes................................................ 19
Sales charges............................................................... 20
More about deferred sales charges........................................... 22
Buying shares............................................................... 23
Exchanging shares........................................................... 24
Redeeming shares............................................................ 26
Other things to know
about share transactions.................................................... 28
Smith Barney 401(k) and
ExecChoice(TM) programs..................................................... 29
Dividends, distributions and taxes.......................................... 30
Share price................................................................. 31
</TABLE>
Each fund is a separate series of Smith Barney Sector Series Inc., a Maryland
corporation.
You should know: An investment in a fund is not a bank deposit and is not
insured or guaranteed by the FDIC or any other government agency.
Smith Barney Mutual Funds
1
<PAGE>
Investments, risks and performance
Smith Barney Financial Services Fund
Investment objective
The Smith Barney Financial Services Fund (the "Financial Services Fund") seeks
long-term capital appreciation by investing primarily in common stocks.
Principal Investment Strategies
Key investments The fund invests primarily in common stocks. The fund normally
invests at least 80% of its assets in securities of companies principally
engaged in providing financial services to consumers and industry. These compa-
nies may include, for example, commercial banks, savings and loan associations,
broker-dealer, investment banks, investment advisers, insurance companies, real
estate-related companies, leasing companies, and consumer and industrial
finance companies. The fund may invest its assets in securities of foreign
issuers in addition to securities of domestic issuers. The fund invests primar-
ily in companies with medium and large market capitalizations. To a lesser
extent, the fund also may invest in common stocks of companies with small mar-
ket capitalization.
Selection process The fund normally invests at least 80% of its assets in com-
panies doing business in the financial services sector. The remainder of the
fund's assets are not required to be invested in the sector. To determine
whether a potential investment is truly doing business in the sector, a company
must meet at least one of the following tests:
.At least 50% of its gross income or its net sales must come from activities in
the sector;
.At least 50% of its assets must be devoted to producing revenues from the sec-
tor; or
.Based on other available information, the manager determines that its primary
business is within the sector.
In buying and selling securities, the fund relies on fundamental analysis of
each issuer and its potential for success in light of its current financial
condition and its industry position. Factors considered include long-term
growth potential, earnings estimates and management.
The fund may lend its securities to broker-dealers or other institutions to
earn income for the fund.
Sector Funds
2
<PAGE>
The fund may but is not required to use various techniques, such as buying and
selling futures and options contracts, to increase or decrease its exposure to
changing security prices or other factors that affect security values. The fund
may engage in foreign currency transactions solely to manage its exposure to
foreign securities. If the fund's strategies do not work as intended, the fund
may not achieve its objective.
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, because:
.Stock markets are volatile and can decline significantly in response to
adverse issuer, political, regulatory, market or economic developments. Dif-
ferent 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 develop-
ments and can perform differently than the U.S. market.
.The financial services industries are subject to extensive government regula-
tion and relatively rapid change because of increasingly blurred distinctions
between service segments, and can be significantly affected by availability
and cost of capital funds, changes in interest rates, and price competition.
The performance of the financial services sector may differ in direction and
degree from that of the overall stock market.
.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
value of the market as a whole. The value of smaller capitalized companies
may involve greater risks, such as united product lines, markets and finan-
cial or managerial resources.
.The fund is classified as "non-diversified," which means it may invest a
larger percentage of its assets in one issuer than a diversified fund. To the
extent the fund concentrates its assets in fewer issuers, the fund will be
more susceptible to negative events affecting those issuers.
.The manager's judgment about the attractiveness, growth prospects, value or
potential appreciation of a particular stock proves to be incorrect.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long term growth potential of the financial
services industry
.Are looking for an investment with potentially greater return but higher risk
than a fund investing primarily in fixed income securities
Smith Barney Mutual Funds
3
<PAGE>
.Are willing to accept the risks of the stock market
.Can accept the additional risk associated with sector investing
Performance
The fund is new and does not yet have the performance information which other
Smith Barney funds show in bar and table form in this part of the prospectus.
Sector Funds
4
<PAGE>
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load) imposed on
purchases (as a % of offering price) None None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee % %
Distribution and service (12b-1) fees % None
Other expenses* % %
--- ---- ---- ---
Total annual fund operating expenses % %
</TABLE>
* The fund is new and, therefore, has no historical expense data. The amounts
set forth in "Other expenses" have been estimated based on expenses the
fund expects to incur during its full fiscal year.
Smith Barney Mutual Funds
5
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all shares at the end of the period
.Your investment has a 5% return each year
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class A
Class B
Class L
Class Y
</TABLE>
Sector Funds
6
<PAGE>
Investments, risks and performance
Smith Barney Health Sciences Fund
Investment objective
The Smith Barney Health Sciences Fund (the "Health Sciences Fund") seeks long-
term capital appreciation by investing primarily in common stocks.
Principal Investment Strategies
Key investments The fund invests primarily in common stocks. The fund normally
invests at least 80% of its assets in securities of companies principally
engaged in the design, manufacture, or sale of products or services used for or
in connection with health care or medicine. These companies may include, for
example, pharmaceutical companies; companies involved in biotechnology, medical
diagnostic, biochemical or other health care research and development; compa-
nies involved in the operation of health care facilities; and other companies
involved in the design, manufacture, or sale of health care-related products or
services such as medical, dental and optical products, hardware or services.
The fund may invest its assets in securities of foreign issuers in addition to
securities of domestic issuers. The fund invests primarily in companies with
medium and large market capitalizations. To a lesser extent, the fund also may
invest in common stocks of companies with small market capitalization.
Selection process The fund normally invests at least 80% of its assets in com-
panies doing business in the health sciences sector. The remainder of the
fund's assets are not required to be invested in the sector. To determine
whether a potential investment is truly doing business in the sector, a company
must meet at least one of the following tests:
.At least 50% of its gross income or its net sales must come from activities in
the sector;
.At least 50% of its assets must be devoted to producing revenues from the sec-
tor; or
.Based on other available information, the manager determines that its primary
business is within the sector.
In buying and selling securities, the fund relies on fundamental analysis
of each issuer and its potential for success in light of its current financial
condition and its industry position. Factors considered include long-term
growth potential, earnings estimates and management.
The fund may lend its securities to broker-dealers or other institutions to
earn income for the fund.
Smith Barney Mutual Funds
7
<PAGE>
The fund may use but is not required to various techniques, such as buying and
selling futures and options contracts, to increase or decrease the fund's expo-
sure to changing security prices or other factors that affect security values.
The fund may engage in foreign currency transactions solely to manage its expo-
sure to foreign securities. If the fund's strategies do not work as intended,
the fund may not achieve its objective.
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, because:
.Stock markets are volatile and can decline significantly in response to
adverse issuer, political, regulatory, market or economic developments. Dif-
ferent parts of the market can react differently to these developments.
.Foreign markets can be more volatile than the U.S. market due to increased
risks of adverse issuer, political, regulatory, market or economic develop-
ments and can perform differently than the U.S. market.
.The health care industries are subject to government regulation and government
approval of products and services, which could have a significant effect on
price and availability, and can be significantly affected by rapid obsoles-
cence. Lawsuits or other legal proceedings against the issuer of a security
may adversely affect the issuer, the market value of the security or the
fund's performance. The performance of the health sciences sector may differ
in direction and degree from that of the overall stock market.
.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
value of the market as a whole. The value of smaller capitalized companies
may involve greater risks, such as limited product lines, markets and finan-
cial or managerial resources.
.The fund is classified as "non-diversified," which means it may invest a
larger percentage of its assets in one issuer than a diversified fund. To the
extent the fund concentrates its assets in fewer issuers, the fund will be
more susceptible to negative events affecting those issuers.
.The manager's judgment about the attractiveness, growth prospects, value or
potential appreciation of a particular stock proves to be incorrect.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long term growth potential of health sci-
ences industry
Sector Funds
8
<PAGE>
.Are looking for an investment with potentially greater return but higher risk
than a fund investing primarily in fixed income securities
.Are willing to accept the risks of the stock market
.Can accept the additional risk associated with sector investing
Performance
The fund is new and does not yet have the performance information which other
Smith Barney funds show in bar and table form in this part of the prospectus.
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C> <C>
Maximum sales charge (load) imposed
on purchases (as a % of offering price) None None
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption) None None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C> <C>
Management fee
Distribution and service
(12b-1) fees None
Other expenses*
Total annual fund operating expenses
</TABLE>
* The fund is new, and therefore, has no historical expense data. The amounts
set forth in "Other expenses" have been estimated based on expenses the
fund expects to incur during its first full fiscal year.
Smith Barney Mutual Funds
9
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all shares at the end of the period
.Your investment has a 5% return each year
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class A $
Class B
Class L $
Class Y
</TABLE>
Sector Funds
10
<PAGE>
Investments, risks and performance
Smith Barney Technology Fund
Investment objective
The Smith Barney Technology Fund (the "Technology Fund") seeks long-term capi-
tal appreciation by investing primarily in common stocks.
Principal Investment Strategies
Key investments The fund invests primarily in common stocks. The fund normally
invests at least 80% of its assets in securities of companies principally
engaged in offering, using or developing products, processes or services that
will provide or will benefit significantly from technological advances and
improvements. These companies may include, for example, companies that develop,
produce or distribute products or services in the computer, semi-conductor,
electronics, communications, health care, and biotechnology sectors. The fund
may invest its assets in securities of foreign issuers in addition to securi-
ties of domestic issuers. The fund invests primarily in companies with medium
and large market capitalizations. To a lesser extent, the fund also may invest
in common stocks of companies with small market capitalization.
Selection process The fund normally invests at least 80% of its assets in com-
panies doing business in the technology sector. The remainder of the fund's
assets are not required to be invested in the sector. To determine whether a
potential investment is truly doing business in the sector, a company must meet
at least one of the following tests:
.At least 50% of its gross income or its net sales must come from activities in
the sector;
.At least 50% of its assets must be devoted to producing revenues from the sec-
tor; or
.Based on other available information, the manager determines that its primary
business is within the sector.
In buying and selling securities, the fund relies on fundamental analysis of
each issuer and its potential for success in light of its current financial
condition and its industry position. Factors considered include long-term
growth potential, earnings estimates and management.
The fund may lend its securities to broker-dealers or other institutions to
earn income for the fund.
Smith Barney Mutual Funds
11
<PAGE>
The fund may but is not required to use various techniques, such as buying and
selling futures and options contracts, to increase or decrease the fund's expo-
sure to changing security prices or other factors that affect security values.
The fund may engage in foreign currency transactions solely to manage its expo-
sure to foreign securities. If the fund's strategies do not work as intended,
the fund may not achieve its objective.
Principal risks of investing in the fund
Investors could lose money on their investments in the fund, or the fund may
not perform as well as other investments, because:
.Stock markets are volatile and can decline significantly in response to
adverse issuer, political, regulatory, market or economic develop-
ments. Different parts of the market can react differently to these
developments.
.Foreign markets can be more volatile than the U.S. market due to increased
risks of adverse issuer, political, regulatory, market or economic develop-
ments and can perform differently than the U.S. market.
.The technology industries can be significantly affected by obsolescence of
existing technology, short product cycles, falling prices and profits, and
competition from new market entrants. The technology sector may be subject to
greater governmental regulation than many other areas, and changes in govern-
mental policies and the need for regulatory approvals may have a material
adverse effect on the sector. The performance of the technology sector may
differ in direction and degree from that of the overall stock market.
.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
value of the market as a whole. The value of smaller capitalized companies
may involve greater risks such as united product lines, markets and financial
or managerial resources.
.The fund is classified as "non-diversified," which means it may invest a
larger percentage of its assets in one issuer than a diversified fund. To the
extent the fund concentrates its assets in fewer issuers, the fund will be
more susceptible to negative events affecting those issuers.
.The manager's judgment about the attractiveness, growth prospects, value or
potential appreciation of a particular stock proves to be incorrect.
Who may want to invest The fund may be an appropriate investment if you:
.Are seeking to participate in the long term growth potential of U.S. stocks
Sector Funds
12
<PAGE>
.Are looking for an investment with potentially greater return but higher risk
than a fund investing primarily in fixed income securities
.Are willing to accept the risks of the stock market
.Can accept the additional risk associated with sector investing
Performance
The fund is new and does not yet have the performance information which other
Smith Barney funds show in bar and table form in this part of the prospectus.
Fee table
This table sets forth the fees and expenses you will pay if you invest in fund
shares.
Shareholder fees
<TABLE>
<CAPTION>
(fees paid directly from your investment) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Maximum sales charge (load)
imposed on purchases (as a % of offering
price) None None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None None
Annual fund operating expenses
<CAPTION>
(expenses deducted from fund assets) Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Management fee
Distribution and service (12b-1) fees None
Other expenses*
--- ---- ---
Total annual fund operating expenses
</TABLE>
* The fund is new and, therefore, has no historical expense data. The amounts
set forth in "Other expenses" have been estimated based on expenses the fund
expects to incur during its first full fiscal year.
Smith Barney Mutual Funds
13
<PAGE>
Example
This example helps you compare the costs of investing in the fund with the
costs of investing in other mutual funds. Your actual costs may be higher or
lower. The example assumes:
.You invest $10,000 in the fund for the period shown
.You redeem all shares at the end of the period
.Your investment has a 5% return each year
.The fund's operating expenses remain the same
Number of years you own your shares
<TABLE>
<CAPTION>
1 year 3 years
<S> <C> <C>
Class A $ $
Class B
Class L $ $
Class Y
</TABLE>
Sector Funds
14
<PAGE>
More on the funds' investments
Foreign investments Each fund's investments in securities of foreign issuers
involve greater risk than investments in securities of U.S. issuers. Many for-
eign countries the fund invests in have markets that are less liquid and more
volatile than markets in the U.S. In some foreign countries, less information
is available about foreign issuers and markets because of less rigorous
accounting and regulatory standards than in the U.S. Currency fluctuations
could erase investment gains or add to investment losses. The risks of invest-
ing in foreign securities are greater for securities of emerging market issuers
because political or economic instability, lack of market liquidity, and nega-
tive government actions like currency controls or seizure of private businesses
or property are more likely.
Derivatives and hedging techniques Each fund may, but need not, use derivate
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
. Settle transactions in securities quoted in foreign currencies
. As a substitute for buying or selling securities
A derivative contract will obligate or entitle the fund to deliver or receive
an asset or cash payment based on the change in value of one or more securi-
ties, currencies or indices. Even a small investment in derivative contracts
can have a big impact on each fund's stock market, currency and interest rate
exposure. Therefore, using derivatives can disproportionately increase losses
and reduce opportunities for gains when stock prices, currency rates or inter-
est rates are changing. Each fund may not fully benefit from or may lose money
on derivatives if changes in their value do not correspond accurately to
changes in the value of each fund's holdings. The other parties to certain
derivative contracts present the same types of credit risk as issuers of fixed
income securities. Derivatives can also make each fund less liquid and harder
to value, especially in declining markets.
Defensive investing Each fund may depart from its principal investment strate-
gies 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. If a fund takes a temporary defensive position, it may be unable to
achieve its investment goal.
Smith Barney Mutual Funds
15
<PAGE>
General Each fund currently invests directly in securities. However, in the
future, each fund may invest in securities indirectly through one or more
investment companies, to the extent permitted by applicable law. Shareholder
approval is not needed to change each fund's investment structure.
Master/feeder option Each fund may in the future seek to achieve its investment
objective by investing all of its net assets in another investment company hav-
ing the same investment objective and substantially the same investment poli-
cies and restrictions as those applicable to the fund. Shareholders of the fund
will be given at least 30 days prior notice of any such investment.
Sector Funds
16
<PAGE>
Management
Manager Each fund's investment manager is SSB Citi Fund Management LLC, an
affiliate of Salomon Smith Barney Inc. The manager's address is 388 Greenwich
Street, New York, New York 10013. The manager oversees the selection of the
fund's investments and its general operations. The manager and Salomon Smith
Barney are subsidiaries of Citigroup Inc. Citigroup businesses offer a broad
range of financial services--asset management, banking and consumer finance,
credit and charge cards, insurance, investments, investment banking and trad-
ing--and use diverse channels to make them available to consumer and corporate
customers around the world.
Subadviser Citibank Global Asset Management, an affiliate of the manager
located at , serves as subadviser to each fund. The subadviser
manages the fund's investment portfolio, subject to the supervision of the man-
ager. The subadviser provides investment management and advisory services to
other mutual funds and currently manages over billion.
Management fees For its services as the investment adviser and administrator to
the funds, the manager will receive a fee equal on an annual basis to % of
each fund's average daily net assets.
Distributor Each fund has entered into an agreement with CFBDS, Inc. to dis-
tribute the fund's shares. A selling group consisting of Salomon Smith Barney
and other broker-dealers sells fund shares to the public.
Distribution plans Each fund has adopted Rule 12b-1 distribution plans for its
Class A, B and L shares. Under each plan, the fund pays distribution and serv-
ice fees. These fees are an ongoing expense and, over time, may cost you more
than other types of sales charges.
Year 2000 issue Information technology experts are concerned about computer
systems' ability to process date-related information on and after January 1,
2000. This situation, commonly known as the "Year 2000" issue, could have an
adverse impact on a fund. The cost of addressing the Year 2000 issue, if sub-
stantial, could adversely affect companies and governments that issue securi-
ties held by either fund. SSB Citi and Salomon Smith Barney are addressing the
Year 2000 issue for their systems. Each fund has been informed by other service
providers that they are taking similar measures. Although each fund does not
expect the Year 2000 issue to adversely
Smith Barney Mutual Funds
17
<PAGE>
affect it, the fund cannot guarantee the efforts of the fund, which are limited
to requesting and receiving reports from its service providers, or the efforts
of its service providers to correct the problem will be successful.
Choosing a class of shares to buy
You can choose among four classes of shares: Classes A, B, L and Y. Each class
has different sales charges and expenses, allowing you to choose the class that
best meets your needs. Which class is more beneficial to an investor depends on
the amount and intended length of the investment.
.If you plan to invest regularly or in large amounts, buying Class A shares may
help you reduce sales charges and ongoing expenses.
.For Class B shares, all of your purchase amount and, for Class L shares, more
of your purchase amount (compared to Class A shares) will be immediately
invested. This may help offset the higher expenses of Class B and Class L
shares, but only if the fund performs well.
.Class L shares have a shorter deferred sales charge period than Class B
shares. However, because Class B shares convert to Class A shares, and
Class L shares do not, Class B shares may be more attractive to long-term
investors.
You may buy shares from:
.A Salomon Smith Barney Financial Consultant
.An investment dealer in the selling group or a broker that clears through Sal-
omon Smith Barney--a dealer representative
.The fund, but only if you are investing through certain qualified plans or
certain dealer representatives.
Investment minimums Minimum initial and additional investment amounts vary
depending on the class of shares you buy and the nature of your investment
account.
<TABLE>
<CAPTION>
Initial Additional
Classes A, B, L Class Y All Classes
<S> <C> <C> <C>
General $1,000 $15 million $50
IRAs, Self Employed Retirement Plans,
Uniform Gift to Minor Accounts $ 250 $15 million $50
Qualified Retirement Plans* $ 25 $15 million $25
Simple IRAs $ 1 n/a $ 1
Monthly Systematic Investment Plans $ 25 n/a $25
Quarterly Systematic Investment Plans $ 50 n/a $50
</TABLE>
* Qualified Retirement Plans are retirement plans qualified under Section
403(b)(7) or Section 401(a) of the Internal Revenue Code, including 401(k)
plans
Sector Funds
18
<PAGE>
Comparing the fund's classes
Your Salomon Smith Barney Financial Consultant or dealer representative can
help you decide which class meets your goals. They may receive different com-
pensation depending upon which class you choose.
<TABLE>
<CAPTION>
Class A Class B Class L Class Y
<S> <C> <C> <C> <C>
Key features .Initial .No initial .The ini- .No initial
sales sales tial sales or
charge charge charge is deferred
.You may .Deferred lower than sales
qualify sales Class A charge
for reduc- charge .Deferred .Must
tion or declines sales invest at
waiver of over time charge for least $15
initial .Converts only 1 million
sales to Class A year .Lower
charge after 8 .Does not annual
.Lower years convert to expenses
annual .Higher Class A than the
expenses annual .Higher other
than Class expenses annual classes
B and than Class expenses
Class L A than Class
A
- ------------------------------------------------------------------------
Initial sales charge Up to None 1.00% None
5.00%;
reduced for
large pur-
chases and
waived for
certain
investors;
no charge
for pur-
chases of
$500,000 or
more
- ------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$500,000 or when you within 1
more if you redeem year of
redeem shares. The purchase
within 1 charge is
year of reduced
purchase over time
and there
is no
deferred
sales
charge
after 6
years
- ------------------------------------------------------------------------
Annual distribution and 0.25% of 1% of aver- 1% of aver- None
service fees average age daily age daily
daily net net assets net assets
assets
- ------------------------------------------------------------------------
Exchange privilege* Class A Class B Class L Class Y
shares of shares of shares of shares of
most Smith most Smith most Smith most Smith
Barney Barney Barney Barney
funds funds funds funds
- ------------------------------------------------------------------------
</TABLE>
* Ask your Salomon Smith Barney Financial Consultant or dealer representative
or visit the web site for the Smith Barney funds available for exchange.
Smith Barney Mutual Funds
19
<PAGE>
Sales charges
Class A shares
You buy Class A shares at the offering price, which is the net asset value plus
a sales charge. You pay a lower sales charge as the size of your investment
increases to certain levels called breakpoints. You do not pay a sales charge
on the fund's distributions or dividends you reinvest in additional Class A
shares.
<TABLE>
<CAPTION>
Sales Charge as a % of
Offering Net amount
Amount of purchase price (%) invested (%)
<S> <C> <C>
Less than $25,000 5.00 5.26
$25,000 but less than $50,000 4.00 4.17
$50,000 but less than $100,000 3.50 3.63
$100,000 but less than $250,000 3.00 3.09
$250,000 but less than $500,000 2.00 2.04
$500,000 or more 0.00 0.00
</TABLE>
Investments of $500,000 or more You do not pay an initial sales charge when you
buy $500,000 or more of Class A shares. However, if you redeem these Class A
shares within one year of purchase, you will pay a deferred sales charge of 1%.
Qualifying for a reduced Class A sales charge There are several ways you can
combine multiple purchases of Class A shares of Smith Barney funds to take
advantage of the breakpoints in the sales charge schedule.
.Accumulation privilege - lets you combine the current value of Class A shares
owned
.by you, or
.by members of your immediate family,
and for which a sales charge was paid, with the amount of your next purchase
of Class A shares for purposes of calculating the initial sales charge. Cer-
tain trustees and fiduciaries may be entitled to combine accounts in deter-
mining their sales charge.
.Letter of intent - lets you purchase Class A shares of the fund and other
Smith Barney funds over a 13-month period and pay the same sales
Sector Funds
20
<PAGE>
charge, if any, as if all shares had been purchased at once. You may include
purchases on which you paid a sales charge made within 90 days before you
sign the letter.
Waivers for certain Class A investors Class A initial sales charges are waived
for certain types of investors, including:
.Employees of members of the NASD
.403(b) or 401(k) retirement plans, if certain conditions are met
.Clients of newly employed Salomon Smith Barney Financial Consultants, if cer-
tain conditions are met
.Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Salomon Smith Barney Financial Consultant or dealer
representative is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the Statement of Additional Information ("SAI").
