As filed with the Securities and Exchange Commission on July 7, 2000
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. 28
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940, as amended
Amendment No. 29 [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
[XX] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 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-Combined Prospectus for the Global Biotechnology Fund, Global Media &
Telecommunications Fund and Global Technology Fund
<PAGE>
[LOGO] Smith Barney
Mutual Funds
P R O S P E C T U S
Global
Biotechnology Fund
Global Media &
Telecommunications Fund
Global Technology Fund
Class A,B,L and Y Shares
-------------------------------------
August 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.......................................... 2
Smith Barney Global Biotechnology Fund.................................... 2
Smith Barney Global Media & Telecommunications Fund....................... 7
Smith Barney Global Technology Fund....................................... 12
More on the funds' investments.............................................. 15
Management.................................................................. 17
Subscription offering period................................................ 18
Choosing a class of shares to buy........................................... 18
Comparing the funds' classes................................................ 20
Sales charges............................................................... 21
More about deferred sales charges........................................... 24
Buying shares............................................................... 25
Exchanging shares........................................................... 26
Redeeming shares............................................................ 28
Other things to know about share transactions............................... 30
Salomon Smith Barney Retirement Programs.................................... 31
Dividends, distributions and taxes.......................................... 32
Share price................................................................. 33
</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 Global Biotechnology Fund
Investment objective
Smith Barney Global Biotechnology Fund (the "Global Biotechnology Fund") seeks
long-term capital appreciation by investing primarily in common stocks.
Principal Investment Strategies
Key investments The Global