Class B shares
You buy Class B shares at net asset value without paying an initial sales
charge. However, if you redeem your Class B shares within six years of pur-
chase, you will pay a deferred sales charge. The deferred sales charge
decreases as the number of years since your purchase increases.
<TABLE>
<CAPTION>
Year after purchase 1st 2nd 3rd 4th 5th 6th through 8th
<S> <C> <C> <C> <C> <C> <C>
Deferred sales charge 5% 4% 3% 2% 1% 0%
</TABLE>
Class B conversion After 8 years, Class B shares automatically convert into
Class A shares. This helps you because Class A shares have lower annual
expenses. Your Class B shares will convert to Class A shares as follows:
<TABLE>
<CAPTION>
Shares issued: Shares issued:
On reinvestment of Upon exchange from
Shares issued: dividends and another Smith Barney
At initial purchase distributions fund
<S> <C> <C>
Eight years after the date In same proportion On the date the
of purchase as the number of shares originally
Class B shares acquired would
converting is to have converted
total Class B into Class A
shares you own shares
(excluding shares
issued as a divi-
dend)
</TABLE>
Smith Barney Mutual Funds
21
<PAGE>
Class L shares
You buy Class L shares at the offering price, which is the net asset value plus
a sales charge of 1% (1.01% of the net amount invested). In addition, if you
redeem your Class L shares within one year of purchase, you will pay a deferred
sales charge of 1%. If you held Class C shares of the fund and/or other Smith
Barney mutual funds on June 12, 1998, you will not pay an initial sales charge
on Class L shares you buy before June 22, 2001.
Class Y shares
You buy Class Y shares at net asset value with no initial sales charge and no
deferred sales charge when you redeem. You must meet the $15,000,000 initial
investment requirement. You can use a letter of intent to meet this requirement
by buying Class Y shares of the fund over a 13-month period. To qualify, you
must initially invest $5,000,000.
More about deferred sales charges
The deferred sales charge is based on the net asset value at the time of pur-
chase or redemption, whichever is less, and therefore, you do not pay a sales
charge on amounts representing appreciation or depreciation.
In addition, you do not pay a deferred sales charge on:
.Shares exchanged for shares of another Smith Barney fund
.Shares representing reinvested distributions and dividends
.Shares no longer subject to the deferred sales charge
Each time you place a request to sell shares, the fund will first sell any
shares in your account that are not subject to a deferred sales charge and then
the shares in your account that have been held the longest.
If you redeemed shares of a Smith Barney fund in the past 60 days and paid a
deferred sales charge, you may buy shares of the fund at the current net asset
value and be credited with the amount of the deferred sales charge, if you
notify your Salomon Smith Barney Financial Consultant or dealer representative.
Salomon Smith Barney receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Salomon Smith Barney Financial Consultant or dealer representative.
Sector Funds
22
<PAGE>
Deferred sales charge waivers
The deferred sales charge for each share class will generally be waived:
.On payments made through certain systematic withdrawal plans
.On certain distributions from a retirement plan
.For involuntary redemptions of small account balances
.For 12 months following the death or disability of a shareholder
If you want to learn more about additional waivers of deferred sales charges,
contact your Salomon Smith Barney Financial Consultant or dealer representative
or consult the SAI.
Buying shares
Through a You should contact your Salomon Smith Barney Financial Con-
Salomon Smith sultant or dealer representative to open a brokerage account
Barney and make arrangements to buy shares. If you do not provide
Financial the following information, your order will be rejected:
Consultant or
dealer .Class of shares being bought
representative .Dollar amount or number of shares being bought
You should pay for your shares through your brokerage account
no later than the third business day after you place your
order. Salomon Smith Barney or your dealer representative may
charge an annual account maintenance fee.
- --------------------------------------------------------------------------------
Through the Qualified retirement plans and certain other investors who
fund's sub- are clients of a selling group member are eligible to buy
transfer shares directly from the fund.
agent
.Write the transfer agent at the following address:
Smith Barney Sector Series Inc.
Financial Services Fund
Health Sciences Fund
Technology Fund
(Specify fund and class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 9699
Providence, Rhode Island 02940-9699
.Enclose a check to pay for the shares. For initial pur-
chases, complete and send an account application
.For more information, call the transfer agent at 1-800-451-
2010.
Smith Barney Mutual Funds
23
<PAGE>
- --------------------------------------------------------------------------------
Through a You may authorize Salomon Smith Barney, your dealer represen-
systematic tative or the transfer agent to transfer funds automatically
investment from a regular bank account, cash held in a Salomon Smith
plan Barney brokerage account or Smith Barney money market fund to
buy shares on a regular basis.
.Amounts transferred should be at least $25 monthly or $50
quarterly
.If you do not have sufficient funds in your account on a
transfer date, Salomon Smith Barney, your dealer represen-
tative or the transfer agent may charge you a fee
For more information, contact your Salomon Smith Barney
Financial Consultant, dealer representative or the transfer
agent or consult the SAI.
Exchanging shares
Smith Barney You should contact your Salomon Smith Barney Financial Con-
offers a sultant or dealer representative to exchange into other Smith
distinctive Barney funds. Be sure to read the prospectus of the Smith
family of Barney fund you are exchanging into. An exchange is a taxable
funds transaction.
tailored to
help meet the .You may exchange shares only for shares of the same class of
varying needs another Smith Barney fund. Not all Smith Barney funds offer
of both large all classes.
and small .Not all Smith Barney funds may be offered in your state of
investors residence. Contact your Salomon Smith Barney Financial Con-
sultant, dealer representative or the transfer agent.
.You must meet the minimum investment amount for each fund.
.If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with
signed stock powers (documents transferring ownership of
certificates) before the exchange is effective.
.The fund may suspend or terminate your exchange privilege if
you engage in an excessive pattern of exchanges.
Sector Funds
24
<PAGE>
- --------------------------------------------------------------------------------
Waiver of Your shares will not be subject to an initial sales charge at
additional the time of the exchange.
sales charges
Your deferred sales charge (if any) will continue to be mea-
sured from the date of your original purchase. If the fund
you exchange into has a higher deferred sales charge, you
will be subject to that charge. If you exchange at any time
into a fund with a lower charge, the sales charge will not be
reduced.
By telephone If you do not have a brokerage account, you may be eligible
to exchange shares through the transfer agent. You must com-
plete an authorization form to authorize telephone transfers.
If eligible, you may make telephone exchanges on any day the
New York Stock Exchange is open. Call the transfer agent at
1-800-451-2010 between 9:00 a.m. and 5:00 p.m. (Eastern
time). Requests received after the close of regular trading
on the Exchange are priced at the net asset value next deter-
mined.
You can make telephone exchanges only between accounts that
have identical registrations.
- --------------------------------------------------------------------------------
By mail If you do not have a Salomon Smith Barney brokerage account,
contact your dealer representative or write to the transfer
agent at the address on the opposite page.
Smith Barney Mutual Funds
25
<PAGE>
Redeeming shares
Generally Contact your Salomon Smith Barney Financial Consultant or
your dealer representative to redeem shares of a fund.
If you hold share certificates, the transfer agent must
receive the certificates endorsed for transfer or with signed
stock powers (documents transferring ownership of certifi-
cates) before the redemption is effective.
If the shares are held by a fiduciary or corporation, other
documents may be required.
Your redemption proceeds will be sent within three business
days after your request is received in good order. However,
if you recently purchased your shares by check, your redemp-
tion proceeds will not be sent to you until your original
check clears, which may take up to 15 days.
If you have a Salomon Smith Barney brokerage account, your
redemption proceeds will be placed in your account and not
reinvested without your specific instruction. In other cases,
unless you direct otherwise, your redemption proceeds will be
paid by check mailed to your address of record.
- --------------------------------------------------------------------------------
By mail For accounts held directly at the fund, send written requests
to the sub-transfer agent at the following address:
Smith Barney Sector Series Inc.
Financial Services Fund
Health Sciences Fund
Technology Fund
(Specify fund and class of shares)
c/o First Data Investor Services Group, Inc.
P.O. Box 9699
Providence, Rhode Island 02940-9699
Your written request must provide the following:
.The account number
.The class of shares and the dollar amount or number of
shares to be redeemed
.Signatures of each owner exactly as the account is regis-
tered
Sector Funds
26
<PAGE>
- --------------------------------------------------------------------------------
By telephone If you do not have a brokerage account, you may be eligible
to redeem shares (except those held in retirement plans) in
amounts up to $10,000 per day through the transfer agent. You
must complete an authorization form to authorize telephone
redemptions. If eligible, you may request redemptions by tel-
ephone on any day the New York Stock Exchange is open. Call
the transfer agent at 1-800-451-2010 between 9:00 a.m. and
5:00 p.m. (Eastern time). Requests received after the close
of regular trading on the Exchange are priced at the net
asset value next determined.
Your redemption proceeds can be sent by check to your address
of record or by wire transfer to a bank account designated on
your authorization form. You must submit a new authorization
form to change the bank account designated to receive wire
transfers and you may be asked to provide certain other docu-
ments.
- --------------------------------------------------------------------------------
Automatic You can arrange for the automatic redemption of a portion of
cash your shares on a monthly or quarterly basis. To qualify you
withdrawal must own shares of the fund with a value of at least $10,000
plans ($5,000 for retirement plan accounts) and each automatic
redemption must be at least $50.
The following conditions apply:
.Your shares must not be represented by certificates
.All dividends and distributions must be reinvested
For more information, contact your Salomon Smith Barney
Financial Consultant or dealer representative or consult the
SAI.
Smith Barney Mutual Funds
27
<PAGE>
Other things to know about share transactions
When you buy, exchange or redeem shares, your request must be in good order.
This means you have provided the following information without which your
request will not be processed:
.Name of the fund
.Account number
.Class of shares being bought, exchanged or redeemed
.Dollar amount or number of shares being bought, exchanged or redeemed
.Signature of each owner exactly as the account is registered
The transfer agent will try to confirm that any telephone exchange or redemp-
tion request is genuine by recording calls, asking the caller to provide a per-
sonal identification number for your account, sending you a written
confirmation or requiring other confirmation procedures from time to time.
Signature guarantees To be in good order, your redemption request must include
a signature guarantee if you:
.Are redeeming over $10,000 of shares
.Are sending signed share certificates or stock powers to the transfer agent
.Instruct the transfer agent to mail the check to an address different from the
one on your account
.Changed your account registration
.Want the check paid to someone other than the account owner(s)
.Are transferring the redemption proceeds to an account with a different regis-
tration
You can obtain a signature guarantee from most banks, dealers, brokers, credit
unions and federal savings and loan institutions, but not from a notary public.
Each fund has the right to:
.Suspend the offering of shares
.Waive or change minimum and additional investment amounts
.Reject any purchase or exchange order
.Change, revoke or suspend the exchange privilege
.Suspend telephone transactions
.Suspend or postpone redemptions of shares on any day when trading on the New
York Stock Exchange is restricted, or as otherwise permitted by the Securi-
ties and Exchange Commission
Sector Funds
28
<PAGE>
.Pay redemption proceeds by giving you securities. You may pay transaction
costs to dispose of the securities.
Small account balances If your account falls below $500 because of a redemption
of fund shares, the fund may ask you to bring your account up to $500. If your
account is still below $500 after 60 days, the fund may close your account and
send you the redemption proceeds.
Excessive exchange transactions The manager may determine that a pattern of
frequent exchanges is detrimental to a fund's performance and other sharehold-
ers. Each fund may limit additional purchases and/or exchanges by a sharehold-
er.
Share certificates The funds do not issue share certificates unless a written
request signed by all registered owners is made to the transfer agent. If you
hold share certificates it will take longer to exchange or redeem shares.
Smith Barney 401(k) and ExecChoice(TM) programs
You may be eligible to participate in the Smith Barney 401(k) program or the
Smith Barney ExecChoice(TM) program. Each fund offers Class A and Class L
shares to participating plans as investment alternatives under the programs.
You can meet minimum investment and exchange amounts by combining the plan's
investments in any of the Smith Barney funds.
There are no sales charges when you buy or sell shares and the class of shares
you may purchase depends on the amount of your initial investment. Once a class
of shares is chosen, all additional purchases must be of the same class.
.Class A shares may be purchased by plans investing at least $1 million.
.Class L shares may be purchased by plans investing less than $1 million. Class
L shares are eligible for exchange into Class A shares not later than 8 years
after the plan joined the program. They are eligible for exchange sooner in
the following circumstances:
If the account was opened on or after June 21, 1996 and a total of $1 mil-
lion is invested in Smith Barney Funds, and Class L shares (other than
money market funds), all Class L shares are eligible for exchange after
the plan is in the program 5 years.
If the account was opened before June 21, 1996 and the total of $500,000
is invested in Smith Barney Funds, and Class L shares (other
Smith Barney Mutual Funds
29
<PAGE>
than money market funds) on December 31 in any year, all Class L shares
are eligible for exchange on or about March 31 of the following year.
For more information, call your Salomon Smith Barney Financial Consultant or
transfer agent, or consult the SAI.
Dividends, distributions and taxes
Dividends Each fund generally pays dividends and makes capital gain distribu-
tions if any, once a year, typically in December. Each fund may pay additional
distributions and dividends at other times if necessary for the fund to avoid a
federal tax. Each fund expects distributions to be primarily from capital
gains. Capital gain distributions and dividends are reinvested in additional
fund shares of the same class you hold. Alternatively, you can instruct your
Salomon Smith Barney Financial Consultant, dealer representative or the trans-
fer agent to have your distributions and/or dividends paid in cash. You can
change your choice at any time to be effective as of the next distribution or
dividend, except that any change given to the transfer agent less than five
days before the payment date will not be effective until the next distribution
or dividend is paid.
Taxes In general, redeeming shares, exchanging shares and receiving distribu-
tions (whether in cash or additional shares) are all taxable events.
<TABLE>
<CAPTION>
Transaction Federal tax status
<S> <C>
Redemption or exchange of shares Usually capital gain or loss;
long-term only if shares owned
more than one year
Long-term capital gain distributions Long-term capital gain
Short-term capital gain distributions Ordinary income
Dividends Ordinary income
</TABLE>
Long-term capital gain distributions are taxable to you as long-term capital
gain regardless of how long you have owned your shares. You may want to avoid
buying shares when the fund is about to declare a long-term capital gain dis-
tribution or a dividend, because it will be taxable to you even though it may
actually be a return of a portion of your investment.
After the end of each year, each fund will provide you with information about
the distributions and dividends you received and any redemptions of shares dur-
ing the previous year. If you do not provide the fund with your correct tax-
payer identification number and any required certifications, you
Sector Funds
30
<PAGE>
may be subject to back-up withholding of 31% of your distributions, dividends,
and redemption proceeds. Because each shareholder's circumstances are different
and special tax rules may apply, you should consult your tax adviser about your
investment in the fund.
Share price
You may buy, exchange or redeem shares at their net asset value, plus any
applicable sales charge, next determined after receipt of your request in good
order. Each fund's net asset value is the value of its assets minus its liabil-
ities. Net asset value is calculated separately for each class of shares. Each
fund calculates its net asset value every day the New York Stock Exchange is
open. This calculation is done when regular trading closes on the Exchange
(normally 4:00 p.m., Eastern time). The Exchange is closed on certain holidays
listed in the SAI.
Each fund's currency conversions are done when the London stock exchange
closes, which is 12 noon Eastern time. When reliable market prices are not
readily available, or when the value of a security has been materially affected
by events occurring after a foreign exchange closes, each fund may price those
securities at fair value. Fair value is determined in accordance with proce-
dures approved by each fund's board. Each fund that uses fair value to price
securities may value those securities higher or lower than another fund using
market quotations to price the same securities.
International markets may be open on days when U.S. markets are closed and the
value of foreign securities owned by each fund could change on days when you
cannot buy or redeem shares.
In order to buy, redeem or exchange shares at that day's price, you must place
your order with your Salomon Smith Barney Financial Consultant or dealer repre-
sentative before the New York Stock Exchange closes. If the Exchange closes
early, you must place your order prior to the actual closing time. Otherwise,
you will receive the next business day's price.
Salomon Smith Barney or members of the selling group must transmit all orders
to buy, exchange or redeem shares to the fund's agent before the agent's close
of business.
Smith Barney Mutual Funds
31
<PAGE>
(This page is intentionally left blank.)
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Financial Services Fund
Health Sciences Fund
Technology Fund
Each an investment portfolio of Smith Barney Sector Series Inc.
Shareholder reports Annual and semiannual reports to shareholders provide
additional information about a fund's investments. These reports discuss the
market conditions and investment strategies that affected the fund's perfor-
mance.
Each fund sends only one report to a household if more than one account has
the same address. Contact your Salomon Smith Barney Financial Consultant,
dealer representative or the transfer agent if you do not want this policy to
apply to you.
Statement of additional information The statement of additional information
provides more detailed information about a fund and is incorporated by refer-
ence into (is a legally part of) this prospectus.
You can make inquiries about a fund or obtain shareholder reports or the
statement of additional information (without charge) by contacting your Salo-
mon Smith Barney Financial Consultant or dealer representative, by calling the
fund at 1-800-451-2010, or by writing to the fund at Smith Barney Mutual
Funds, 388 Greenwich Street, MF2, New York, New York 10013.
Visit our web site. Our web site is located at www.smithbarney.com
Information about each fund (including the SAI) can be reviewed and copied at
the Commission's Public Reference Room in Washington D.C. In addition, infor-
mation on the operation of the Public Reference Room may be obtained by call-
ing the Commission at 1-202-942-8090. Reports and other information about each
fund are available on the EDGAR Database on the Commission's Internet site at
http://www.sec.gov. Copies of this information may be obtained for a
duplicating fee by electronic request at the following E-mail address:
[email protected], or by writing the Commission's Public Reference Section,
Washington, D.C. 20549-0102.
If someone makes a statement about a fund that is not in this prospectus, you
should not rely upon that information. Neither the funds nor the distributor
is offering to sell shares of a fund to any person to whom the fund may not
lawfully sell its shares.
(TM)Salomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-04757)
FD 01756 12/99
Part B-Statement of Additional Information
February 14, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY SECTOR SERIES INC.
Smith Barney Financial Services Fund
Smith Barney Health Sciences Fund
Smith Barney Technology Fund
388 Greenwich Street
New York, New York 10013
(800) 451-2010
This Statement of Additional Information ("SAI") is
meant to be read in conjunction with the prospectuses
of the Smith Barney Financial Services Fund (the
"Financial Services Fund"), Smith Barney Health
Sciences Fund (the "Health Sciences Fund") and the
Smith Barney Technology Fund (the "Technology Fund")
(each, a "Fund") dated February 14, 2000, as amended
or supplemented from time to time (each, the
"prospectus"), and is incorporated by reference in its
entirety into the prospectus. Additional information
about each fund's investments is available in the
fund's annual and semi-annual reports to shareholders,
which are incorporated herein by reference. The
prospectus and copies of the reports may be obtained
free of charge by contacting a Salomon Smith Barney
Financial Consultant, or by writing or calling Salomon
Smith Barney at the address or telephone number above.
Each fund is a separate investment series of Smith
Barney Sector Series Inc. (the "Company").
TABLE OF CONTENTS
Investment Objective and Management Policies
Portfolio Securities
Investment Restrictions
Risk Considerations
Directors of the Company and Executive Officers of the
Fund
Investment Management and Other Services
Portfolio Transactions and Turnover
Purchase of Shares
Redemption of Shares
Exchange Privilege
Valuation of Shares
Performance Data
Dividends, Distributions and Taxes
Additional Information
Other Information
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES TC
"INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES" \f C \l
"1"
The prospectus discusses each Fund's investment
objective and policies. This section contains
supplemental information concerning the types of
securities and other instruments in which each Fund
may invest the investment policies and portfolio
strategies each Fund may utilize and certain risks
associated with these investments, policies and
strategies. SSB Citi Fund Management LLC ("SSB Citi"
or the "Manager") serves as investment manager to each
Fund.
FINANCIAL SERVICES FUND
The Financial Services Fund seeks capital appreciation
by investing primarily in common stocks.
The fund invests at least 80% of its assets in
securities of companies principally engaged in
providing financial services to consumers and
industry. These companies may include, for example,
commercial banks, savings and loan associations,
brokerage companies, insurance companies, real estate-
related companies, leasing companies, and consumer and
industrial finance companies. Because the fund is
considered non-diversified, the Manager may invest a
significant percentage of the fund's assets in a
single issuer. The fund will in invest in domestic and
foreign issuers. The Manager uses fundamental
analysis of each issuer's financial condition and
industry position to select investments.
HEALTH SCIENCES FUND
The Health Sciences Fund invests primarily in common
stocks. The Fund invests at least 80% of its assets in
securities of companies principally engaged in the
design, manufacture, or sale of products or services
used for or in connection with health care or
medicine. These companies may include, for example,
pharmaceutical companies; companies involved in
biotechnology, medical diagnostic, biochemical or
other health care research and development; companies
involved in the operation of health care facilities;
and other companies involved in the design,
manufacture, or sale of health care-related products
or services such as medical, dental and optical
products, hardware or services. The Fund invests in
domestic and foreign issuers.The Manager uses
fundamental analysis of each issuer's financial
condition and industry position to select investments.
TECHNOLOGY FUND
The Technology Fund normally invests its assets
primarily in common stocks. The Fund normally invests
at least 80% of its assets in securities of companies
principally engaged in offering, using or developing
products, processes or services that will provide or
will benefit significantly from technological advances
and improvements. These companies may include, for
example, companies that develop, produce or distribute
products or services in the computer, semi-conductor,
electronics, communications, health care, and
biotechnology sectors.
EACH FUND
Each fund may invest its assets in securities of
foreign issuers in addition to securities of domestic
issuers. Because each fund is considered non-
diversified, the Manager may invest a significant
percentage of the fund's assets in a single issuer.
In buying and selling securities for each fund, the
Manager relies on fundamental analysis of each issuer
and its potential for success in light of its current
financial condition and its industry position. Factors
considered include long-term growth potential,
earnings estimates and management.
The Manager may lend each Fund's securities to broker-
dealers or other institutions to earn income for the
Fund. The Manager may but is not required to use
various techniques, such as buying and selling futures
and options contracts, to increase or decrease a
Fund's exposure to changing security prices or other
factors that affect security values. If the Manager's
strategies do not work as intended, a Fund may not
achieve its objective.
Under normal market conditions, the majority of a
Fund's portfolio will consist of common stock, but it
also may contain money market instruments for cash
management purposes. Each Fund reserves the right, as
a defensive measure, to hold money market securities,
including repurchase agreements or cash, in such
proportions as, in the opinion of management,
prevailing market or economic conditions warrant. If a
Fund takes a temporary defensive position, it may be
unable to achieve its investment goal.
Equity Securities. Each Fund will normally invest at
least 80% of its assets in equity securities,
including primarily common stocks and, to a lesser
extent, securities convertible into common stock and
rights to subscribe for common stock. Common stocks
represent an equity (ownership) interest in a
corporation. Although equity securities have a
history of long-term growth in value, their prices
fluctuate based on changes in a company's financial
condition and on overall market and economic
conditions.
When-Issued Securities and Delayed-Delivery
Transactions. Each Fund may purchase securities on a
"when-issued" basis, for delayed delivery (i.e.,
payment or delivery occur beyond the normal settlement
date at a stated price and yield) or on a forward
commitment basis. A Fund does not intend to engage in
these transactions for speculative purposes, but only
in furtherance of its investment goal. These
transactions occur when securities are purchased or
sold by a Fund with payment and delivery taking place
in the future to secure what is considered an
advantageous yield and price to a Fund at the time of
entering into the transaction. The payment obligation
and the interest rate that will be received on
when-issued securities are fixed at the time the buyer
enters into the commitment. Because of fluctuations
in the value of securities purchased or sold on a
when-issued, delayed-delivery basis or forward
commitment basis, the prices obtained on such
securities may be higher or lower than the prices
available in the market on the dates when the
investments are actually delivered to the buyers.
When the Fund agrees to purchase when-issued or
delayed-delivery securities, the Fund will set aside
cash or liquid securities equal to the amount of the
commitment in a segregated account on the Fund's
books. Normally, the custodian will set aside
portfolio securities to satisfy a purchase commitment,
and in such a case the Fund may be required
subsequently to place additional assets in the
segregated account in order to ensure that the value
of the account remains equal to the amount of the
Fund's commitment. The assets contained in the
segregated account will be marked-to-market daily. It
may be expected that the Fund's net assets will
fluctuate to a greater degree when it sets aside
portfolio securities to cover such purchase
commitments than when it sets aside cash. When the
Fund engages in when-issued or delayed-delivery
transactions, it relies on the other party to
consummate the trade. Failure of the seller to do so
may result in the Fund's incurring a loss or missing
an opportunity to obtain a price considered to be
advantageous.
Foreign Securities. Each Fund may invest in
securities of foreign issuers. Such investments
involve certain risks not ordinarily associated with
investments in securities of domestic issuers. Such
risks include currency exchange control regulations
and costs, the possibility of expropriation, seizure,
or nationalization of foreign deposits, less liquidity
and volume and more volatility in foreign securities
markets and the impact of political, social, economic
or diplomatic developments or the adoption of other
foreign government restrictions that might adversely
affect the payment of principal and interest on or
market value of securities. If it should become
necessary, the Fund might encounter greater
difficulties in invoking legal processes abroad than
would be the case in the United States. In addition,
there may be less publicly available information about
a non-U.S. company, and non-U.S. companies are not
generally subject to uniform accounting and financial
reporting standards, practices and requirements
comparable to those applicable to U.S. companies.
Furthermore, some of these securities may be subject
to foreign brokerage and withholding taxes.
Each Fund may also invest in securities of foreign
issuers in the form of American Depository Receipts
("ADRs"), European Depository Receipts ("EDRs") or
similar securities representing interests in the
common stock of foreign issuers. Management intends
to limit each Fund's investment in these types of
securities to 10% of the Fund's net assets. ADRs are
receipts, typically issued by a U.S. bank or trust
company, which evidence ownership of underlying
securities issued by a foreign corporation. EDRs are
receipts issued in Europe which evidence a similar
ownership arrangement. Generally, ADRs, in registered
form, are designed for use in the U.S. securities
markets and EDRs are designed for use in European
securities markets. The underlying securities are not
always denominated in the same currency as the ADRs or
EDRs. Although investment in the form of ADRs or EDRs
facilitates trading in foreign securities, it does not
mitigate the risks associated with investing in
foreign securities. However, by investing in ADRs or
EDRs rather than directly in foreign issuers' stock,
the Portfolio can avoid currency risks during the
settlement period for either purchases or sales. In
general, there is a large, liquid market in the United
States for many ADRs and EDRs. The information
available for ADRs and EDRs is subject to the
accounting, auditing and financial reporting standards
of the domestic market or exchange on which they are
traded, which standards are more uniform and more
exacting than those to which many foreign issuers may
be subject.
Investments in foreign securities incur higher costs
than investments in U.S. securities, including higher
costs in making securities transactions as well as
foreign government taxes which may reduce the
investment return of the Fund. In addition, foreign
investments may include additional risks associated
with currency exchange rates, less complete financial
information about individual companies, less market
liquidity and political instability.
Money Market Instruments. Each Fund may invest for
temporary defensive purposes in short-term corporate
and government bonds and notes and money market
instruments. Money market instruments include:
obligations issued or guaranteed by the United States
government, its agencies or instrumentalities ("U.S.
government securities"); certificates of deposit, time
deposits and bankers' acceptances issued by domestic
banks (including their branches located outside the
United States and subsidiaries located in Canada),
domestic branches of foreign banks, savings and loan
associations and similar institutions; high grade
commercial paper; and repurchase agreements with
respect to the foregoing types of instruments.
Certificates of deposit ("CDs") are short-term,
negotiable obligations of commercial banks. Time
deposits ("TDs") are non-negotiable deposits
maintained in banking institutions for specified
periods of time at stated interest rates. Bankers'
acceptances are time drafts drawn on commercial banks
by borrowers, usually in connection with international
transactions.
Repurchase Agreements. Each Fund may agree to
purchase securities from a bank or recognized
securities dealer and simultaneously commit to resell
the securities to the bank or dealer at an agreed-upon
date and price reflecting a market rate of interest
unrelated to the coupon rate or maturity of the
purchased securities ("repurchase agreements"). The
Fund would maintain custody of the underlying
securities prior to their repurchase; thus, the
obligation of the bank or dealer to pay the repurchase
price on the date agreed to would be, in effect,
secured by such securities. If the value of such
securities were less than the repurchase price, plus
interest, the other party to the agreement would be
required to provide additional collateral so that at
all times the collateral is at least 102% of the
repurchase price plus accrued interest. Default by or
bankruptcy of a seller would expose the Fund to
possible loss because of adverse market action,
expenses and/or delays in connection with the
disposition of the underlying obligations. The
financial institutions with which the Fund may enter
into repurchase agreements will be banks and non-bank
dealers of U.S. Government securities on the Federal
Reserve Bank of New York's list of reporting dealers,
if such banks and non-bank dealers are deemed
creditworthy by the Fund's Manager. The Manager will
continue to monitor creditworthiness of the seller
under a repurchase agreement, and will require the
seller to maintain during the term of the agreement
the value of the securities subject to the agreement
to equal at least 102% of the repurchase price
(including accrued interest). In addition, the
Manager will require that the value of this
collateral, after transaction costs (including loss of
interest) reasonably expected to be incurred on a
default, be equal to 102% or greater than the
repurchase price (including accrued premium) provided
in the repurchase agreement or the daily amortization
of the difference between the purchase price and the
repurchase price specified in the repurchase
agreement. The Manager will mark-to-market daily the
value of the securities. Repurchase agreements are
considered to be loans by the Fund under the
Investment Company Act of 1940, as amended (the "1940
Act").
Reverse Repurchase Agreements. Each Fund may enter
into reverse repurchase agreements which involve the
sale of Fund securities with an agreement to
repurchase the securities at an agreed-upon price,
date and interest payment and have the characteristics
of borrowing. Since the proceeds of borrowings under
reverse repurchase agreements are invested, this would
introduce the speculative factor known as "leverage."
The securities purchased with the Funds obtained from
the agreement and securities collateralizing the
agreement will have maturity dates no later than the
repayment date. Generally the effect of such a
transaction is that the Fund can recover all or most
of the cash invested in the portfolio securities
involved during the term of the reverse repurchase
agreement, while in many cases it will be able to keep
some of the interest income associated with those
securities. Such transactions are only advantageous
if the Fund has an opportunity to earn a greater rate
of interest on the cash derived from the transaction
than the interest cost of obtaining that cash.
Opportunities to realize earnings from the use of the
proceeds equal to or greater than the interest
required to be paid may not always be available, and
the Fund intends to use the reverse repurchase
technique only when the Manager believes it will be
advantageous to the Fund. The use of reverse
repurchase agreements may exaggerate any interim
increase or decrease in the value of the Fund's
assets. The Fund's custodian bank will maintain a
separate amount for the Fund with securities having a
value equal to or greater than such commitments.
Lending of Portfolio Securities. Consistent with
applicable regulatory requirements, each Fund may lend
portfolio securities to brokers, dealers and other
financial organizations that meet capital and other
credit requirements or other criteria established by
the Board. The Fund will not lend portfolio
securities to affiliates of the Manager unless they
have applied for and received specific authority to do
so from the Securities and Exchange Commission
("SEC"). Loans of portfolio securities 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 102% of the
current market value of the loaned securities. Any
gain or loss in the market price of the securities
loaned that might occur during the term of the loan
would be for the account of the Fund. From time to
time, the Fund may return a part of the interest
earned from the investment of collateral received for
securities loaned to the borrower and/or a third party
that is unaffiliated with the Fund and that is acting
as a "finder."
By lending its securities, the Fund can increase its
income by continuing to receive interest and any
dividends on the loaned securities as well as by
either investing the collateral received for
securities loaned in short-term instruments or
obtaining yield in the form of interest paid by the
borrower when U.S. Government Securities are used as
collateral. Although the generation of income is not
the primary investment goal of the Fund, income
received could be used to pay the Fund's expenses and
would increase an investor's total return. The Fund
will adhere to the following conditions whenever its
portfolio securities are loaned: (i) the Fund must
receive at least 102% cash collateral or equivalent
securities of the type discussed in the preceding
paragraph from the borrower; (ii) the borrower must
increase such collateral whenever the market value of
the securities rises above the level of such
collateral; (iii) the Fund must be able to terminate
the loan at any time; (iv) the Fund must receive
reasonable interest on the loan, as well as any
dividends, interest or other distributions on the
loaned securities and any increase in market value;
(v) the Fund may pay only reasonable custodian fees in
connection with the loan; and (vi) voting rights on
the loaned securities may pass to the borrower,
provided, however, that if a material event adversely
affecting the investment occurs, the Board must
terminate the loan and regain the right to vote the
securities. Loan agreements 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 recover the loaned securities or
dispose of the collateral for the loan.
Illiquid Securities. Each Fund may invest up to an
aggregate amount of 15% of its net assets in illiquid
securities, which term includes securities subject to
contractual or other restrictions on resale and other
instruments that lack readily available markets.
RISK CONSIDERATIONS
Financial Services Fund
This sector generally is subject to extensive
governmental regulation, which may change frequently.
In addition, the profitability of businesses in these
industries depends heavily upon the availability and
cost of money, and may fluctuate significantly in
response to changes in interest rates, as well as
changes in general economic conditions. From time to
time, severe competition may also affect the
profitability of these industries, and the insurance
industry in particular.
Most financial services companies are subject to
extensive governmental regulation which limits their
activities and may (as with insurance rate regulation)
affect the ability to earn a profit from a given line
of business. Certain financial services businesses are
subject to intense competitive pressures, including
market share and price competition. The removal of
regulatory barriers to participation in certain
segments of the financial services sector may also
increase competitive pressures on different types of
firms. For example, legislative proposals to remove
traditional barriers between banking and investment
banking activities would allow large commercial banks
to compete for business that previously was the
exclusive domain of securities firms. Similarly, the
removal of regional barriers in the banking industry
has intensified competition within the industry. The
availability and cost of funds to financial services
firms is crucial to their profitability.
Consequently, volatile interest rates and general
economic conditions can adversely affect their
financial performance.
Financial services companies in foreign countries are
subject to similar regulatory and interest rate
concerns. In particular, government regulation in
certain foreign countries may include controls on
interest rates, credit availability, prices and
currency movements. In some cases, foreign governments
have taken steps to nationalize the operations of
banks and other financial services companies.
The Manager believes that the ongoing deregulation of
many segments of the financial services sector
continues to provide new opportunities for issuers in
this sector. As deregulation of various financial
services businesses continues and new segments of the
financial services sector are opened to certain larger
financial services firms formerly prohibited from
doing business in these segments, (such as national
and money center banks) certain established companies
in these market segments (such as regional banks or
securities firms) may become attractive acquisition
candidates for the larger firm seeking entrance into
the segment. Typically, acquisitions accelerate the
capital appreciation of the shares of the company to
be acquired.
In addition, financial services companies in growth
segments (such as securities firms during times of
stock market expansion) or geographically linked to
areas experiencing strong economic growth (such as
certain regional banks) are likely to participate in
and benefit from such growth through increased demand
for their products and services. Many financial
services companies which are actively and aggressively
managed and are expanding services as deregulation
opens up new opportunities also show potential for
capital appreciation, particularly in expanding into
areas where nonregulatory barriers to entry are low.
The Manager will seek to invest in those financial
services companies that it believes are well
positioned to take advantage of the ongoing changes in
the financial services sector. A financial services
company may be well positioned for a number of
reasons. It may be an attractive acquisition for
another company wishing to strengthen its presence in
a line of business or a geographic region or to expand
into new lines of business or geographic regions, or
it may be planning a merger to strengthen its position
in a line of business or a geographic area. The
financial services company may be engaged in a line or
lines of business experiencing or likely to experience
strong economic growth; it be linked to a geographic
region experiencing or likely to experience strong
economic growth and be actively seeking to participate
in such growth; or it may be expanding into financial
services or geographic regions previously unavailable
to it (due to an easing of regulatory constraints) in
order to take advantage of new market opportunities.
Health Sciences Fund
Many faster-growing health care companies have limited
operating histories and their potential profitability
may be dependent on regulatory approval of their
products, which increases the volatility of these
companies' security prices. Many of these activities
are funded or subsidized by governments; withdrawal or
curtailment of this support could lower the
profitability and market prices of such companies.
Changes in government regulation could also have an
adverse impact. Continuing technological advances may
mean rapid obsolescence of products and services.
Technology Fund
Many technological products and services are subject
to rapid obsolescence, which may lower the market
value of the securities of the companies in this
sector. Also, the portfolio consists of faster-
growing, more volatile technology companies that CGAM
believes to be emerging leaders in their fields. The
market prices of these companies tend to rise and fall
more rapidly than those of larger, more established
companies.
Technology and Health Science Areas. The Manager
believes that because of rapid advances in technology
and science, an investment in companies with business
operations in these areas will offer substantial
opportunities for long-term capital appreciation. Of
course, prices of common stocks of even the best
managed, most profitable corporations are subject to
market risk, which means their stock prices can
decline. In addition, swings in investor psychology or
significant trading by large institutional investors
can result in price fluctuations. Industries likely to
be represented in the portfolio include computers,
networking and internetworking software, computer
aided design, telecommunications, media and
information services, medical devices and
biotechnology. The Fund may also invest in the stocks
of companies that should benefit from the
commercialization of technological advances, although
they may not be directly involved in research and
development.
The technology and science areas have exhibited and
continue to exhibit rapid growth, both through
increasing demand for existing products and services
and the broadening of the technology market. In
general, the stocks of large capitalized companies
that are well established in the technology market can
be expected to grow with the market and will
frequently be found in the Fund's portfolio. The
expansion of technology and its related industries,
however, also provides a favorable environment for
investment in small to medium capitalized companies.
The Fund's investment policy is not limited to any
minimum capitalization requirement and the Fund may
hold securities without regard to the capitalization
of the issuer. The Manager's overall stock selection
for the Fund is not based on the capitalization or
size of the company but rather on an assessment of the
company's fundamental prospects. The Fund will not
purchase stocks of companies during their initial
public offering or during an additional public
offering of the same security.
Companies in the rapidly changing fields of technology
and science face special risks. For example, their
products or services may not prove commercially
successful or may become obsolete quickly. The value
of the Fund's shares may be susceptible to factors
affecting the technology and science areas and to
greater risk and market fluctuation than an investment
in a fund that invests in a broader range of portfolio
securities not concentrated in any particular
industry. As such, the Fund is not an appropriate
investment for individuals who are not long-term
investors and who, as their primary objective, require
safety of principal or stable income from their
investments. The technology and science areas may be
subject to greater governmental regulation than many
other areas and changes in governmental policies and
the need for regulatory approvals may have a material
adverse effect on these areas. Additionally, companies
in these areas may be subject to risks of developing
technologies, competitive pressures and other factors
and are dependent upon consumer and business
acceptance as new technologies evolve.
Risks Associated with Particular Investments
Market Risk. Equity stock prices vary and may fall,
thus reducing the value of your Fund's investment.
Certain stocks selected for any Fund's portfolio may
decline in value more than the overall stock market.
Foreign Securities. As described above, investments
in foreign and emerging markets carry special risks,
including currency, political, regulatory and
diplomatic risks. The impact of the euro may be even
greater for the Funds, since the Funds have the
ability to invest more than 25% of their respective
assets in the securities of non-U.S. issuers.
Currency Risk. A change in the exchange rate between
U.S. dollars and a foreign currency may reduce the
value of a Fund's investment in a security valued in
the foreign currency, or based on that currency value.
Political Risk. Political actions, events or
instability may result in unfavorable changes in the
value of a security.
Regulatory Risk. Government regulations may affect
the value of a security. In foreign countries,
securities markets that are less regulated than those
in the U.S. may permit trading practices that are not
allowed in the U.S.
Diplomatic Risk. A change in diplomatic relations
between the U.S. and a foreign country could affect
the value or liquidity of investments.
Liquidity Risk. A Fund's portfolio is liquid if the
Fund is able to sell the securities it owns at a fair
price within a reasonable time. Liquidity is generally
related to the market trading volume for a particular
security. Investments in smaller companies or in
foreign companies or companies in emerging markets are
subject to a variety of risks, including potential
lack of liquidity.
Smaller Capitalized Companies. The Manager believes
that smaller capitalized companies generally have
greater earnings and sales growth potential than
larger capitalized companies. The level of risk will
be increased to the extent that each Fund has
significant exposure to smaller capitalized or
unseasoned companies (those with less than a three-
year operating history). Investments in smaller
capitalized companies may involve greater risks, such
as limited product lines, markets and financial or
managerial resources. In addition, less frequently
traded securities may be subject to more abrupt price
movements than securities of larger capitalized
companies.
Derivatives Risk. A derivative is a financial
instrument whose value is "derived," in some manner,
from the price of another security, index, asset or
rate. Derivatives include options and futures
contracts, among a wide range of other instruments.
The principal risk of investments in derivatives is
that the fluctuations in their values may not
correlate perfectly with the overall securities
markets. Some derivatives are more sensitive to
interest rate changes and market price fluctuations
than others. Also, derivatives are subject to
counterparty risk.
Options and Futures. Options and futures are common
types of derivatives that a Fund may use to hedge its
investments. An option is the right to buy or sell a
security at a specific price on or before a specific
date. A future is an agreement to buy or sell a
security at a specific price on a specific date.
Counterparty Risk. This is a risk associated
primarily with repurchase agreements and some
derivatives transactions. It is the risk that the
other party in such a transaction will not fulfill its
contractual obligation to complete a transaction with
a Fund.
Lack of Timely Information Risk. Timely information
about a security or its issuer may be unavailable,
incomplete or inaccurate. This risk is more common to
smaller company securities issued by foreign companies
and companies in emerging markets than it is to the
securities of U.S.-based companies.
Non-Diversified Classification. Each Fund is
classified as a non-diversified fund under the 1940
Act which means the Fund is not limited by the Act in
the proportion of its assets it may invest in the
obligations of a single issuer. As a result, the
Funds may be subject to greater volatility with
respect to its portfolio securities than funds that
are more broadly diversified. The Fund intends to
conduct its operations, however, so as to qualify as a
"regulated investment company" for purposes of the
Internal Revenue Code of 1986, as amended (the
"Code"), which will relieve the Fund of any liability
for Federal income tax to the extent its earnings are
distributed to shareholders. To qualify as a
regulated investment company, the Fund will, among
other things, limit its investments so that, at the
close of each quarter of the taxable year (a) not more
than 25% of the market value of the Fund's total
assets will be invested in the securities of a single
issuer and (b) with respect to 50% of the market value
of its total assets, not more than 5% of the market
value of its total assets will be invested in the
securities of a single issuer and the Fund will not
own more than 10% of the outstanding voting securities
of a single issuer.
Master/feeder fund structure. The Board of Directors
has the discretion to retain the current distribution
arrangement for the Funds while investing their assets
in a master fund in a master/feeder fund structure. A
master/feeder fund structure is one in which a fund (a
"feeder fund"), instead of investing directly in a
portfolio of securities, invests most or all of its
investment assets in a separate registered investment
company (the "master fund") with substantially the
same investment objective and policies as the feeder
fund. Such a structure permits the pooling of assets
of two or more feeder funds, preserving separate
identities or distribution channels at the feeder fund
level. Based on the premise that certain of the
expenses of operating an investment portfolio are
relatively fixed, a larger investment portfolio may
eventually achieve a lower ratio of operating expenses
to average net assets. An existing investment company
is able to convert to a feeder fund by selling all of
its investments, which involves brokerage and other
transaction costs and realization of a taxable gain or
loss, or by contributing its assets to the master fund
and avoiding transaction costs and, if proper
procedures are followed, the realization of taxable
gain or loss.
Options, Futures and Currency Strategies. Each Fund
may but is not required to use forward currency
contracts and certain options and futures strategies
to attempt to hedge its portfolio, i.e., reduce the
overall level of investment risk normally associated
with the Fund. There can be no assurance that such
efforts will succeed.
In order to assure that the Fund will not be deemed to
be a "commodity pool" for purposes of the Commodity
Exchange Act, regulations of the Commodity Futures
Trading Commission ("CFTC") require that the Fund
enter into transactions in futures contracts and
options on futures only (i) for bona fide hedging
purposes (as defined in CFTC regulations), or (ii) for
non-hedging purposes, provided the aggregate initial
margin and premiums on such non-hedging positions do
not exceed 5% of the liquidation value of the Fund's
assets. To attempt to hedge against adverse movements
in exchange rates between currencies, the Fund may
enter into forward currency contracts for the purchase
or sale of a specified currency at a specified future
date. Such contracts may involve the purchase or sale
of a foreign currency against the U.S. dollar or may
involve two foreign currencies. The Fund may enter
into forward currency contracts either with respect to
specific transactions or with respect to its portfolio
positions. For example, when the Manager anticipates
making a purchase or sale of a security, it may enter
into a forward currency contract in order to set the
rate (either relative to the U.S. dollar or another
currency) at which the currency exchange transaction
related to the purchase or sale will be made
("transaction hedging"). Further, when the Manager
believes a particular currency may decline compared to
the U.S. dollar or another currency, the Fund may
enter into a forward contract to sell the currency the
Manager expects to decline in an amount approximating
the value of some or all of the Fund's securities
denominated in that currency, or when the Manager
believes one currency may decline against a currency
in which some or all of the portfolio securities held
by the Fund are denominated, it may enter into a
forward contract to buy the currency expected to
decline for a fixed amount ("position hedging"). In
this situation, the Fund may, in the alternative,
enter into a forward contract to sell a different
currency for a fixed amount of the currency expected
to decline where the investment Manager believes the
value of the currency to be sold pursuant to the
forward contract will fall whenever there is a decline
in the value of the currency in which portfolio
securities of the Fund are denominated ("cross
hedging"). The Fund places (i) cash, (ii) U.S.
Government securities or (iii) equity securities or
debt securities (of any grade) in certain currencies
provided such assets are liquid, unencumbered and
marked to market daily, or other high-quality debt
securities denominated in certain currencies in a
separate account of the Fund having a value equal to
the aggregate amount of the Fund's commitments under
forward contracts entered into with respect to
position hedges and cross-hedges. If the value of the
securities placed in a separate account declines,
additional cash or securities are placed in the
account on a daily basis so that the value of the
amount will equal the amount of the Fund's commitments
with respect to such contracts.
For hedging purposes, the Fund may write covered call
options and purchase put and call options on
currencies to hedge against movements in exchange
rates and on debt securities to hedge against the risk
of fluctuations in the prices of securities held by
the Fund or which the Manager intends to include in
its portfolio. The Fund also may use interest rates
futures contracts and options thereon to hedge against
changes in the general level in interest rates.
The Fund may write call options on securities and
currencies only if they are covered, and such options
must remain covered so long as the Fund is obligated
as a writer. A call option written by the Fund is
"covered" if the Fund owns the securities or currency
underlying the option or has an absolute and immediate
right to acquire that security or currency without
additional cash consideration (or for additional cash
consideration held in a segregated account on the
Fund's books) upon conversion or exchange of other
securities or currencies held in its portfolio. A
call option is also covered if the Fund holds on a
share-for-share basis a call on the same security or
holds a call on the same currency as the call written
where the exercise price of the call held is equal to
less than the exercise price of the call written or
greater than the exercise price of the call written if
the difference is maintained by the Fund in cash,
Treasury bills or other high-grade, short-term
obligations in a segregated account on the Fund's
books.
The Fund may purchase put and call options in
anticipation of declines in the value of portfolio
securities or increases in the value of securities to
be acquired. If the expected changes occur, the Fund
may be able to offset the resulting adverse effect on
its portfolio, in whole or in part, through the
options purchased. The risk assumed by the Fund in
connection with such transactions is limited to the
amount of the premium and related transaction costs
associated with the option, although the Fund may lose
such amounts if the prices of securities underlying
the options do not move in the direction or to the
extent anticipated.
Although the portfolio may not use forward currency
contracts, options and futures, the use of any of
these strategies would involve certain investment
risks and transaction costs. These risks include:
dependence on the Manager's ability to predict
movements in the prices of individual 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 the Fund invests; lack
of assurance that a liquid market will exist for any
particular option, futures contract or option thereon
at any particular time.
Over-the-counter options in which the Fund may invest
differ from exchange traded options in that they are
two-party contracts, with price and other terms
negotiated between buyer and seller, and generally do
not have as much market liquidity as exchange-traded
options. The Fund may be required to treat as
illiquid over-the-counter options purchased and
securities being used to cover certain written over-
the-counter options.
Options on Securities. As discussed more generally
above, each Fund may engage in writing covered call
options. Each Fund may also purchase put options and
enter into closing transactions. The principal reason
for writing covered call options on securities is to
attempt to realize, through the receipt of premiums, a
greater return than would be realized on the
securities alone. In return for a premium, the writer
of a covered call option forgoes the right to any
appreciation in the value of the underlying security
above the strike price for the life of the option (or
until a closing purchase transaction can be effected).
Nevertheless, the call writer retains the risk of a
decline in the price of the underlying security.
Similarly, the principal reason for writing covered
put options is to realize income in the form of
premiums. The writer of a covered put option accepts
the risk of a decline in the price of the underlying
security. The size of the premiums the Fund may
receive may be adversely affected as new or existing
institutions, including other investment companies,
engage in or increase their option-writing activities.
Options written by the Fund will normally have
expiration dates between one and six months from the
date written. The exercise price of the options may be
below, equal to, or above the current market values of
the underlying securities when the options are
written. In the case of call options, these exercise
prices are referred to as "in-the-money," "at-the-
money" and "out-of-the-money," respectively.
The Fund may write (a) in-the-money call options when
the Manager expects the price of the underlying
security to remain flat or decline moderately during
the option period, (b) at-the-money call options when
the Manager expects the price of the underlying
security to remain flat or advance moderately during
the option period and (c) out-of-the-money call
options when the Manager expects that the price of the
security may increase but not above a price equal to
the sum of the exercise price plus the premiums
received from writing the call option. In any of the
preceding situations, if the market price of the
underlying security declines and the security is sold
at this lower price, the amount of any realized loss
will be offset wholly or in part by the premium
received. Out-of-the-money, at-the-money and in-the-
money put options (the reverse of call options as to
the relation of exercise price to market price) may be
utilized in the same market environments as such call
options are used in equivalent transactions.
So long as the obligation of the Fund as the writer of
an option continues, the Fund may be assigned an
exercise notice by the broker-dealer through which the
option was sold, requiring it to deliver, in the case
of a call, or take delivery of, in the case of a put,
the underlying security against payment of the
exercise price. This obligation terminates when the
option expires or the Fund effects a closing purchase
transaction. The Fund can no longer effect a closing
purchase transaction with respect to an option once it
has been assigned an exercise notice. To secure its
obligation to deliver the underlying security when it
writes a call option, or to pay for the underlying
security when it writes a put option, the Fund will be
required to deposit in escrow the underlying security
or other assets in accordance with the rules of the
Options Clearing Corporation ("Clearing Corporation")
or similar clearing corporation and the securities
exchange on which the option is written.
An option position may be closed out only where there
exists a secondary market for an option of the same
series on a recognized securities exchange or in the
over-the-counter market. The Fund expects to write
options only on national securities exchanges or in
the over-the-counter market. The Fund may purchase
put options issued by the Clearing Corporation or in
the over-the-counter market.
The Fund may realize a profit or loss upon entering
into a closing transaction. In cases in which the Fund
has written an option, it will realize a profit if the
cost of the closing purchase transaction is less than
the premium received upon writing the original option
and will incur a loss if the cost of the closing
purchase transaction exceeds the premium received upon
writing the original option. Similarly, when the Fund
has purchased an option and engages in a closing sale
transaction, whether it recognizes a profit or loss
will depend upon whether the amount received in the
closing sale transaction is more or less than the
premium the Fund initially paid for the original
option plus the related transaction costs.
Although the Fund generally will purchase or write
only those options for which the Manager believes
there is an active secondary market so as to
facilitate closing transactions, there is no assurance
that sufficient trading interest to create a liquid
secondary market on a securities exchange will exist
for any particular option or at any particular time,
and for some options no such secondary market may
exist. A liquid secondary market in an option may
cease to exist for a variety of reasons. In the past,
for example, higher than anticipated trading activity
or order flow, or other unforeseen events, have at
times rendered certain of the facilities of the
Clearing Corporation and national securities exchanges
inadequate and resulted in the institution of special
procedures, such as trading rotations, restrictions on
certain types of orders or trading halts or
suspensions in one or more options. There can be no
assurance that similar events, or events that may
otherwise interfere with the timely execution of
customers' orders, will not recur. In such event, it
might not be possible to effect closing transactions
in particular options. If, as a covered call option
writer, the Fund is unable to effect a closing
purchase transaction in a secondary market, it will
not be able to sell the underlying security until the
option expires or it delivers the underlying security
upon exercise.
Securities exchanges generally have established
limitations governing the maximum number of calls and
puts of each class which may be held or written, or
exercised within certain periods, by an investor or
group of investors acting in concert (regardless of
whether the options are written on the same or
different securities exchanges or are held, written or
exercised in one or more accounts or through one or
more brokers). It is possible that the Fund and other
clients of the Manager and certain of their affiliates
may be considered to be such a group. A securities
exchange may order the liquidation of positions found
to be in violation of these limits, and it may impose
certain other sanctions.
In the case of options written by the Fund that are
deemed covered by virtue of the Fund's holding
convertible or exchangeable preferred stock or debt
securities, the time required to convert or exchange
and obtain physical delivery of the underlying common
stocks with respect to which the Fund has written
options may exceed the time within which the Fund must
make delivery in accordance with an exercise notice.
In these instances, the Fund may purchase or
temporarily borrow the underlying securities for
purposes of physical delivery. By so doing, the Fund
will not bear any market risk because the Fund will
have the absolute right to receive from the issuer of
the underlying security an equal number of shares to
replace the borrowed stock, but the Fund may incur
additional transaction costs or interest expenses in
connection with any such purchase or borrowing.
Although the Manager will attempt to take appropriate
measures to minimize the risks relating to the Fund's
writing of call options and purchasing of put and call
options, there can be no assurance that the Fund will
succeed in its option-writing program.
Stock Index Options. As described generally above,
each Fund may purchase put and call options and write
call options on domestic stock indexes listed on
domestic exchanges in order to realize its investment
objective of long-term capital growth or for the
purpose of hedging its portfolio. A stock index
fluctuates with changes in the market values of the
stocks included in the index. Some stock index options
are based on a broad market index such as the New York
Stock Exchange Composite Index or the Canadian Market
Portfolio Index, or a narrower market index such as
the Standard & Poor's 100. Indexes also are based on
an industry or market segment such as the American
Stock Exchange Oil and Gas Index or the Computer and
Business Equipment Index.
Options on stock indexes are generally similar to
options on stock except that the delivery requirements
are different. Instead of giving the right to take or
make delivery of stock at a specified price, an option
on a stock index gives the holder the right to receive
a cash "exercise settlement amount" equal to (a) the
amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less
than (in the case of a call) the closing value of the
underlying index on the date of exercise, multiplied
by (b) a fixed "index multiplier." Receipt of this
cash amount will depend upon the closing level of the
stock index upon which the option is based being
greater than, in the case of a call, or less than, in
the case of a put, the exercise price of the option.
The amount of cash received will be equal to such
difference between the closing price of the index and
the exercise price of the option expressed in dollars
or a foreign currency, as the case may be, times a
specified multiple. The writer of the option is
obligated, in return for the premium received, to make
delivery of this amount. The writer may offset its
position in stock index options prior to expiration by
entering into a closing transaction on an exchange or
it may let the option expire unexercised.
The effectiveness of purchasing or writing stock index
options as a hedging technique will depend upon the
extent to which price movements in the portion of the
securities portfolio of the Fund correlate with price
movements of the stock index selected. Because the
value of an index option depends upon movements in the
level of the index rather than the price of a
particular stock, whether the Fund will realize a gain
or loss from the purchase or writing of options on an
index depends upon movements in the level of stock
prices in the stock market generally or, in the case
of certain indexes, in an industry or market segment,
rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of
options on stock indexes will be subject to the
Manager's ability to predict correctly movements in
the direction of the stock market generally or of a
particular industry. This requires different skills
and techniques than predicting changes in the price of
individual stocks.
Futures Contracts and Options on Futures Contracts.
As described generally above, each Fund may invest in
stock index futures contracts and options on futures
contracts traded on a domestic exchange or board of
trade. Futures contracts provide for the future sale
by one party and purchase by another party of a
specified amount of a specific security at a specified
future time and at a specified price. The primary
purpose of entering into a futures contract by the
Fund is to protect the Fund from fluctuations in the
value of securities without actually buying or selling
the securities. The Fund may enter into futures
contracts and options on futures to seek higher
investment returns when a futures contract is priced
more attractively than stocks comprising a benchmark
index, to facilitate trading or to reduce transaction
costs. The Fund will enter into futures contracts and
options only on futures contracts that are traded on a
domestic exchange and board of trade. Assets
committed to futures contracts will be segregated on
the Fund's books to the extent required by law.
The purpose of entering into a futures contract by the
Fund is to protect the Fund from fluctuations in the
value of securities without actually buying or selling
the securities. For example, in the case of stock
index futures contracts, if the Fund anticipates an
increase in the price of stocks it intends to purchase
at a later time, the Fund could enter into contracts
to purchase the stock index (known as taking a "long"
position) as a temporary substitute for the purchase
of stocks. If an increase in the market occurs that
influences the stock index as anticipated, the value
of the futures contracts increases and thereby serves
as a hedge against the Fund's not participating in a
market advance. The Fund then may close out the
futures contracts by entering into offsetting futures
contracts to sell the stock index (known as taking a
"short" position) as it purchases individual stocks.
The Fund can accomplish similar results by buying
securities with long maturities and selling securities
with short maturities. But by using futures contracts
as an investment tool to reduce risk, given the
greater liquidity in the futures market, it may be
possible to accomplish the same result more easily and
more quickly.
No consideration will be paid or received by the Fund
upon the purchase or sale of a futures contract.
Initially, the Fund will be required to deposit with
the broker an amount of cash or cash equivalents equal
to approximately 1% to 10% of the contract amount
(this amount is subject to change by the exchange or
board of trade on which the contract is traded and
brokers or members of such board of trade may charge a
higher amount). This amount is known as "initial
margin" and is in the nature of a performance bond or
good faith deposit on the contract which is returned
to the Fund, upon termination of the futures contract,
assuming all contractual obligations have been
satisfied. Subsequent payments, known as "variation
margin," to and from the broker, will be made daily as
the price of the index or securities underlying the
futures contract fluctuates, making the long and short
positions in the futures contract more or less
valuable, a process known as "marking-to-market." In
addition, when the Fund enters into a long position in
a futures contract or an option on a futures contract,
it must deposit into a segregated account with the
Fund's custodian an amount of cash or cash equivalents
equal to the total market value of the underlying
futures contract, less amounts held in the Fund's
commodity brokerage account at its broker. At any time
prior to the expiration of a futures contract, the
Fund may elect to close the position by taking an
opposite position, which will operate to terminate the
Fund's existing position in the contract.
There are several risks in connection with the use of
futures contracts as a hedging device. Successful use
of futures contracts by the Fund is subject to the
ability of the Manager to predict correctly 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 the
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, the 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 completely 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.
INVESTMENT RESTRICTIONS TC "INVESTMENT RESTRICTIONS"
\f C \l "1"
The investment restrictions numbered 1 through 7 below
and each Fund's investment objective have been adopted
by the Company as fundamental policies of each Fund.
Under the 1940 Act, a fundamental policy may not be
changed with respect to a fund without the vote of a
majority of the outstanding voting securities of each
fund. Majority is defined in the 1940 Act as the
lesser of (a) 67% or more of the shares present at a
fund meeting, if the holders of more than 50% of the
outstanding shares of the fund are present or
represented by proxy, or (b) more than 50% of
outstanding shares. The remaining restrictions may be
changed by a vote of a majority of the Company's Board
of Directors at any time.
Under the investment restrictions adopted by the
Company with respect to each Fund: each Fund will not
1. Purchase or sell the securities of any issuer,
if, as a result of such purchase or sale, less than
25% of the assets of the fund would be invested in the
securities of issuers principally engaged in the
business activities having the specific
characteristics denoted by the fund;
2. Borrow money, except that (a) the Fund may
borrow from banks for temporary or emergency (not
leveraging) purposes, including the meeting of
redemption requests which might otherwise require the
untimely disposition of securities, and (b) the Fund
may, to the extent consistent with its investment
policies, enter into reverse repurchase agreements,
forward roll transactions and similar investment
strategies and techniques. To the extent that it
engages in transactions described in (a) and (b), the
Fund will be limited so that no more than 331/3% of
the value of its total assets (including the amount
borrowed), valued at the lesser of cost or market,
less liabilities (not including the amount borrowed)
valued at the time the borrowing is made, is derived
from such transactions.
3. Issue "senior securities" as defined in the 1940
Act and the rules, regulations and orders thereunder,
except as permitted under the 1940 Act and the rules,
regulations and orders thereunder
4. Make loans. This restriction does not apply to:
(a) the purchase of debt obligations in which the Fund
may invest consistent with its investment objectives
and policies; (b) repurchase agreements; and (c) loans
of its portfolio securities, to the fullest extent
permitted under the 1940 Act.
5. Purchase or sell real estate, real estate
mortgages, commodities or commodity contracts, but
this restriction shall not prevent the Fund from (a)
investing in securities of issuers engaged in the real
estate business or the business of investing in real
estate (including interests in limited partnerships
owning or otherwise engaging in the real estate
business or the business of investing in real estate)
and securities which are secured by real estate or
interests therein; (b) holding or selling real estate
received in connection with securities it holds or
held; (c) trading in futures contracts and options
on futures contracts (including options on currencies
to the extent consistent with the Fund's investment
objective and policies); or (d) investing in real
estate investment trust securities.
6. Engage in the business of underwriting
securities issued by other persons, except to the
extent that the Fund may technically be deemed to be
an underwriter under the Securities Act of 1933, as
amended, in disposing of portfolio securities.
7. Purchase or otherwise acquire any illiquid
security except as permitted under the 1940 Act for
open-end investment companies, which currently permits
up to 15% of the Fund's net assets to be invested in
illiquid securities.
If any percentage restriction described above is
complied with at the time of an investment, a later
increase or decrease in percentage resulting from a
change in values or assets will not constitute a
violation of such restriction.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY TC
"DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY" \f C
\l "1"
The Directors and executive officers of the Company,
together with information as to their principal
business occupations during the past five years, are
shown below. Each Director who is an "interested
person" of each Fund, as defined in the 1940 Act, is
indicated by an asterisk.
HERBERT BARG (Age 75). Private Investor. His address
is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania,
19004.
*ALFRED J. BIANCHETTI (Age 76). Retired; formerly
Senior Consultant to Dean Witter Reynolds Inc. His
address is 19 Circle End Drive, Ramsey, New Jersey
07466.
MARTIN BRODY (Age 77). Consultant, HMK Associates.
Retired Vice Chairman of the Board of Restaurant
Associates Corp. His address is c/o HMK Associates,
30 Columbia Turnpike, Florham Park, New Jersey 07932.
DWIGHT B. CRANE (Age 61). Professor, Harvard Business
School. His address is c/o Harvard Business School,
Soldiers Field Road, Boston, Massachusetts 02163.
BURT N. DORSETT (Age 68). Managing Partner of the
investment counseling firm Dorsett McCabe Management,
Inc. Director of Research Corporation Technologies,
Inc., a nonprofit patent clearing and licensing firm.
His address is 201 East 62nd Street, New York, New
York 10021.
ELLIOT S. JAFFE (Age 72). Chairman of the Board and
President of The Dress Barn, Inc. His address is 30
Dunnigan Drive, Suffern, New York 10021.
STEPHEN E. KAUFMAN (Age 67). Attorney. His address
is 277 Park Avenue, New York, New York 10172.
JOSEPH J. McCANN (Age 68). Financial Consultant.
Retired Financial Executive, Ryan Homes, Inc. His
address is 200 Oak Park Place, Pittsburgh,
Pennsylvania 15243.
*HEATH B. McLENDON (Age 65). Chairman of the Board
and Investment Officer. Managing Director of Salomon
Smith Barney Inc. ("Salomon Smith Barney"), President
of SSBC and Travelers Investment Adviser, Inc.
("TIA"); Chairman or Co-Chairman of the Board of 59
investment companies associated with Salomon Smith
Barney; and former Chairman of the Board of Smith
Barney Strategy Advisers Inc.
CORNELIUS C. ROSE, JR. (Age 65). President, Cornelius
C. Rose Associates, Inc., financial consultants, and
Chairman and Director of Performance Learning Systems,
an educational consultant. His address is Meadowbrook
Village, Building 4, Apt. 6, West Lebanon, New
Hampshire 03784.
LEWIS E. DAIDONE (Age 41). Senior Vice President and
Treasurer. Managing Director of Salomon Smith Barney,
Chief Financial Officer of the Smith Barney Mutual
funds; Director and Senior Vice President of SSBC and
TIA.
PAUL BROOK (Age 45). Controller. Director of Salomon
Smith Barney; from 1997-1998 Managing Director of AMT
Capital Services Inc.; prior to 1997 Partner with
Ernst & Young LLP
CHRISTINA T. SYDOR (Age 47). Secretary. Managing
Director of Salomon Smith Barney. General Counsel and
Secretary of SSBC and TIA.
As of February 22, 1999, the Directors and officers of
the fund, as a group, owned less than 1% of the
outstanding shares of beneficial interest of the
Company. As of February 22, 1999, to the knowledge of
the Company and the Board no single shareholder or
"group" (as that term is used in Section 13 (d) of the
Securities Act of 1934) beneficially owned more than
5% of the outstanding shares of the Company.
No officer, Director or employee of Salomon Smith
Barney or any of its affiliates receives any
compensation from the fund for serving as an officer
or director of the Company. The Company pays each
Director who is not an officer, director or employee
of Salomon Smith Barney or any of its affiliates a fee
of $______ per annum plus $____ per in-person meeting
and $____ per telephonic meeting. Each Director
emeritus who is not an officer, Director or employee
of Salomon Smith Barney or its affiliates receives a
fee of $______ per annum plus $_____ per in-person
meeting and $____ per telephonic meeting. All
Directors are reimbursed for travel and out-of-pocket
expenses incurred to attend such meetings.
The following table shows the compensation paid by the
Company and other Smith Barney Mutual Funds to each
Director during the Company's last fiscal year. None
of the officers of the Company received any
compensation from the Company for such period. The
Company does not pay retirement benefits to its
Directors and officers. Officers and interested
Directors of the Company are compensated by Salomon
Smith Barney.
Name of Person
Aggregate
Compensat
ion
from
Company
Total
Pension or
Retirement
Benefits
Accrued
as part of
Company
Expenses
Compensation
from Company
and Fund
Complex
Paid to
Directors
Number of
Funds for
Which
Director
Serves
Within
Fund Complex
Herbert Barg**
Alfred
Bianchetti* **
Martin Brody**
Dwight B.
Crane**
Burt N.
Dorsett**
Elliot S.
Jaffe**
Stephen E.
Kaufman**
Joseph J.
McCann**
Heath B.
McLendon*
Cornelius C.
Rose, Jr.**
$3,350
3,350
2,850
2,850,
3,350
3,100
3,350
3,350
- -----
3,350
$0
0
0
0
0
0
0
0
0
0
$101,600
49,600
119,814
133,850
49,600
48,500
91,964
49,600
- ------
49,600
18
13
21
24
13
13
15
13
59
13
* Designates an "interested" Director.
** Designates member of Audit Committee.
Upon attainment of age 80, Company Directors are
required to change to emeritus status. Directors
Emeritus are entitled to serve in emeritus status for
a maximum of 10 years, during which time they are paid
50% of the annual retainer fee and meeting fees
otherwise applicable to Company Directors, together
with reasonable out-of-pocket expenses for each
meeting attended. Directors Emeritus may attend
meetings but have no voting rights. During the
Company's last fiscal year, aggregate compensation
paid to Directors Emeritus was $1,500.
Investment Manager - SSB Citi
SSB Citi serves as investment manager to each Fund
pursuant to an investment management agreement (the
"Investment Management Agreement") with each Fund
which was approved by the Board of Directors,
including a majority of directors who are not
"interested persons" of the Fund or the Manager. The
Manager is a wholly owned subsidiary of Salomon Smith
Barney Holdings Inc. ("Holdings"), which in turn, is a
wholly owned subsidiary of Citigroup Inc. Subject to
the supervision and direction of the Company's Board
of Directors, the Manager manages the Fund's portfolio
in accordance with the Fund's stated investment
objective and policies, makes investment decisions for
the Fund, places orders to purchase and sell
securities, and employs professional portfolio
managers and securities analysts who provide research
services to the Fund. The Manager pays the salary of
any officer and employee who is employed by both it
and the Fund. The Manager bears all expenses in
connection with the performance of its services. The
Manager also: (a) assists in supervising all aspects
of the Fund's operations except those it performs
under its investment advisory agreement; b) supplies
the Fund with office facilities (which may be in
SSBC's own offices), statistical and research data,
data processing services, clerical, accounting and
bookkeeping services, including, but not limited to,
the calculation of (i) the net asset value of shares
of the Fund, (ii) applicable contingent deferred sales
charges and similar fees and charges and (iii)
distribution fees, internal auditing and legal
services, internal executive and administrative
services, and stationary and office supplies; and (c)
prepares reports to shareholders of the Fund, tax
returns and reports to and filings with the SEC and
state blue sky authorities.
As compensation for investment management services,
the Fund pays the Manager a fee computed daily and
paid monthly at the annual rate of ____% of the Fund's
average daily net assets.
Sub-adviser - CGAM
CGAM serves as investment subadviser to each Fund
pursuant to an subadvisory agreement (the "Subadvisory
Agreement") with each Fund which was approved by the
Board of Directors, including a majority of directors
who are not "interested persons" of the Fund or the
Manager.
CGAM is a division of Citigroup Inc. and, together
with its affiliates, managed more than $120 billion in
assets as of June 30, 1999. CGAM offers a wide range
of investment services to customers across the United
States and throughout the world. Its portfolio
managers are responsible for investing in money
market, equity and fixed income securities. CGAM
manages the assets of various mutual funds and
provides certain administrative services to those
funds. CGAM employs a disciplined approach to
investing where its portfolio managers, fundamental
and quantitative analyst work together to meet client
objectives.
As compensation for investment subadvisory services,
the Manager pays CGAM a fee computed daily and paid
monthly at the annual rate of ____% of the Fund's
average daily net assets.
Custodian, Transfer Agent and Sub-Transfer Agent
PNC Bank, National Association ("PNC Bank"), located
at 17th and Chestnut Streets, Philadelphia,
Pennsylvania 19103, serves as the custodian of the
Fund. Under its agreement with the Company on behalf
of the Fund, PNC Bank holds the Fund's portfolio
securities and keeps all necessary accounts and
records. For its services, PNC Bank receives a monthly
fee based upon the month-end market value of
securities held in custody and also receives
securities transaction charges. The assets of the Fund
are held under bank custodianship in compliance with
the 1940 Act.
Smith Barney Private Trust Company ("SBPT" or the
"Transfer Agent") located at 388 Greenwich Street, New
York, New York 10013, serves as the Fund's transfer
agent. Under the transfer agency agreement, SBPT
maintains the shareholder account records for the
Fund, handles certain communications between
shareholders and the Fund and distributes dividends
and distributions payable by the Fund. For these
services, SBPT receives a monthly fee computed on the
basis of the number of shareholder accounts it
maintains for the Fund during the month and is
reimbursed for out-of-pocket expenses.
First Data Investor Services Group, Inc. ("First Data"
or the "Sub-Transfer Agent") located at Exchange
Place, Boston, Massachusetts 02109, serves as the
Fund's sub-transfer agent. Under the sub-transfer
agency agreement, First Data maintains the shareholder
account records for the Fund, handles certain
communications between shareholders and the Fund and
distributes dividends and distributions payable by the
Fund. For these services, First Data receives a
monthly fee from SBPT computed on the basis of the
number of shareholder accounts it maintains for the
Fund during the month and is reimbursed for out-of-
pocket expenses.
Auditors
KPMG LLP, independent auditors, 345 Park Avenue, New
York, New York 10154, have been selected to serve as
auditors of the trust and to render opinions on the
fund's financial statements for the fiscal year ending
November 30, 1999.
Distributor
CFBDS, Inc., located at 20 Milk Street, Boston,
Massachusetts 02109-5408 serves as the Fund's
distributor pursuant to a written agreement with the
Company dated October 8, 1998 (the "Distribution
Agreement") which was approved by the Company's Board
of Directors, including a majority of the independent
directors, on July 15, 1998, as amended on January
___, 2000.
When payment is made by the investor before the
settlement date, unless otherwise noted by the
investor, the funds will be held as a free credit
balance in the investor's brokerage account and
Salomon Smith Barney may benefit from the temporary
use of the funds. The Company's Board of Directors
has been advised of the benefits to Salomon Smith
Barney resulting from these settlement procedures and
will take such benefits into consideration when
reviewing the Investment Management and Distribution
Agreements for continuance.
Distribution Arrangements
To compensate Salomon Smith Barney for the services it
provides and for the expense it bears under the
Distribution Agreement, the Fund has adopted a
services and distribution plan (the "Plan") pursuant
to Rule l2b-1 under the 1940 Act. Under the Plan, the
Fund pays Salomon Smith Barney a service fee, accrued
daily and paid monthly, calculated at the annual rate
of % of the value of the Fund's average daily net
assets attributable to the Class A, Class B and Class
L shares. In addition, the Fund pays Salomon Smith
Barney a distribution fee with respect to the Class B
and Class L shares primarily intended to compensate
Salomon Smith Barney for its initial expense of paying
Financial Consultants a commission upon sales of those
shares. The Class B and Class L distribution fee is
calculated at the annual rate of % of the value of
the Fund's average daily net assets attributable to
the shares of the respective Class.
Under its terms, the Plan continues from year to year,
provided such continuance is approved annually by vote
of the Board of Directors, including a majority of the
directors who are not interested persons of the Fund
and who have no direct or indirect financial interest
in the operation of the Plan or in the Distribution
Agreement (the "independent directors"). The Plan may
not be amended to increase the amount of the service
and distribution fees without shareholder approval,
and all amendments of the Plan also must be approved
by the directors including all of the independent
directors in the manner described above. The Plan may
be terminated with respect to a Class at any time,
without penalty, by vote of a majority of the
independent directors or, with respect to the Fund, by
vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act).
Pursuant to the Plan, Salomon Smith Barney will
provide the Board of Directors with periodic reports
of amounts expended under the Plan and the purpose for
which such expenditures were made.
Portfolio Transactions
The Manager arranges for the purchase and sale of the
Fund's securities and selects brokers and dealers
(including Salomon Smith Barney) which in its best
judgment provide prompt and reliable execution at
favorable prices and reasonable commission rates. The
Manager may select brokers and dealers that provide it
with research services and may cause the Fund to pay
such brokers and dealers commissions which exceed
those other brokers and dealers may have charged, if
it views the commissions as reasonable in relation to
the value of the brokerage and/or research services.
In selecting a broker, including Salomon Smith Barney,
for a transaction, the primary consideration is prompt
and effective execution of orders at the most
favorable prices. Subject to that primary
consideration, dealers may be selected for research
statistical or other services to enable the Manager to
supplement its own research and analysis.
Decisions to buy and sell securities for the Fund are
made by the Manager, subject to the overall
supervision and review of the Company's Board of
Directors. Portfolio securities transactions for the
Fund are effected by or under the supervision of the
Manager.
Transactions on stock exchanges involve the payment of
negotiated brokerage commissions. There is generally
no stated commission in the case of securities traded
in the over-the-counter market, but the price of those
securities includes an undisclosed commission or mark-
up. Over-the-counter purchases and sales are
transacted directly with principal market makers
except in those cases in which better prices and
executions may be obtained elsewhere. The cost of
securities purchased from underwriters includes an
underwriting commission or concession, and the prices
at which securities are purchased from and sold to
dealers include a dealer's mark-up or mark-down.
In executing portfolio transactions and selecting
brokers or dealers, it is the Fund's policy to seek
the best overall terms available. The Manager, in
seeking the most favorable price and execution,
considers all factors it deems relevant, including,
for example, the price, the size of the transaction,
the reputation, experience and financial stability of
the broker-dealer involved and the quality of service
rendered by the broker-dealer in other transactions.
The Manager receives research, statistical and
quotation services from several broker-dealers with
which it places the Fund's portfolio transactions. It
is possible that certain of the services received
primarily will benefit one or more other accounts for
which the Manager exercises investment discretion.
Conversely, the Fund may be the primary beneficiary of
services received as a result of portfolio
transactions effected for other accounts. The
Manager's fee under the management agreement is not
reduced by reason of its receiving such brokerage and
research services. The Company's Board of Directors,
in its discretion, may authorize the Manager to cause
the Fund to pay a broker that provides brokerage and
research services to the Manager a commission in
excess of that which another qualified broker would
have charged for effecting the same transaction.
Salomon Smith Barney will not participate in
commissions from brokerage given by the Fund to other
brokers or dealers and will not receive any reciprocal
brokerage business resulting therefrom.
In accordance with Section 17(e) of the 1940 Act and
Rule 17e-1 thereunder, the Company's Board of
Directors has determined that any portfolio
transaction for the Fund may be executed through
Salomon Smith Barney or an affiliate of Salomon Smith
Barney if, in the Manager's judgment, the use of
Salomon Smith Barney or an affiliate is likely to
result in price and execution at least as favorable as
those of other qualified brokers and if, in the
transaction, Salomon Smith Barney or the affiliate
charges the Fund a commission rate consistent with
those charged by Salomon Smith Barney or an affiliate
to comparable unaffiliated customers in similar
transactions. In addition, under SEC rules, Salomon
Smith Barney may directly execute such transactions
for the Fund on the floor of any national securities
exchange, provided: (a) the Board of Directors has
expressly authorized Salomon Smith Barney to effect
such transactions; and (b) Salomon Smith Barney
annually advises the Fund of the aggregate
compensation it earned on such transactions.
Even though investment decisions for the Fund are made
independently from those of the other accounts managed
by the Manager, investments of the kind made by the
Fund also may be made by those other accounts. When
the Fund and one or more accounts managed by the
Manager are prepared to invest in, or desire to
dispose of, the same security, available investments
or opportunities for sales will be allocated in a
manner believed by the Manager to be equitable. In
some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the
position obtained for or disposed of by the Fund.
The Fund will not purchase securities during the
existence of any underwriting or selling group
relating to the securities, of which the Manager is a
member, except to the extent permitted by the SEC.
Under certain circumstances, the Fund may be at a
disadvantage because of this limitation in comparison
with other Funds that have similar investment
objectives but that are not subject to a similar
limitation.
Portfolio Turnover
The Fund's portfolio turnover rate (the lesser of
purchases or sales of portfolio securities during the
year, excluding purchases or sales of short-term
securities, divided by the monthly average value of
portfolio securities) is generally not expected to
exceed 100%. The rate of turnover will not be a
limiting factor, however, when the Fund deems it
desirable to sell or purchase securities.
The Manager may cause the Fund to sell or purchase
securities to ensure compliance with the Fund's
investment policies.
PURCHASE OF SHARES TC "PURCHASE OF SHARES" \f C \l
"1"
Sales Charge Alternatives
The following classes of shares are available for
purchase. See the prospectus for a discussion of
factors to consider in selecting which Class of shares
to purchase.
Class A Shares. Class A shares are sold to investors
at the public offering price, which is the net asset
value plus an initial sales charge as follows:
Amount
of
Investme
nt
Sales Charge
as a %
of
Transaction
Sales
Charge as a
% of Amount
Invested
Dealers'
Reallowance as
%
Of Offering
Price
Less than
$25,000
5.00%
5.26%
4.50%
$ 25,000 -
49,999
4.00
4.17
3.60
50,000 -
99,999
3.50
3.63
3.15
100,000 -
249,999
3.00
3.09
2.70
250,000 -
499,999
2.00
2.04
1.80
500,000 and
over
*
*
*
* Purchases of Class A shares of $500,000 or more
will be made at net asset value without any
initial sales charge, but will be subject to a
deferred sales charge of 1.00% on redemptions
made within 12 months of purchase. The deferred
sales charge on Class A shares is payable to
Salomon Smith Barney, which compensates Salomon
Smith Barney Financial Consultants and other
dealers whose clients make purchases of $500,000
or more. The deferred sales charge is waived in
the same circumstances in which the deferred
sales charge applicable to Class B and Class L
shares is waived. See "Deferred Sales Charge
Provisions" and "Waivers of Deferred Sales
Charge."
Members of the selling group may receive up to 90% of
the sales charge and may be deemed to be underwriters
of the Fund as defined in the 1933 Act. The reduced
sales charges shown above apply to the aggregate of
purchases of Class A shares of the Fund made at one
time by "any person," which includes an individual and
his or her immediate family, or a trustee or other
fiduciary of a single trust estate or single fiduciary
account.
Class B Shares. Class B shares are sold without an
initial sales charge but are subject to a deferred
sales charge payable upon certain redemptions. See
"Deferred Sales Charge Provisions" below.
Class L Shares. Class L shares are sold with an
initial sales charge of 1.00% (which is equal to 1.01%
of the amount invested) and are subject to a deferred
sales charge payable upon certain redemptions. See
"Deferred Sales Charge Provisions" below. Until June
22, 2001, purchases of Class L shares by investors who
were holders of Class C shares of other Smith Barney
Mutual Funds on June 12, 1998 will not be subject to
the 1.00% initial sales charge.
Class Y Shares. Class Y shares are sold without an
initial sales charge or deferred sales charge and are
available only to investors investing a minimum of
$15,000,000 (except purchases of Class Y shares by
Smith Barney Concert Allocation Series Inc., for which
there is no minimum purchase amount).
General
The Fund's shares are continuously offered to new
investors. See "Purchase of Shares"
Investors may purchase shares from a Salomon Smith
Barney Financial Consultant or a broker that clears
through Salomon Smith Barney ("Dealer
Representative"). In addition, certain investors,
including qualified retirement plans purchasing
through certain Dealer Representatives, may purchase
shares directly from the Fund. When purchasing shares
of the Fund, investors must specify whether the
purchase is for Class A, Class B, Class L or Class Y
shares. Salomon Smith Barney and Dealer
Representatives may charge their customers an annual
account maintenance fee in connection with a brokerage
account through which an investor purchases or holds
shares. Accounts held directly at the Transfer Agent
are not subject to a maintenance fee.
Investors in Class A, Class B and Class L shares may
open an account in the Fund by making an initial
investment of at least $1,000 for each account, or
$250 for an IRA or a Self-Employed Retirement Plan, in
the Fund. Investors in Class Y shares may open an
account by making an initial investment of
$15,000,000. Subsequent investments of at least $50
may be made for all Classes. For participants in
retirement plans qualified under Section 403(b)(7) or
Section 401(c) of the Code, the minimum initial
investment required for Class A, Class B and Class L
shares and the subsequent investment requirement for
all Classes in the Fund is $25. There are no minimum
investment requirements for Class A shares for
employees of Citigroup and its subsidiaries, including
Salomon Smith Barney, unitholders who invest
distributions from a Unit Investment Trust ("UIT")
sponsored by Salomon Smith Barney, and
Directors/Trustees of any of the Smith Barney Mutual
Funds, and their spouses and children. The Fund
reserves the right to waive or change minimums, to
decline any order to purchase its shares and to
suspend the offering of shares from time to time.
Shares purchased will be held in the shareholder's
account by First Data. Share certificates are issued
only upon a shareholder's written request to First
Data.
Purchase orders received by the Fund or a Salomon
Smith Barney Financial Consultant prior to the close
of regular trading on the New York Stock Exchange
("NYSE"), on any day the Fund calculates its net asset
value, are priced according to the net asset value
determined on that day (the ''trade date''). Orders
received by a Dealer Representative prior to the close
of regular trading on the NYSE on any day the Fund
calculates its net asset value, are priced according
to the net asset value determined on that day,
provided the order is received by the Fund or the
Fund's agent prior to its close of business. For
shares purchased through Salomon Smith Barney or a
Dealer Representative purchasing through Salomon Smith
Barney, payment for shares of the Fund is due on the
third business day after the trade date. In all other
cases, payment must be made with the purchase order.
Sales Charge Waivers and Reductions
Initial Sales Charge Waivers. Purchases of Class A
shares may be made at net asset value without a sales
charge in the following circumstances: (a) sales to
(i) Board Members and employees of Citigroup and its
subsidiaries and any Citigroup affiliated funds
including the Smith Barney Mutual Funds (including
retired Board Members and employees); the immediate
families of such persons (including the surviving
spouse of a deceased Board Member or employee); and to
a pension, profit-sharing or other benefit plan for
such persons and (ii) employees of members of the
National Association of Securities Dealers, Inc.,
provided such sales are made upon the assurance of the
purchaser that the purchase is made for investment
purposes and that the securities will not be resold
except through redemption or repurchase; (b) offers of
Class A shares to any other investment company to
effect the combination of such company with the Fund
by merger, acquisition of assets or otherwise;
(c) purchases of Class A shares by any client of a
newly employed Salomon Smith Barney Financial
Consultant (for a period up to 90 days from the
commencement of the Financial Consultant's employment
with Salomon Smith Barney), on the condition the
purchase of Class A shares is made with the proceeds
of the redemption of shares of a mutual fund which (i)
was sponsored by the Financial Consultant's prior
employer, (ii) was sold to the client by the Financial
Consultant and (iii) was subject to a sales charge;
(d) purchases by shareholders who have redeemed Class
A shares in the Fund (or Class A shares of another
Smith Barney Mutual Fund that is offered with a sales
charge) and who wish to reinvest their redemption
proceeds in the Fund, provided the reinvestment is
made within 60 calendar days of the redemption; (e)
purchases by accounts managed by registered investment
advisory subsidiaries of Citigroup; (f) direct
rollovers by plan participants of distributions from a
401(k) plan offered to employees of Citigroup or its
subsidiaries (Note: subsequent investments will be
subject to the applicable sales charge); (g) purchases
by a separate account used to fund certain
unregistered variable annuity contracts; (h)
investments of distributions from a UIT sponsored by
Salomon Smith Barney; (i) purchases by investors
participating in a Salomon Smith Barney fee-based
arrangement; and (j) purchases of Class A shares by
Section 403(b) or Section 401(a) or (k) accounts
associated with Copeland Retirement Programs. In order
to obtain such discounts, the purchaser must provide
sufficient information at the time of purchase to
permit verification that the purchase would qualify
for the elimination of the sales charge.
Right of Accumulation. Class A shares of the Fund may
be purchased by ''any person'' (as defined above) at a
reduced sales charge or at net asset value determined
by aggregating the dollar amount of the new purchase
and the total net asset value of all Class A shares of
the Fund and of other Smith Barney Mutual Funds that
are offered with a sales charge as currently listed
under ''Exchange Privilege'' then held by such person
and applying the sales charge applicable to such
aggregate. In order to obtain such discount, the
purchaser must provide sufficient information at the
time of purchase to permit verification that the
purchase qualifies for the reduced sales charge. The
right of accumulation is subject to modification or
discontinuance at any time with respect to all shares
purchased thereafter.
Letter of Intent - Class A Shares. A Letter of Intent
for an amount of $50,000 or more provides an
opportunity for an investor to obtain a reduced sales
charge by aggregating investments over a 13 month
period, provided that the investor refers to such
Letter when placing orders. For purposes of a Letter
of Intent, the ''Amount of Investment'' as referred to
in the preceding sales charge table includes (i) all
Class A shares of the Fund and other Smith Barney
Mutual Funds offered with a sales charge acquired
during the term of the letter plus (ii) the value of
all Class A shares previously purchased and still
owned. Each investment made during the period
receives the reduced sales charge applicable to the
total amount of the investment goal. If the goal is
not achieved within the period, the investor must pay
the difference between the sales charges applicable to
the purchases made and the charges previously paid, or
an appropriate number of escrowed shares will be
redeemed. The term of the Letter will commence upon
the date the Letter is signed, or at the options of
the investor, up to 90 days before such date. Please
contact a Salomon Smith Barney Financial Consultant or
First Data to obtain a Letter of Intent application.
Letter of Intent - Class Y Shares. A Letter of Intent
may also be used as a way for investors to meet the
minimum investment requirement for Class Y shares
(except purchases of Class Y shares by Smith Barney
Concert Allocation Series Inc., for which there is no
minimum purchase amount). Such investors must make an
initial minimum purchase of $5,000,000 in Class Y
shares of the Fund and agree to purchase a total of
$15,000,000 of Class Y shares of the Fund within 13
months from the date of the Letter. If a total
investment of $15,000,000 is not made within the 13-
month period, all Class Y shares purchased to date
will be transferred to Class A shares, where they will
be subject to all fees (including a service fee of
0.25%) and expenses applicable to the Fund's Class A
shares, which may include a deferred sales charge of
1.00%. Please contact a Salomon Smith Barney Financial
Consultant or First Data for further information.
Deferred Sales Charge Provisions
''Deferred sales charge shares'' are: (a) Class B
shares; (b) Class L shares; and (c) Class A shares
that were purchased without an initial sales charge
but are subject to a deferred sales charge. A
deferred sales charge may be imposed on certain
redemptions of these shares.
Any applicable deferred sales charge will be assessed
on an amount equal to the lesser of the original cost
of the shares being redeemed or their net asset value
at the time of redemption. Deferred sales charge
shares that are redeemed will not be subject to a
deferred sales charge to the extent that the value of
such shares represents: (a) capital appreciation of
Fund assets; (b) reinvestment of dividends or capital
gain distributions; (c) with respect to Class B
shares, shares redeemed more than five years after
their purchase; or (d) with respect to Class L shares
and Class A shares that are deferred sales charge
shares, shares redeemed more than 12 months after
their purchase.
Class L shares and Class A shares that are deferred
sales charge shares are subject to a 1.00% deferred
sales charge if redeemed within 12 months of purchase.
In circumstances in which the deferred sales charge is
imposed on Class B shares, the amount of the charge
will depend on the number of years since the
shareholder made the purchase payment from which the
amount is being redeemed. Solely for purposes of
determining the number of years since a purchase
payment, all purchase payments made during a month
will be aggregated and deemed to have been made on the
last day of the preceding Salomon Smith Barney
statement month. The following table sets forth the
rates of the charge for redemptions of Class B shares
by shareholders.
Year Since Purchase Payment Was
Made
Deferred Sales Charge
First
5.00%
Second
4.00
Third
3.00
Fourth
2.00
Fifth
1.00
Sixth and thereafter
0.00
Class B shares will convert automatically to Class A
shares eight years after the date on which they were
purchased and thereafter will no longer be subject to
any distribution fees. There will also be converted at
that time such proportion of Class B Dividend Shares
owned by the shareholders as the total number of his
or her Class B shares converting at the time bears to
the total number of outstanding Class B shares (other
than Class B Dividend Shares) owned by the
shareholder.
In determining the applicabilty of any Deferred Sales
Charge, it will be assumed that a redemption is made
first of shares representing capital appreciation,
next of shares representing the reinvestment of
dividends and capital gain distributions and finally
of other shares held by the shareholder for the
longest period of time. The length of time that
deferred sales charge shares acquired through an
exchange have been held will be calculated from the
date that the shares exchanged were initially acquired
in one of the other Smith Barney Mutual Funds, and
fund shares being redeemed will be considered to
represent, as applicable, capital appreciation or
dividend and capital gain distribution reinvestments
in such other funds. For Federal income tax purposes,
the amount of the deferred sales charge will reduce
the gain or increase the loss, as the case may be, on
the amount realized on redemption. The amount of any
deferred sales charge will be paid to Salomon Smith
Barney. To provide an example, assume an investor
purchased 100 Class B shares of the Fund at $10 per
share for a cost of $1,000. Subsequently, the
investor acquired 5 additional shares of the Fund
through dividend reinvestment. During the fifteenth
month after the purchase, the investor decided to
redeem $500 of his or her investment. Assuming at the
time of the redemption the net asset value had
appreciated to $12 per share, the value of the
investor's shares would be $1,260 (105 shares at $12
per share). The deferred sales charge would not be
applied to the amount which represents appreciation
($200) and the value of the reinvested dividend shares
($60). Therefore, $240 of the $500 redemption
proceeds ($500 minus $260) would be charged at a rate
of 4.00% (the applicable rate for Class B shares) for
a total deferred sales charge of $9.60.
Waivers of Deferred Sales Charge
The deferred sales charge will be waived on: (a)
exchanges (see ''Exchange Privilege''); (b)
redemptions of shares within 12 months following the
death or disability of the shareholder; (c)
redemptions of shares made in connection with
qualified distributions from retirement plans or IRAs
upon the attainment of age 591/2; (d) involuntary
redemptions; and (e) redemptions of shares to effect a
combination of the Fund with any investment company by
merger, acquisition of assets or otherwise. In
addition, a shareholder who has redeemed shares from
other Smith Barney Mutual Funds may, under certain
circumstances, reinvest all or part of the redemption
proceeds within 60 days and receive pro rata credit
for any deferred sales charge imposed on the prior
redemption.
Deferred sales charge waivers will be granted subject
to confirmation (by Salomon Smith Barney in the case
of shareholders who are also Salomon Smith Barney
clients or by First Data in the case of all other
shareholders) of the shareholder's status or holdings,
as the case may be.
Smith Barney 401(k) and ExecChoiceTM Programs
Investors may be eligible to participate in the Smith
Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program. To the extent applicable, the same terms and
conditions, which are outlined below, are offered to
all plans participating (''Participating Plans'') in
these programs.
The fund offers to Participating Plans Class A and
Class L shares as investment alternatives under the
Smith Barney 401(k) and ExecChoiceTM Programs. Class A
and Class L shares acquired through the Participating
Plans are subject to the same service and/or
distribution fees as the Class A and Class L shares
acquired by other investors; however, they are not
subject to any initial sales charge or Deferred Sales
Charge. Once a Participating Plan has made an initial
investment in the fund, all of its subsequent
investments in the fund must be in the same Class of
shares, except as otherwise described below.
Class A Shares. Class A shares of the fund are
offered without any sales charge or Deferred Sales
Charge to any Participating Plan that purchases
$1,000,000 or more of Class A shares of one or more
funds of the Smith Barney Mutual Funds.
Class L Shares. Class L shares of the fund are
offered without any sales charge or Deferred Sales
Charge to any Participating Plan that purchases less
than $1,000,000 of Class L shares of one or more funds
of the Smith Barney Mutual Funds.
401(k) and ExecChoiceTM Plans Opened On or After June
21, 1996. If, at the end of the fifth year after the
date the Participating Plan enrolled in the Smith
Barney 401(k) Program or the Smith Barney ExecChoiceTM
Program, a Participating Plan's total Class L holdings
in all non-money market Smith Barney Mutual Funds
equal at least $1,000,000, the Participating Plan will
be offered the opportunity to exchange all of its
Class L shares for Class A shares of the fund. For
Participating Plans that were originally established
through a Salomon Smith Barney retail brokerage
account, the five-year period will be calculated from
the date the retail brokerage account was opened. Such
Participating Plans will be notified of the pending
exchange in writing within 30 days after the fifth
anniversary of the enrollment date and, unless the
exchange offer has been rejected in writing, the
exchange will occur on or about the 90th day after the
fifth anniversary date. If the Participating Plan does
not qualify for the five-year exchange to Class A
shares, a review of the Participating Plan's holdings
will be performed each quarter until either the
Participating Plan qualifies or the end of the eighth
year.
401(k) Plans Opened Prior to June 21, 1996. In any
year after the date a Participating Plan enrolled in
the Smith Barney 401(k) Program, if a Participating
Plan's total Class L holdings in all non-money market
Smith Barney Mutual Funds equal at least $500,000 as
of the calendar year-end, the Participating Plan will
be offered the opportunity to exchange all of its
Class L shares for Class A shares of the fund. Such
Plans will be notified in writing within 30 days after
the last business day of the calendar year and, unless
the exchange offer has been rejected in writing, the
exchange will occur on or about the last business day
of the following March.
Any Participating Plan in the Smith Barney 401(k) or
the Smith Barney ExecChoiceTM Programs, whether opened
before or after June 21, 1996, that has not previously
qualified for an exchange into Class A shares will be
offered the opportunity to exchange all of its Class L
shares for Class A shares of the fund, regardless of
asset size, at the end of the eighth year after the
date the Participating Plan enrolled in the Smith
Barney 401(k) Program. Such Plans will be notified of
the pending exchange in writing approximately 60 days
before the eighth anniversary of the enrollment date
and, unless the exchange has been rejected in writing,
the exchange will occur on or about the eighth
anniversary date. Once an exchange has occurred, a
Participating Plan will not be eligible to acquire
additional Class L shares of the fund, but instead may
acquire Class A shares of the fund. Any Class L shares
not converted will continue to be subject to the
distribution fee.
Participating Plans wishing to acquire shares of the
fund through the Smith Barney 401(k) Program or the
Smith Barney ExecChoiceTM Program must purchase such
shares directly from the transfer agent. For further
information regarding these Programs, investors should
contact a Salomon Smith Barney Financial Consultant.
Determination of Public Offering Price
The Fund offers its shares to current shareholders of
the Fund on a continuous basis. New investors may
purchase the Fund's shares only during the quarterly
open periods. The public offering price for a Class
A, Class B and Class Y share of the Fund is equal to
the net asset value per share at the time of purchase,
plus for Class A shares an initial sales charge based
on the aggregate amount of the investment. The public
offering price for Class A share purchases, including
applicable rights of accumulation, equaling or
exceeding $500,000 is equal to the net asset value per
share at the time of purchase and no sales charge is
imposed at the time of purchase. The public offering
price for a Class L share includes a 1.00% initial
sales charge. A contingent deferred sales charge
("CDSC") is imposed on certain redemptions of Class B
shares, and on Class L shares and Class A shares
(purchased in amounts exceeding $500,000) redeemed
within one year of purchase.
REDEMPTION OF SHARES TC "REDEMPTION OF SHARES" \f C
\l "1"
The right of redemption of shares of the Fund may be
suspended or the date of payment postponed (a) for any
periods during which the New York Stock Exchange, Inc.
(the "NYSE") is closed (other than for customary
weekend and holiday closings), (b) when trading in the
markets the Fund normally utilizes is restricted, or
an emergency exists, as determined by the SEC, so that
disposal of the Fund's investments or determination of
its net asset value is not reasonably practicable or
(c) for any other periods as the SEC by order may
permit for the protection of the Fund's shareholders.
If the shares to be redeemed were issued in
certificate form, the certificates must be endorsed
for transfer (or be accompanied by an endorsed stock
power) and must be submitted to First Data together
with the redemption request. Any signature appearing
on a share certificate, stock power or written
redemption request in excess of $10,000 must be
guaranteed by an eligible guarantor institution such
as a domestic bank, savings and loan institution,
domestic credit union, member bank of the Federal
Reserve System or member firm of a national securities
exchange. Written redemption requests of $10,000 or
less do not require a signature guarantee unless more
than one such redemption request is made in any 10-day
period or the redemption proceeds are to be sent to an
address other than the address of record. Unless
otherwise directed, redemption proceeds will be mailed
to an investor's address of record. First Data may
require additional supporting documents for
redemptions made by corporations, executors,
administrators, trustees or guardians. A redemption
request will not be deemed properly received until
First Data receives all required documents in proper
form.
If a shareholder holds shares in more than one Class,
any request for redemption must specify the Class
being redeemed. In the event of a failure to specify
which Class, or if the investor owns fewer shares of
the Class than specified, the redemption request will
be delayed until the Transfer Agent receives further
instructions from Salomon Smith Barney, or if the
shareholder's account is not with Salomon Smith
Barney, from the shareholder directly. The redemption
proceeds will be remitted on or before the third
business day following receipt of proper tender,
except on any days on which the NYSE is closed or as
permitted under the 1940 Act, in extraordinary
circumstances. Generally, if the redemption proceeds
are remitted to a Salomon Smith Barney brokerage
account, these funds will not be invested for the
shareholder's benefit without specific instruction and
Salomon Smith Barney will benefit from the use of
temporarily uninvested funds. Redemption proceeds for
shares purchased by check, other than a certified or
official bank check, will be remitted upon clearance
of the check, which may take up to ten days or more.
Distributions in Kind
If the Board of Directors of the Fund determines that
it would be detrimental to the best interests of the
remaining shareholders to make a redemption payment
wholly in cash, the Fund may pay, in accordance with
SEC rules, any portion of a redemption in excess of
the lesser of $250,000 or 1.00% of the Fund's net
assets by a distribution in kind of portfolio
securities in lieu of cash. Securities issued as a
distribution in kind may incur brokerage commissions
when shareholders subsequently sell those securities.
Additional Information Regarding Telephone Redemption
And Exchange Program
Neither the Fund nor its agents will be liable for
following instructions communicated by telephone that
are reasonably believed to be genuine. The Fund and
its agents will employ procedures designed to verify
the identity of the caller and legitimacy of
instructions (for example, a shareholder's name and
account number will be required and phone calls may be
recorded). The Fund reserves the right to suspend,
modify or discontinue the telephone redemption and
exchange program or to impose a charge for this
service at any time following at least seven (7) days
prior notice to shareholders.
VALUATION OF SHARES TC "VALUATION OF SHARES" \f C \l
"1"
The net asset value per share of the Fund's Classes is
calculated on each day, Monday through Friday, except
days on which the NYSE is closed. The NYSE currently
is scheduled to be closed on New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day,
Thanksgiving and Christmas, and on the preceding
Friday or subsequent Monday when one of these holidays
falls on a Saturday or Sunday, respectively. Because
of the differences in distribution fees and
Class-specific expenses, the per share net asset value
of each Class may differ. The following is a
description of the procedures used by the Fund in
valuing its assets.
Securities listed on a national securities exchange
will be valued on the basis of the last sale on the
date on which the valuation is made or, in the absence
of sales, at the mean between the closing bid and
asked prices. Over-the-counter securities will be
valued at the mean between the closing bid and asked
prices on each day, or, if market quotations for those
securities are not readily available, at fair value,
as determined in good faith by the Company's Board of
Directors. Short-term obligations with maturities of
60 days or less are valued at amortized cost, which
constitutes fair value as determined by the Company's
Board of Directors. Amortized cost involves valuing an
instrument at its original cost to the Fund and
thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the
effect of fluctuating interest rates on the market
value of the instrument. All other securities and
other assets of the Fund will be valued at fair value
as determined in good faith by the Company's Board of
Directors.
EXCHANGE PRIVILEGE TC "EXCHANGE PRIVILEGE" \f C \l
"1"
Except as noted below and in the Prospectus,
shareholders of any of the Smith Barney Mutual Funds
may exchange all or part of their shares for shares of
the same class of other Smith Barney Mutual Funds, to
the extent such shares are offered for sale in the
shareholder's state of residence, on the basis of
relative net asset value per share at the time of
exchange as follows:
A. Class A and Class Y shares of the Fund may be
exchanged without a sales charge for the
respective shares of any of the Smith Barney
Mutual Funds.
B. Class B shares of any fund may be exchanged
without a sales charge. Class B shares of the
Fund exchanged for Class B shares of another
Smith Barney Mutual Fund will be subject to the
higher applicable CDSC of the two funds and, for
purposes of calculating CDSC rates and
conversion periods, will be deemed to have been
held since the date the shares being exchanged
were deemed to be purchased.
C. Class L shares of any fund may be exchanged
without a sales charge. For purposes of CDSC
applicability, Class L shares of the Fund
exchanged for Class L shares of another Smith
Barney Mutual Fund will be deemed to have been
owned since the date the shares being exchanged
were deemed to be purchased.
The exchange privilege enables shareholders to acquire
shares of the same Class in a fund with different
investment objectives when they believe that a shift
between funds is an appropriate investment decision.
This privilege is available to shareholders residing
in any state in which fund shares being acquired may
legally be sold. Prior to any exchange, the
shareholder should obtain and review a copy of the
current prospectus of each fund into which an exchange
is being considered. Prospectuses may be obtained from
a Salomon Smith Barney Financial Consultant.
Investors who do not currently own shares of the Fund
may exchange into the Fund only during the quarterly
open periods.
Upon receipt of proper instructions and all necessary
supporting documents, shares submitted for exchange
are redeemed at the then-current net asset value and
the proceeds are immediately invested, at a price as
described above, in shares of the fund being acquired.
Salomon Smith Barney reserves the right to reject any
exchange request. The exchange privilege may be
modified or terminated at any time after written
notice to shareholders.
Additional Information Regarding the Exchange
Privilege. Although the exchange privilege is an
important benefit, excessive exchange transactions can
be detrimental to the Fund's performance and its
shareholders. The Manager may determine that a
pattern of frequent exchanges is excessive and
contrary to the best interests of the Fund's other
shareholders. In this event, the Fund may, at its
discretion, decide to limit additional purchases
and/or exchanges by a shareholder. Upon such a
determination, the Fund will provide notice in writing
or by telephone to the shareholder at least 15 days
prior to suspending the exchange privilege and during
the 15 day period the shareholder will be required to
(a) redeem his or her shares in the Fund or (b) remain
invested in the Fund or exchange into any of the funds
of the Smith Barney Mutual funds ordinarily available,
which position the shareholder would be expected to
maintain for a significant period of time. All
relevant factors will be considered in determining
what constitutes an abusive pattern of exchanges.
PERFORMANCE DATA TC "PERFORMANCE DATA" \f C \l "1"
From time to time, the Company may advertise the
Fund's total return and average annual total return in
advertisements and/or other types of sales literature.
These figures are computed separately for Class A,
Class B, Class L and Class Y shares of the Fund.
These figures are based on historical earnings and are
not intended to indicate future performance. Total
return is computed for a specified period of time
assuming deduction of the maximum sales charge, if
any, from the initial amount invested and reinvestment
of all income dividends and capital gain distributions
on the reinvestment dates at prices calculated as
stated in this prospectus, then dividing the value of
the investment at the end of the period so calculated
by the initial amount invested and subtracting 100%.
The standard average annual total return, as
prescribed by the SEC is derived from this total
return, which provides the ending redeemable value.
Such standard total return information may also be
accompanied with nonstandard total return information
for differing periods computed in the same manner but
without annualizing the total return or taking sales
charges into account. The Company may also include
comparative performance information in advertising or
marketing the Fund's shares. Such performance
information may include data from Lipper Analytical
Services, Inc. and other financial publications.
From time to time, the Company may quote the Fund's
yield or total return in advertisements or in reports
and other communications to shareholders. The Company
may include comparative performance information in
advertising or marketing the Fund's shares. Such
performance information may include the following
industry and financial publications- Barron's,
Business Week, CDA Investment Technologies, Inc.,
Changing Times, Forbes, Fortune, Institutional
Investor, Investors Daily, Money, Morningstar Mutual
Fund Values, The New York Times, USA Today and The
Wall Street Journal. To the extent any advertisement
or sales literature of the Fund describes the expenses
or performance of any Class it will also disclose such
information for the other Classes.
Average Annual Total Return
"Average annual total return" figures are computed
according to a formula prescribed by the SEC. The
formula can be expressed as follows:
P (1 + T)n = ERV
Where: P = a hypothetical initial
payment of $ 1,000.
T = average annual total
return.
n = number of years.
ERV = Ending Redeemable Value
of a hypothetical $1,000
investment made at the
beginning of a 1-, 5- or 10-year
period at the end of the
1-, 5- or 10-year period (or
fractional portion
thereof), assuming reinvestment of all
dividends and
distributions.
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period. The Fund's net investment income changes in
response to fluctuations in interest rates and the
expenses of the Fund.
Aggregate Total Return
The Fund's "aggregate total return," as described
below, represents the cumulative change in the value
of an investment in the Fund for the specified period
and is computed by the following formula:
ERV - P
P
Where: P = a hypothetical initial
payment of $10,000.
ERV = Ending Redeemable Value
of a hypothetical
$10,000 investment made
at the beginning of the
1-, 5- or 10-year period
at the end of the 1-, 5-
or 10-year period (or
fractional portion
thereof), assuming
reinvestment of all
dividends and
distributions.
The ERV assumes complete redemption of the
hypothetical investment at the end of the measuring
period.
Performance will vary from time to time depending on
market conditions, the composition of the Fund's
portfolio and operating expenses. Consequently, any
given performance quotation should not be considered
representative of the Fund's performance for any
specified period in the future. Because performance
will vary, it may not provide a basis for comparing an
investment in the Fund with certain bank deposits or
other investments that pay a fixed yield for a stated
period of time.
DIVIDENDS, DISTRIBUTIONS AND TAXES TC "DIVIDENDS,
DISTRIBUTIONS AND TAXES" \f C \l "1"
Dividends and Distributions
Each Fund's policy is to distribute its net investment
income and net realized capital gains, if any,
annually. The Fund may also pay additional dividends
shortly before December 31 from certain amounts of
undistributed ordinary and capital gains realized, in
order to avoid a Federal excise tax liability.
If a shareholder does not otherwise instruct,
dividends and capital gains distributions will be
reinvested automatically in additional shares of the
same Class at net asset value, subject to no sales
charge or deferred sales charge. A shareholder may
change the option at any time by notifying his Salomon
Smith Barney Financial Consultant or Dealer
Representative. Shareholders whose account is held
directly at First Data should notify First Data in
writing, requesting a change to this reinvest option.
The per share dividends on Class B and Class L shares
of a Fund may be lower than the per share dividends on
Class A and Class Y shares principally as a result of
the distribution fee applicable with respect to Class
B and Class L shares. The per share dividends on Class
A shares may be lower than the per share dividends on
Class Y shares principally as a result of the service
fee applicable to Class A shares. Distributions of
capital gains, if any, will be in the same amount for
Class A, Class B, Class L and Class Y shares.
Taxes
The following is a summary of the material United
States federal income tax considerations regarding the
purchase, ownership and disposition of shares of the
Funds. Each Fund will be treated as a separate
corporation for federal income taxes, including
qualification as a regulated investment company; and
the following discussion applies separately to each
Fund. Each prospective shareholder is urged to consult
his own tax adviser with respect to the specific
federal, state, local and foreign tax consequences of
investing in a fund. The summary is based on the laws
in effect on the date of this SAI, which are subject
to change.
The Fund and Its Investments
The Fund intends to qualify to be treated as a
regulated investment company each taxable year under
the Code. To so qualify, the Fund must, among other
things: (a) derive at least 90% of its gross income in
each taxable year from dividends, interest, payments
with respect to securities loans and gains from the
sale or other disposition of stock or securities or
foreign currencies, or other income (including, but
not limited to, gains from options, futures or forward
contracts) derived with respect to its business of
investing in such stock, securities or currencies; and
(b) diversify its holdings so that, at the end of each
quarter of the Fund's taxable year, (i) at least 50%
of the market value of the Fund's assets is
represented by cash, securities of other regulated
investment companies, United States government
securities and other securities, with such other
securities limited, in respect of any one issuer, to
an amount not greater than 5% of the Fund's assets and
not greater than 10% of the outstanding voting
securities of such issuer and (ii) not more than 25%
of the value of its assets is invested in the
securities (other than United States government
securities or securities of other regulated investment
companies) of any one issuer or any two or more
issuers that the Fund controls and are determined to
be engaged in the same or similar trades or businesses
or related trades or businesses.
As a regulated investment company, the Fund will not
be subject to United States federal income tax on its
net investment income (i.e., income other than its net
realized long- and short-term capital gains) and its
net realized long- and short-term capital gains, if
any, that it distributes to its shareholders, provided
an amount equal to at least 90% of the sum of its
investment company taxable income (i.e., 90% of its
taxable income minus the excess, if any, of its net
realized long-term capital gains over its net realized
short-term capital losses (including any capital loss
carryovers), plus or minus certain other adjustments
as specified in the Code) and its net tax-exempt
income for the taxable year is distributed in
compliance with the Code's timing and other
requirements but will be subject to tax at regular
corporate rates on any taxable income or gains it does
not distribute. Furthermore, the Fund will be subject
to a United States corporate income tax with respect
to such distributed amounts in any year it fails to
qualify as a regulated investment company or fails to
meet this distribution requirement. The Code imposes a
4% nondeductible excise tax on the Fund to the extent
it does not distribute by the end of any calendar year
at least 98% of its net investment income for that
year and 98% of the net amount of its capital gains
(both long-and short-term) for the one-year period
ending, as a general rule, on October 31 of that year.
For this purpose, however, any income or gain retained
by the Fund that is subject to corporate income tax
will be considered to have been distributed by year-
end. In addition, the minimum amounts that must be
distributed in any year to avoid the excise tax will
be increased or decreased to reflect any
underdistribution or overdistribution, as the case may
be, from the previous year. The Fund anticipates that
it will pay such dividends and will make such
distributions as are necessary in order to avoid the
application of this tax.
If, in any taxable year, the Fund fails to qualify as
a regulated investment company under the Code or fails
to meet the distribution requirement, it would be
taxed in the same manner as an ordinary corporation
and distributions to its shareholders would not be
deductible by the Fund in computing its taxable
income. In addition, in the event of a failure to
qualify, the Fund's distributions, to the extent
derived from the Fund's current or accumulated
earnings and profits would constitute dividends
(eligible for the corporate dividends-received
deduction) which are taxable to shareholders as
ordinary income, even though those distributions might
otherwise (at least in part) have been treated in the
shareholders' hands as long-term capital gains. If
the Fund fails to qualify as a regulated investment
company in any year, it must pay out its earnings and
profits accumulated in that year in order to qualify
again as a regulated investment company. In addition,
if the Fund failed to qualify as a regulated
investment company for a period greater than one
taxable year, the Fund may be required to recognize
any net built-in gains (the excess of the aggregate
gains, including items of income, over aggregate
losses that would have been realized if it had been
liquidated) in order to qualify as a regulated
investment company in a subsequent year.
The Fund's transactions in foreign currencies, forward
contracts, options and futures contracts (including
options and futures contracts on foreign currencies)
will be subject to special provisions of the Code
(including provisions relating to "hedging
transactions" and "straddles") that, among other
things, may affect the character of gains and losses
realized by the Fund (i.e., may affect whether gains
or losses are ordinary or capital), accelerate
recognition of income to the Fund and defer Fund
losses. These rules could therefore affect the
character, amount and timing of distributions to
shareholders. These provisions also (a) will require
the Fund to mark-to-market certain types of the
positions in its portfolio (i.e., treat them as if
they were closed out) and (b) may cause the Fund to
recognize income without receiving cash with which to
pay dividends or make distributions in amounts
necessary to satisfy the distribution requirements for
avoiding income and excise taxes. The Fund will
monitor its transactions, will make the appropriate
tax elections and will make the appropriate entries in
its books and records when it acquires any foreign
currency, forward contract, option, futures contract
or hedged investment in order to mitigate the effect
of these rules and prevent disqualification of the
Fund as a regulated investment company.
The Fund's investment in Section 1256 contracts, such
as regulated futures contracts, most forward currency
forward contracts traded in the interbank market and
options on most stock indices, are subject to special
tax rules. All section 1256 contracts held by the
Fund at the end of its taxable year are required to be
marked to their market value, and any unrealized gain
or loss on those positions will be included in the
Fund's income as if each position had been sold for
its fair market value at the end of the taxable year.
The resulting gain or loss will be combined with any
gain or loss realized by the Fund from positions in
section 1256 contracts closed during the taxable year.
Provided such positions were held as capital assets
and were not part of a "hedging transaction" nor part
of a "straddle," 60% of the resulting net gain or loss
will be treated as long-term capital gain or loss, and
40% of such net gain or loss will be treated as short-
term capital gain or loss, regardless of the period of
time the positions were actually held by the Fund.
Foreign Investments. Dividends or other income
(including, in some cases, capital gains) received by
the Fund from investments in foreign securities may be
subject to withholding and other taxes imposed by
foreign countries. Tax conventions between certain
countries and the United States may reduce or
eliminate such taxes in some cases. The Fund will not
be eligible to elect to treat any foreign taxes paid
by it as paid by its shareholders, who therefore will
not be entitled to credits for such taxes on their own
tax returns. Foreign taxes paid by the Fund will
reduce the return from the Fund's investments.
Passive Foreign Investment Companies. If the Fund
purchases shares in certain foreign investment
entities, called "passive foreign investment
companies" (a "PFIC"), it may be subject to United
States federal income tax on a portion of any "excess
distribution" or gain from the disposition of such
shares even if such income is distributed as a taxable
dividend by the Fund to its shareholders. Additional
charges in the nature of interest may be imposed on
the Fund in respect of deferred taxes arising from
such distributions or gains. If the Fund were to
invest in a PFIC and elected to treat the PFIC as a
"qualified electing fund" under the Code, in lieu of
the foregoing requirements, the Fund might be required
to include in income each year a portion of the
ordinary earnings and net capital gains of the
qualified electing fund, even if not distributed to
the Fund, and such amounts would be subject to the 90%
and excise tax distribution requirements described
above. In order to make this election, the Fund would
be required to obtain certain annual information from
the passive foreign investment companies in which it
invests, which may be difficult or not possible to
obtain.
Alternatively, the Fund may elect a mark-to-market
regime that would result in the Fund being treated as
if it had sold and repurchased all of the PFIC stock
at the end of each year. In this case, the Fund would
report gains as ordinary income and would deduct
losses as ordinary losses to the extent of previously
recognized gains. The election, once made, would be
effective for all subsequent taxable years of the
Fund, unless revoked with the consent of the IRS. By
making the election, the Fund could potentially
ameliorate the adverse tax consequences with respect
to its ownership of shares in a PFIC, but in any
particular year may be required to recognize income in
excess of the distributions it receives from PFICs and
its proceeds from dispositions of PFIC company stock.
The Fund may have to distribute this "phantom" income
and gain to satisfy its distribution requirement and
to avoid imposition of the 4% excise tax.
The Fund will make the appropriate tax elections, if
possible, and take any additional steps that are
necessary to mitigate the effect of these rules.
Taxation of United States Shareholders
Dividends and Distributions. Any dividend declared by
the Fund in October, November or December of any
calendar year and payable to shareholders of record on
a specified date in such a month shall be deemed to
have been received by each shareholder on December 31
of such calendar year and to have been paid by the
Fund not later than such December 31, provided such
dividend is actually paid by the Fund during January
of the following calendar year. The Fund intends to
distribute annually to its shareholders substantially
all of its investment company taxable income, and any
net realized long-term capital gains in excess of net
realized short-term capital losses (including any
capital loss carryovers
Dividends of net investment income and distributions
of net realized short-term capital gains are taxable
to a United States shareholder as ordinary income,
whether paid in cash or in shares. Distributions of
net-long-term capital gains, if any, that the Fund
designates as capital gains dividends are taxable as
long-term capital gains, whether paid in cash or in
shares and regardless of how long a shareholder has
held shares of the Fund. Dividends and distributions
paid by the Fund attributable to dividends on stock of
U.S. corporations received by the Fund, with respect
to which the Fund meets certain holding period
requirements, will be eligible for the deduction for
dividends received by corporations. Distributions in
excess of the Fund's current and accumulated earnings
and profits will, as to each shareholder, be treated
as a tax-free return of capital to the extent of a
shareholder's basis in his shares of the Fund, and as
a capital gain thereafter (if the shareholder holds
his shares of the Fund as capital assets).
Shareholders receiving dividends or distributions in
the form of additional shares should be treated for
United States federal income tax purposes as receiving
a distribution in the amount equal to the amount of
money that the shareholders receiving cash dividends
or distributions will receive, and should have a cost
basis in the shares received equal to such amount.
Investors considering buying shares just prior to a
dividend or capital gain distribution should be aware
that, although the price of shares just purchased at
that time may reflect the amount of the forthcoming
distribution, such dividend or distribution may
nevertheless be taxable to them. If the Fund is the
holder of record of any stock on the record date for
any dividends payable with respect to such stock, such
dividends are included in the Fund's gross income not
as of the date received but as of the later of (a) the
date such stock became ex-dividend with respect to
such dividends (i.e., the date on which a buyer of the
stock would not be entitled to receive the declared,
but unpaid, dividends) or (b) the date the Fund
acquired such stock. Accordingly, in order to satisfy
its income distribution requirements, the Fund may be
required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
Sales of Shares. Upon the sale or exchange of his
shares, a shareholder will realize a taxable gain or
loss equal to the difference between the amount
realized and his basis in his shares. Such gain or
loss will be treated as capital gain or loss, if the
shares are capital assets in the shareholder's hands,
and will be long-term capital gain or loss if the
shares are held for more than one year and short-term
capital gain or loss if the shares are held for one
year or less. Any loss realized on a sale or exchange
will be disallowed to the extent the shares disposed
of are replaced, including replacement through the
reinvesting of dividends and capital gains
distributions in the Fund, within a 61-day period
beginning 30 days before and ending 30 days after the
disposition of the shares. In such a case, the basis
of the shares acquired will be increased to reflect
the disallowed loss. Any loss realized by a
shareholder on the sale of a Fund share held by the
shareholder for six months or less will be treated for
United States federal income tax purposes as a long-
term capital loss to the extent of any distributions
or deemed distributions of long-term capital gains
received by the shareholder with respect to such
share. If a shareholder incurs a sales charge in
acquiring shares of the Fund, disposes of those shares
within 90 days and then acquires shares in a mutual
fund for which the otherwise applicable sales charge
is reduced by reason of a reinvestment right (e.g., an
exchange privilege), the original sales charge will
not be taken into account in computing gain/loss on
the original shares to the extent the subsequent sales
charge is reduced. Instead, the disregarded portion
of the original sales charge will be added to the tax
basis in the newly acquired shares. Furthermore, the
same rule also applies to a disposition of the newly
acquired shares made within 90 days of the second
acquisition. This provision prevents a shareholder
from immediately deducting the sales charge by
shifting his or her investment in a family of mutual
funds.
Backup Withholding. The fund may be required to
withhold, for United States federal income tax
purposes, 31% of the dividends, distributions and
redemption proceeds payable to shareholders who fail
to provide the fund with their correct taxpayer
identification number or to make required
certifications, or who have been notified by the IRS
that they are subject to backup withholding. Certain
shareholders are exempt from backup withholding.
Backup withholding is not an additional tax and any
amount withheld may be credited against a
shareholder's United States federal income tax
liabilities.
Notices. Shareholders will be notified annually by
the Fund as to the United States federal income tax
status of the dividends, distributions and deemed
distributions attributable to undistributed capital
gains (discussed above in "Taxes - Taxation of United
States Shareholders -Dividends and Distributions")
made by the Fund to its shareholders. Furthermore,
shareholders will also receive, if appropriate,
various written notices after the close of the Fund's
taxable year regarding the United States federal
income tax status of certain dividends, distributions
and deemed distributions that were paid (or that are
treated as having been paid) by the Fund to its
shareholders during the preceding taxable year.
Other Taxation
Distributions also may be subject to additional state,
local and foreign taxes depending on each
shareholder's particular situation.
The foregoing is only a summary of certain material
tax consequences affecting the Fund and its
shareholders. Shareholders are advised to consult
their own tax advisers with respect to the particular
tax consequences to them of an investment in the Fund.
ADDITIONAL INFORMATION TC "ADDITIONAL INFORMATION" \f
C \l "1"
The Company was incorporated under the laws of the
State of Maryland on July 16, 1986 under the name
Shearson Lehman Precious Metals and Minerals Fund Inc.
As the name of its sponsor has changed, the fund's
name has been changed, most recently on December 19,
1995 to Smith Barney Natural Resources Fund Inc. (the
"Natural Resources Fund"). On November 29, 1999, the
Board of Directors voted to amend the Charter of the
Company to change its name to Smith Barney Sector
Series Inc., with the Natural Resources Fund
classified as a series of the Company.
The Company offers shares of four separate series with
a par value of $.001 per share. The Fund offers
shares currently classified into four Classes - A, B,
L and Y. Each Class of the Fund represents an
identical interest in the Fund's investment portfolio.
As a result, the Classes 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 pursuant to the Plan; (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. The
Company's Board of Directors does not anticipate that
there will be any conflicts among the interests of the
holders of the different Classes. The directors, on
an ongoing basis, will consider whether any such
conflict exists and, if so, take appropriate action.
As permitted by Maryland law, there will normally be
no meetings of shareholders for the purpose of
electing directors unless and until such time as less
than a majority of the directors holding office have
been elected by shareholders. At that time, the
directors then in office will call a shareholders'
meeting for the election of directors. The directors
must call a meeting of shareholders for the purpose of
voting upon the question or removal of any director
when requested in writing to do so by the record
holders of not less than 10% of the outstanding shares
of the Fund. At such a meeting, a director may be
removed after the holders of record of not less than a
majority of the outstanding shares of the Fund have
declared that the director be removed either by
declaration in writing or by votes cast in person or
by proxy. Except as set forth above, the directors
shall continue to hold office and may appoint
successor directors.
As used in the Prospectus and this Statement of
Additional Information, a "vote of a majority of the
outstanding voting securities" means the affirmative
vote of the lesser of (a) more than 50% of the
outstanding shares of the Company (or the affected
series or Class) or (b) 67% or more of such shares
present at a meeting if more than 50% of the
outstanding shares of the Company (or the affected
series or Class) are represented at the meeting in
person or by proxy. A series or Class shall be deemed
to be affected by a matter unless it is clear that the
interests of each series or Class in the matter are
identical or that the matter does not affect any
interest of the series or Class. The approval of a
management agreement or any change in a fundamental
investment policy would be effectively acted upon with
respect to the Fund only if approved by a "vote of a
majority of the outstanding voting securities" of the
Fund; however, the ratification of independent
accountants, the election of directors, and the
approval of a distribution agreement that is submitted
to shareholders are not subject to the separate voting
requirements and may be effectively acted upon by a
vote of the holders of a majority of all Company
shares voting without regard to series or Class.
Annual and Semi-annual Reports. The Fund sends its
shareholders a semi-annual report and an audited
annual report, which include listings of investment
securities held by the Fund at the end of the period
covered. In an effort to reduce the Fund's printing
and mailing costs, the Fund consolidates the mailing
of its semi-annual and annual reports by household.
This consolidation means that a household having
multiple accounts with the identical address of record
will receive a single copy of each report. In
addition, the Fund also consolidates the mailing of
its Prospectus so that a shareholder having multiple
accounts (that is, individual, IRA and/or Self-
Employed Retirement Plan accounts) will receive a
single Prospectus annually. Shareholders who do not
want this consolidation to apply to their accounts
should contact their Salomon Smith Barney Financial
Consultant or the Transfer Agent.
FINANCIAL STATEMENTS TC "FINANCIAL STATEMENTS" \f C
\l "1"
As of the date of this SAI, the Funds had not yet
commenced operations. Consequently, there are no
financial statements for the Funds at this time.
OTHER INFORMATION
In an industry where the average portfolio manager has
seven years of experience (source: ICI, 1998), the
portfolio managers of Smith Barney Mutual Funds
average 21 years in the industry and 15 years with the
firm.
Smith Barney Mutual Funds offers more than 60 mutual
funds. We understand that many investors prefer an
active role in allocating the mix of funds in their
portfolio, while others want the asset allocation
decisions to be made by experienced managers.
That's why we offer four "styles" of fund management
that can be tailored to suit each investor's unique
financial goals.
Style Pure Series
Our Style Pure Series funds stay fully invested
within their asset class and investment style,
enabling investors to make asset allocation
decisions in conjunction with their Salomon
Smith Barney Financial Consultant.
Classic Investor Series
Our Classic Investor Series funds offer a range
of equity and fixed income strategies that seek
to capture opportunities across asset classes
and investment styles using disciplined
investment approaches.
The Concert Allocation Series
As a fund of funds, investors can select a
Concert Portfolio that may help their investment
needs. As needs change, investors can easily
choose another long-term, diversified investment
from our Concert family.
Special Discipline Series
Our Special Discipline Series funds are designed
for investors who are looking beyond more
traditional market categories: from natural
resources to a roster of state-specific
municipal
SMITH BARNEY
SECTOR SERIES INC.
Financial Services Fund
Health Sciences Fund
Technology Fund
February 14, 2000
SMITH BARNEY SECTOR SERIES INC.
388 Greenwich Street
New York, NY 10013
SALOMON SMITH
BARNEY
A Member of
Citigroup [Symbol]
Part C-Other Information
Signature Page
Part C. Other Information
Item 23. Exhibits
All references are to the Registrant's Registration Statement on Form N-1A as
filed with the Securities and Exchange Commission ("SEC") File Nos. 33-7339
and 811-4757 (the "Registration Statement").
(a) (1)Registrant's Articles of Incorporation are incorporated by reference
to Post-Effective Amendment No. 12 to the Registration Statement filed on
October 27,1993 ("Post-Effective Amendment No. 12").
(a) (2)Articles of Amendment dated October 30, 1986 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No. 12.
(a) (3)Articles of Amendment dated November 17, 1989 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.12.
(a) (4)Articles Supplementary dated November 5, 1992 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.12.
(a) (5)Articles of Amendment dated November 19, 1992 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.12.
(a) (6)Articles of Amendment dated July 30, 1993 to Articles of
Incorporation are incorporated by reference to Post-Effective Amendment No.12.
(a) (7)Articles of Amendment dated October 14, 1994 and November 7, 1994,
respectively and Articles Supplementary dated November 7, 1994 are incorporated
by reference to Post-Effective Amendment No. 15 to the Registration Statement
filed on December 29, 1994 ("Post- Effective Amendment No. 15").
(a) (8)Articles of Amendment dated December 18, 1995 to the Articles of
Incorporation are incorporated by reference to Post Effective Amendment
No. 20 to the Registration Statement filed on January 23, 1996
("Post-Effective Amendment No. 20").
(a) (9)Articles of Amendment dated June 1, 1998 to the Articles of
Incorporation by reference to Post-Effective Amendment No. 23 to the
Registration Statement filed on December 24, 1998 ("Post-Effective Amendment
No. 23").
(a)(10)Articles of Amendment dated November 29, 1999 to the Articles of
Incorporation is filed herein.
(a)(11)Articles Supplementary dated November 29, 1999 is filed herein.
(a)(12)Certificate of Correction dated November 29, 1999 is filed herein.
(a)(13)Certificate of Correction dated November 29, 1999 is filed herein.
(b) (1) Registrant's By-Laws are incorporated by reference to the
Registration Statement.
(b) (2) Amendment to Registrant's By-Laws is incorporated by reference to
Post-Effective Amendment No. 4 to the Registration Statement filed on
January 3, 1989 ("Post-Effective Amendment No. 4").
(c) Specimen form of common stock certificate is incorporated by reference
to Post-Effective Amendment No. 23 to the Registration Statement filed on
December 24, 1998 ("Post-Effective Amendment No. 23").
(d) Form of Management Agreement between the Registrant and Mutual
Management Corp. (formerly known as Smith Barney Mutual Funds Management
Inc.) is incorporated by reference to Post-Effective Amendment No. 19 to
the Registration Statement filed on December 18, 1995 ("Post-Effective
Amendment No. 19").
(e)(1) Distribution Agreement between the Registrant and Smith Barney
Shearson Inc. is incorporated by reference to Post-Effective Amendment No. 12.
(e)(2) Form of Distribution Agreement between Registrant and CFBDS, Inc. is
incorporated by reference to Post-Effective Amendment No. 23 to the
Registration Statement filed on December 24, 1998 ("Post-Effective
Amendment No. 23").
(e)(3) Selling Group Agreement is incorporated by reference to Post-
Effective Amendment No. 24 to the Registration Statement filed on
February 25,1999 ("Post-Effective Amendment No. 24").
(f) Not Applicable.
(g) Form of Custodian Agreement between the Registrant and The Chase
Manhattan Bank N.A. is incorporated by reference to Post-Effective
Amendment No. 21 filed on February 20, 1997.
(h) Transfer Agency Agreement dated August 2, 1993 between the Registrant
and First Data Investor Services Group is incorporated by reference to
Post-Effective Amendment No. 14 to the Registration Statement filed on
December 30, 1993.
(i) Not Applicable.
(j) Consent of Independent Accountants to be filed by amendment.
(k) Not Applicable.
(l) Purchase Agreement between the Registrant and Shearson Lehman Brothers
is incorporated by reference to Pre-Effective Amendment No. 1.
(m)(1) Amended Service and Distribution Plan pursuant to Rule 12b-1 between
the Registrant and Salomon Smith Barney Inc. is incorporated by reference
to Post-Effective Amendment No. 15.
(m)(2) Form of Amended Service and Distribution Plan pursuant to Rule 12b-1
between the Registrant and Salomon Smith Barney Inc. is incorporated by
reference to Post-Effective Amendment No. 23 to the Registration Statement
filed on December 24, 1998 ("Post-Effective Amendment No. 23").
(n) Financial Data Schedule to be filed by amendment.
(o) Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post-Effective Amendment No. 23.
Item 24. Persons Controlled by or Under Common Control with Registrant
None.
Item 25. Indemnification
The response to this item is incorporated by reference to Post - Effective
Amendment No. 1 to the Registration Statement filed on May 28, 1987.
Item 26. Business and Other Connections of Investment Adviser
Investment Adviser - - SSB Citi Fund Management LLC ("SSB Citi") formerly
known as SSBC Fund Management Inc. ("SSBC")
SSB Citi was incorporated in December 1968 under the laws of the State of
Delaware. On September 21, 1999, SSB Citi was converted into a Delaware
Limited Liability Company. SSB Citi is a wholly owned subsidiary of Salomon
Smith Barney Holdings Inc. ("Holdings") (formerly known as Smith Barney
Holdings Inc.) which in turn is a wholly owned subsidiary of Citigroup Inc.
("Citigroup"). SSB Citi is registered as an investment adviser under the
Investment Advisers Act of 1940 (the "Advisers Act").
The list required by this Item 26 of officers and directors of SSB Citi
together with information as to any other business, profession, vocation
or employment of a substantial nature engaged in by such officers and
directors during the past two years, is incorporated by reference to
Schedules A and D of FORM ADV filed by SSBC pursuant to the Advisers Act
(SEC File No. 801-8314).
Item 27. Principal Underwriters
(a)
CFBDS, Inc., ("CFBDS") the Registrant's Distributor, is also
the distributor for the following Smith Barney funds: Concert
Investment Series, Consulting Group Capital Markets Funds, Greenwich
Street Series Fund, Smith Barney Adjustable Rate Government Income
Fund, Smith Barney Aggressive Growth Fund Inc., Smith Barney
Appreciation Fund Inc., Smith Barney Arizona Municipals Fund Inc.,
Smith Barney California Municipals Fund Inc., Smith Barney Concert
Allocation Series Inc., Smith Barney Equity Funds, Smith Barney
Fundamental Value Fund Inc., Smith Barney Funds, Inc., Smith
Barney Income Funds, Smith Barney Institutional Cash Management
Fund, Inc., Smith Barney Investment Funds Inc., Smith Barney
Investment Trust, Smith Barney Managed Governments Fund Inc.,
Smith Barney Managed Municipals Fund Inc., Smith Barney
Massachusetts Municipals Fund, Smith Barney Money Funds, Inc.,
Smith Barney Muni Funds, Smith Barney Municipal Money Market
Fund, Inc., Smith Barney New Jersey Municipals Fund Inc.,
Smith Barney Oregon Municipals Fund Inc., Smith Barney Principal
Return Fund, Smith Barney Small Cap Blend Fund, Inc., Smith Barney
Telecommunications Trust, Smith Barney Variable Account Funds,
Smith Barney World Funds, Inc., Travelers Series Fund Inc., and
various series of unit investment trusts.
CFBDS also serves as the distributor for the following funds:
The Travelers Fund UL for Variable Annuities, The Travelers Fund
VA for Variable Annuities, The Travelers Fund BD for Variable
Annuities, The Travelers Fund BD II for Variable Annuities, The
Travelers Fund BD III for Variable Annuities, The Travelers Fund
BD IV for Variable Annuities, The Travelers Fund ABD for
Variable Annuities, The Travelers Fund ABD II for Variable
Annuities, The Travelers Separate Account PF for Variable
Annuities, The Travelers Separate Account PF II for Variable
Annuities, The Travelers Separate Account QP for Variable
Annuities, The Travelers Separate Account TM for Variable
Annuities, The Travelers Separate Account TM II for Variable
Annuities, The Travelers Separate Account Five for Variable
Annuities, The Travelers Separate Account Six for Variable
Annuities, The Travelers Separate Account Seven for Variable
Annuities, The Travelers Separate Account Eight for Variable
Annuities, The Travelers Fund UL for Variable Annuities, The
Travelers Fund UL II for Variable Annuities, The Travelers
Variable Life Insurance Separate Account One, The Travelers
Variable Life Insurance Separate Account Two, The Travelers
Variable Life Insurance Separate Account Three, The Travelers
Variable Life Insurance Separate Account Four, The Travelers
Separate Account MGA, The Travelers Separate Account MGA II,
The Travelers Growth and Income Stock Account for Variable
Annuities, The Travelers Quality Bond Account for Variable
Annuities, The Travelers Money Market Account for Variable
Annuities, The Travelers Timed Growth and Income Stock Account
for Variable Annuities, The Travelers Timed Short-Term Bond
Account for Variable Annuities, The Travelers Timed Aggressive
Stock Account for Variable Annuities, The Travelers Timed Bond
Account for Variable Annuities.
In addition, CFBDS, the Registrant's Distributor, is also the
distributor for CitiFunds Multi-State Tax Free Trust,
CitiFunds Premium Trust, CitiFunds Institutional Trust,
CitiFunds Tax Free Reserves, CitiFunds Trust I, CitiFunds
Trust II, CitiFunds Trust III, CitiFunds International Trust,
CitiFunds Fixed Income Trust, CitiSelect VIP Folio 200,
CitiSelect VIP Folio 300, CitiSelect VIP Folio 400, CitiSelect
VIP Folio 500, CitiFunds Small Cap Growth VIP Portfolio.
CFBDS is also the placement agent for Large Cap Value Portfolio,
Small Cap Value Portfolio, International Portfolio, Foreign
Bond Portfolio, Intermediate Income Portfolio, Short-Term
Portfolio, Growth & Income Portfolio, U.S. Fixed Income Portfolio,
Large Cap Growth Portfolio, Small Cap Growth Portfolio,
International Equity Portfolio, Balanced Portfolio,
Government Income Portfolio, Tax Free Reserves Portfolio,
Cash Reserves Portfolio and U.S. Treasury Reserves Portfolio.
In addition, CFBDS is also the distributor for the following
Salomon Brothers funds: Salomon Brothers Opportunity Fund Inc.,
Salomon Brothers Investors Fund Inc., Salomon Brothers Capital
Fund Inc., Salomon Brothers Series Funds Inc., Salomon Brothers
Institutional Series Funds Inc., Salomon Brothers Variable Series
Funds Inc.
In addition, CFBDS is also the distributor for the Centurion Funds,
Inc.
(b) The information required by this Item 27 with respect to each director
and officer of CFBDS is incorporated by reference to Schedule A of Form BD
filed by CFBDS pursuant to the Securities and Exchange Act of 1934 (File
No. 8-32417).
(c) Not applicable.
Item 28. Location of Accountants and Records
(1) Smith Barney Sector Series Inc.
(f/k/a Smith Barney Natural Resources Fund Inc.)
388 Greenwich Street
New York, New York 10013
(2) SSB Citi Fund Management LLC
(formerly known as SSBC Fund Management Inc.)
388 Greenwich Street
New York, New York 10013
(3) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(4) First Data Investor Services Group, Inc.
One Exchange Place
Boston, Massachusetts 02109
(5) CFBDS, Inc.
21 Milk Street
Boston, Massachusetts 02109
Item 29. Management Services
Not Applicable.
Item 30. Undertakings
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 (the "Securities
Act") and the Investment Company Act of 1940, as amended, the Registrant,
Smith Barney Sector Series Inc. has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York and State of New York, on the 1st day of December, 1999.
SMITH BARNEY SECTOR SERIES INC.
By: /s/ Heath B. McLendon
Health B. McLendon
Chairman of the Board,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment to the Registration Statement has been signed below by the
following persons in the capacities and as of the dates indicated.
Signature Title Date
/s/Heath B. McLendon Chairman of the Board, December 1,1999Heath B.
McLendon President and Chief
Executive Officer
/s/ Lewis E. Daidone Senior Vice President December 1,1999
Lewis E. Daidone and Treasurer, Chief
Financial and Accounting Officer
/s/Herbert Barg Director December 1,1999
Herbert Barg
/s/Alfred J. Bianchetti Director December 1,1999
Alfred J. Bianchetti
/s/Martin Brody Director December 1,1999
Martin Brody
/s/Dwight B. Crane Director December 1,1999
Dwight B. Crane
/s/Burt N. Dorsett Director December 1,1999
Burt N. Dorsett
/s/Elliot S. Jaffe Director December 1,1999
Elliot S. Jaffe
/s/Stephen E. Kaufman Director December 1,1999
Stephen E. Kaufman
/s/Joseph J. McCann Director December 1,1999
Joseph J. McCann
/s/Cornelius C. Rose, Jr. Director December 1,1999
Cornelius C. Rose, Jr.
EXHIBIT INDEX
Exhibit No. Exhibit
(a)(10) Articles of Amendment
(a)(11) Articles Supplementary
(a)(12) Certificate of Correction
(a)(13) Certificate of Correction
(j) Consent of Independent Accountants*
(n) Financial Data Schedule*
cover
*To be filed by amendment
SMITH BARNEY NATURAL RESOURCES FUND INC.
ARTICLES OF AMENDMENT
Smith Barney Natural Resources Fund
Inc., a Maryland corporation having its principal
office in Maryland in Baltimore City, Maryland
(hereinafter called the "Corporation"), hereby
certifies to the State Department of Assessments
and Taxation of Maryland that:
FIRST: The Articles of
Amendment and Restatement of the Corporation are
amended by revising Article I thereof to read:
ARTICLE I
NAME
The name of the Corporation
(hereinafter called the
Corporation) is Smith
Barney Sector Series Inc.
SECOND: The Charter of the
Corporation, as heretofore amended, is further
amended by redesignating all of the issued and
unissued shares of the Corporation's Class A Common
Stock, Class B Common Stock, Class L Common Stock,
Class Y Common Stock, and Class Z Common Stock,
respectively, as Class A Common Stock, Class B
Common Stock, Class L Common Stock, Class Y Common
Stock and Class Z Common Stock, respectively, of
the Smith Barney Natural Resources Fund series of
the Corporation.
THIRD: The foregoing amendments to
the Charter of the Corporation were approved by a
majority of the entire board of directors at a
meeting duly convened and held on November 29,
1999.
FOURTH: The foregoing amendments to
the Charter of the Corporation are limited to
changes expressly permitted by Section 2-605 of the
Maryland General Corporation Law to be made without
action by stockholders.
IN WITNESS WHEREOF, Smith Barney
Natural Resources Fund Inc. has caused these
presents to be signed in its name and on its behalf
by its duly authorized officers who acknowledge
that these Articles of Amendment are the act of the
Corporation and that to the best of their
knowledge, information and belief, all matters
and facts set forth herein relating to the
authorization and approval of these Articles are
true in all material respects and that this
statement is made under the penalties of perjury.
SMITH BARNEY
NATURAL
RESOURCES FUND
INC.
WITNESS:
/s/Michael Kocur By:/s/Heath B.
McLendon
Name: Michael Kocur Name: Heath B.
McLendon
Title: Assistant Secretary
Title: President
- - 2 -
BA3DOCS1\128869
NATR\ARTICLES OF AMENDMENT 112399
SMITH BARNEY SECTOR SERIES INC.
ARTICLES SUPPLEMENTARY
Smith Barney Sector Series Inc., a
Maryland corporation having its principal office in
Maryland in Baltimore City, Maryland (hereinafter
called the "Corporation"), hereby certifies to the
State Department of Assessments and Taxation of
Maryland that:
FIRST: The Charter of the
Corporation currently authorizes 3,000,000,000
shares of Common Stock, par value $.001 per share,
all of which are classified as shares of its Smith
Barney Natural Resources Fund series. The number
of shares of Common Stock that the Corporation has
authority to issue and their aggregate par value
are not increased by these Articles Supplementary.
Two billion two hundred fifty million of the
unissued shares of Common Stock of the Corporation
are reclassified as set forth below:
(1) The Board of Directors hereby
reclassifies 750,000,000 shares of the
unissued authorized shares of Common Stock of
the Corporation as shares of Class A Common
Stock, Class B Common Stock, Class L Common
Stock, Class Y Common Stock and Class Z
Common Stock of the Smith Barney Financial
Services Fund of the Corporation, which is
hereby established as follows: The
Corporation shall be authorized to issue up
to 750,000,000 shares of each of the Class A
Common Stock, Class B Common Stock, Class L
Common Stock, Class Y Common Stock, and Class
Z Common Stock of the Smith Barney Financial
Services Fund less, at any time, the total
number of shares of all such other classes of
Common Stock of the Smith Barney Financial
Services Fund then issued and outstanding.
At no time may the Corporation cause to be
issued and outstanding more than 750,000,000
shares of the Common Stock of all such
classes of the Smith Barney Financial
Services Fund in the aggregate unless such
number be hereafter increased in accordance
with the Maryland General Corporation Law.
(2) The Board of Directors hereby
reclassifies 750,000,000 shares of the
unissued authorized shares of Common Stock of
the Corporation as shares of Class A Common
Stock, Class B Common Stock, Class L Common
Stock, Class Y Common Stock and Class Z
Common Stock of the Smith Barney Health
Sciences Fund of the Corporation, which is
hereby established as follows: The
Corporation shall be authorized to issue up
to 750,000,000 shares of each of the Class A
Common Stock, Class B Common Stock, Class L
Common Stock, Class Y Common Stock, and Class
Z Common Stock of the Smith Barney Health
Sciences Fund less, at any time, the total
number of shares of all such other classes of
Common Stock of the Smith Barney Health
Sciences Fund then issued and outstanding.
At no time may the Corporation cause to be
issued and outstanding more than 750,000,000
shares of the Common Stock of all such
classes of the Smith Barney Health Sciences
Fund in the aggregate unless such number be
hereafter increased in accordance with the
Maryland General Corporation Law.
(3) The Board of Directors hereby
reclassifies 750,000,000 of the unissued
authorized shares of Common Stock of the
Corporation as shares of Class A Common
Stock, Class B Common Stock, Class L Common
Stock, Class Y Common Stock, and Class Z
Common Stock of the Smith Barney Technology
Fund of the Corporation, which is hereby
established as follows: The Corporation
shall be authorized to issue up to
750,000,000 shares of each of the Class A
Common Stock, Class B Common Stock, Class L
Common Stock, Class Y Common Stock, and Class
Z Common Stock of the Smith Barney Technology
Fund less, at any time, the total number of
shares of all such other classes of Common
Stock of the Smith Barney Technology Fund
then issued and outstanding. At no time may
the Corporation cause to be issued and
outstanding more than 750,000,000 shares of
the Common Stock of all such classes of the
Smith Barney Technology Fund in the aggregate
unless such number be hereafter increased in
accordance with the Maryland General
Corporation Law.
SECOND: The shares of Class A,
Class B, Class L, Class Y and Class Z Common Stock,
respectively, of each of the Smith Barney Financial
Services Fund, Smith Barney Health Sciences Fund,
and Smith Barney Technology Fund (each a "Fund" and
collectively the "Funds")) classified hereby shall
be subject to all of the provisions of the
Corporation's Charter relating to stock of the
Corporation generally, and to the following
preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of
redemption:
(1) All consideration received by the
Corporation for the issuance or sale of
shares of the Class A, Class B, Class L,
Class Y and Class Z Common Stock of a
particular Fund, and of any other class of
stock hereafter created with respect to that
Fund, together with all income, earnings,
profits and proceeds thereof, including any
proceeds derived from the sale, exchange or
liquidation thereof, and any funds or
payments derived from any reinvestment of
such proceeds in whatever form the same may
be, shall irrevocably belong to that Fund for
all purposes, subject only to the rights of
creditors, and shall be so recorded upon the
books of account of the Corporation. Such
consideration, income, earnings, profits and
proceeds thereof, including any proceeds
derived from the sale, exchange or
liquidation thereof, and any funds or
payments derived from any reinvestment of
such proceeds, in whatever form the same may
be, are herein referred to as "assets
belonging to" the Fund. The classes of stock
comprising a Fund shall have no interest in
assets belonging to any other fund of the
Corporation as determined by the Board of
Directors in accordance with law.
(2) Dividends or distributions on
shares of the classes of stock comprising a
Fund, whether payable in stock or cash, shall
be paid only out of earnings, surplus or
other assets belonging to the Fund.
(3) In the event of the liquidation
or dissolution of the Corporation or the
liquidation of a Fund, stockholders of the
classes of stock comprising a Fund shall be
entitled to receive, as a class, out of the
assets of the Corporation available for
distribution to stockholders, the assets
belonging to the Fund and their proportionate
interest in any general assets of the
Corporation not belonging to any fund thereof
as determined by the Board of Directors in
accordance with law. The assets so
distributable to the stockholders of a Fund
shall be distributed among such stockholders
in proportion to the relative net asset
values of the classes of stock comprising the
Fund and the number of shares of the
particular class of the Fund held by them and
recorded on the books of the Corporation, or
in such other manner as may be determined by
the Board of Directors in accordance with
law.
(4) The assets belonging to a Fund
shall be charged with the liabilities of the
Corporation in respect of the Fund and with
the Fund's share of the general liabilities
of the Corporation, in the latter case in the
proportion that the respective net asset
values of the classes of stock comprising the
Fund bear to the net asset values of the
classes of stock of all funds of the
Corporation or in such other manner as may be
determined by the Board of Directors in
accordance with law. The determination of
the Board of Directors shall be conclusive as
to the allocation of assets and liabilities,
including accrued expenses and reserves, to a
given fund and the classes therein.
(5) The Class A, Class B, Class L,
Class Y and Class Z Common Stock shares of
each Fund classified hereby will be invested
in a common investment portfolio with the
other classes of shares of the same Fund and,
if hereafter authorized by the Board of
Directors, with one or more other classes of
stock in the same common investment portfolio
of that Fund, and, as so invested, shall be
subject to the following additional
preferences, conversion and other rights,
voting powers, restrictions, limitations as
to dividends, qualifications, and terms and
conditions of redemption:
(a) The dividends and
distributions of investment income and
capital gains with respect to the classes of
stock comprising a Fund shall be in such
amounts as may be declared from time to time
by the Board of Directors, and such dividends
and distributions may vary among the classes
of stock comprising the Fund to reflect
differing allocations of the expenses and
liabilities of the Corporation and the Fund
among the classes of stock and any resultant
differences among the net asset values per
share of the classes of stock comprising the
Fund, to such extent and for such purposes as
the Board of Directors may deem appropriate.
The allocation of investment income, realized
and unrealized capital gains and losses,
expenses and liabilities of the Corporation
and a Fund among the classes of stock
comprising the Fund and any other class of
stock of the Corporation and the
determination of their respective net asset
values and rights upon liquidation or
dissolution of the Corporation or liquidation
of a Fund shall be determined by the Board of
Directors in accordance with law and in a
manner that is consistent with Rule 18f-3 of
the Investment Company Act of 1940, as
amended (the "Investment Company Act"), and
any existing or future amendment to such rule
or any rule or interpretation under the
Investment Company Act that modifies, is an
authorized alternative to, or supersedes such
rule.
(b) The proceeds of the
redemption of the shares of any class of
Common Stock comprising a Fund may be reduced
by the amount of any contingent deferred
sales charge, liquidation charge, or other
charge (which charges may vary within and
among the classes of stock comprising a Fund)
payable on such redemption pursuant to the
terms of issuance of such shares or otherwise
established by the Board of Directors, all in
accordance with the Investment Company Act,
and applicable rules and regulations of the
National Association of Securities Dealers,
Inc. ("NASD").
(c) At such times (which may
vary between and among the holders of
particular classes of stock comprising a
Fund) as may be determined by the Board of
Directors (or with the authorization of the
Board of Directors, by the officers of the
Corporation) in accordance with the
Investment Company Act, applicable rules and
regulations thereunder, and applicable rules
and regulations of the NASD and reflected in
the pertinent registration statement of the
Corporation, shares of any particular class
of stock of a Fund may be automatically
converted into shares of another class of
stock of the Fund based on the relative net
asset values of such classes at the time of
conversion, subject, however, to any
conditions of conversion that may be imposed
by the Board of Directors (or with the
authorization of the Board of Directors, by
the officers of the Corporation) and
reflected in the pertinent registration
statement of the Corporation as aforesaid.
(6) Except as hereinafter provided,
on each matter submitted to a vote of the
stockholders of the Corporation or of a Fund,
each holder of a share of Class A, Class B,
Class L, Class Y or Class Z Common Stock of
the Fund, and of any other class of stock
hereafter created with respect to the Fund,
shall be entitled to one vote for each such
share standing in the stockholder's name on
the books of the Corporation irrespective of
class thereof. All holders of such shares
shall vote as a single class with the holders
of the other shares of Common Stock of the
Corporation; provided, however, that if
voting by class or fund is required by the
Investment Company Act or Maryland law as to
any such matter, those requirements shall
apply, and provided further, however, that,
except as otherwise required by law, only the
holders of shares of the class or classes or
fund affected shall be entitled to vote and
such holders shall the exclusive right to
vote thereon. Without limiting the
foregoing, and subject to the requirements of
law, (i) holders of shares of Class A, Class
B, Class L, Class Y or Class Z Common Stock
of a Fund, and of any other class hereafter
created with respect to the Fund, shall have
exclusive voting rights with respect to
matters that only affect the Fund and no
voting rights with respect to any matter that
does not affect the Fund and (ii) the holders
of each of the classes of Common Stock
comprising the Fund shall have exclusive
voting rights with respect to matters that
only affect such class of Common Stock of the
Fund and no voting rights with respect to any
matter that does not affect such class.
(7) That, without limiting other
investment of the assets belonging to a Fund,
the assets belonging to the Funds may be
transferred to and invested in shares of
stock or beneficial interest of other
investment companies in a "master-feeder" or
other relationship, any such transfer or
investment to be construed as being in the
ordinary course of business conducted by the
Corporation.
THIRD: (a) Immediately prior to these
Articles Supplementary becoming effective, the
Corporation had authority to issue 3,000,000,000
shares of Common Stock, $.001 par value per share,
with an aggregate par value of $3,000,000,
classified as follows:
Fund
Total
Shares
Smith Barney
Natural
Resources Fund
3,000,000,
000
Class A
Common
Stock
Class B
Common
Stock
Class L
Common
Stock
Class Y
Common
Stock
Class Z
Common
Stock
(b) Immediately upon these
Articles Supplementary becoming effective, the
Corporation has authority to issue 3,000.000.000
shares of Common Stock, $.001 par value per share,
with an aggregate par value of $3,000,000,
classified as follows:
Fund
Total
Shares
Smith Barney
Natural
Resources Fund
750,000,00
0
Class A
Common
Stock
Class B
Common
Stock
Class L
Common
Stock
Class Y
Common
Stock
Class Z
Common
Stock
Smith Barney
Financial
Services Fund
750,000,00
0
Class A
Common
Stock
Class B
Common
Stock
Class L
Common
Stock
Class Y
Common
Stock
Class Z
Common
Stock
Smith Barney
Health Sciences
Fund
750,000,00
0
Class A
Common
Stock
Class B
Common
Stock
Class L
Common
Stock
Class Y
Common
Stock
Class Z
Common
Stock
Smith Barney
Technology Fund
750,000,00
0
Class A
Common
Stock
Class B
Common
Stock
Class L
Common
Stock
Class Y
Common
Stock
Class Z
Common
Stock
3,000,000,
000
FOURTH: The unissued shares of
Common Stock of the Corporation that have been
reclassified as aforesaid have been reclassified by
the Board of Directors pursuant to authority and
power contained in the Charter of the Corporation.
IN WITNESS WHEREOF, Smith Barney Sector
Series Fund Inc. has caused these presents to be
signed in its name and on its behalf as of November
29, 1999 by its duly authorized officers who
acknowledge that these Articles Supplementary are
the act of the Corporation, that to the best of
their knowledge, information and belief, all
matters and facts set forth herein relating to the
authorization and approval of these Articles
Supplementary are true in all material respects,
and that this statement is made under the penalties
of perjury.
SMITH BARNEY
SECTOR
SERIES INC.
WITNESS:
/s/Michael Kocur By:/s/Heath B.
McLendon
Michael Kocur Heath B.
McLendon
Assistant Secretary President
BA3DOCS1\128866\v2
- - 7 -
CERTIFICATE OF CORRECTION
SMITH BARNEY NATURAL RESOURCES FUND INC.
Smith Barney Natural Resources Fund
Inc., a Maryland corporation having its principal
office in the State of Maryland in the City of
Baltimore (hereinafter called the "Corporation"),
hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
1. The title of the document being
corrected is:
"SHEARSON LEHMAN BROTHERS PRECIOUS METALS
AND MINERALS FUND INC. [NOW SMITH BARNEY
NATURAL RESOURCES FUND INC.]
ARTICLES OF AMENDMENT"
2. Smith Barney Natural Resources
Fund Inc. is the only party to the Articles of
Amendment.
3. The Articles of Amendment were
filed with and accepted for record by the State
Department of Assessments and Taxation of Maryland
on July 30, 1993.
4. (a) Article FIRST of the
Articles of Amendment read as follows:
FIRST: The Articles of
Incorporation of the Corporation are hereby
amended by deleting Article II and inserting in
lieu thereof the following:
ARTICLE II
NAME
The name of the corporation
(hereinafter called the "Corporation")
is Smith Barney Shearson Precious
Metals and Minerals Fund Inc.
(b) As corrected, Article First
of the Articles of Amendment reads
as follows:
FIRST: The Charter of the
Corporation as set forth in the Articles of
Amendment and Restatement of the Corporation is
hereby amended with respect to its name by
deleting Article I and inserting in lieu thereof
the following:
ARTICLE I
NAME
The name of the corporation
(hereinafter called the "Corporation")
is Smith Barney Shearson Precious
Metals and Minerals Fund Inc.
THE UNDERSIGNED officers of the
Corporation hereby acknowledge this Certificate of
Correction to be the corporate act of the
Corporation and further certify that, to the best
of their knowledge, information and belief, the
matters and facts set forth herein that are
required to be verified under oath are true in all
material respects and that this statement is made
under the penalties of perjury.
IN WITNESS WHEREOF, Smith Barney
Natural Resources Fund Inc. caused this
Certificate of Correction to be signed in its name
and on its behalf by its President and witnessed
by its Assistant Secretary as of November 23,
1999.
WITNESS: SMITH BARNEY
NATURAL
RESOURCES FUND
INC.
/s/Michael Kocur By:/s/Heath B.
McLendon
Michael Kocur Heath B.
McLendon
Assistant Secretary
President
- -3-
BA3DOCS1/128993.01
NATR\CERTIFICATE OF CORRECTION 112399
CERTIFICATE OF CORRECTION
SMITH BARNEY NATURAL RESOURCES FUND INC.
Smith Barney Natural Resources Fund
Inc., a Maryland corporation having its principal
office in the State of Maryland in the City of
Baltimore (hereinafter called the "Corporation"),
hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
1. The title of the document being
corrected is:
"SHEARSON LEHMAN PRECIOUS METALS
AND MINERALS INC. [NOW SMITH BARNEY
NATURAL RESOURCES FUND INC.]
ARTICLES OF AMENDMENT"
2. Smith Barney Natural Resources
Fund Inc. is the only party to the Articles of
Amendment.
3. The Articles of Amendment were
filed with, and accepted for record by the State
Department of Assessments and Taxation of Maryland
on November 17, 1989.
4. (a) Article FIRST of the
Articles of Amendment read as follows:
FIRST: The Chapter (sic) of the
Corporation is hereby amended by striking out
Article II and inserting in lieu thereof the
following:
ARTICLE II
NAME
The name of the Corporation is SLH Precious Metals and Minerals Fund Inc.
(b) As corrected, Article First of
the Articles of Amendment reads
as follows:
FIRST: The Charter of the Corporation
as set forth in the Articles of Amendment and
Restatement of the Corporation are hereby amended
with respect to its name by striking out Article I
and inserting in lieu thereof the following:
ARTICLE I
NAME
The name of the Corporation is SLH
Precious Metals and Minerals Fund Inc.
THE UNDERSIGNED officers of the
Corporation hereby acknowledge this Certificate of
Correction to be the corporate act of the
Corporation and further certify that, to the best
of their knowledge, information and belief, the
matters and facts set forth herein that are
required to be verified under oath are true in all
material respects and that this statement is made
under the penalties of perjury.
IN WITNESS WHEREOF, Smith Barney
Natural Resources Fund Inc. caused this
Certificate of Correction to be signed in its name
and on its behalf by its President and witnessed
by its Assistant Secretary as of November 23,
1999.
WITNESS: SMITH BARNEY
NATURAL
RESOURCES FUND
INC.
/s/Michael Kocur By:/s/Heath B.
McLendon
Michael Kocur Heath B.
McLendon
Assistant Secretary
President
- -2-
BA3DOCS1/129027.01
FUNDS\NATR\CERTIFICATE OF CORRECTION 2 112399
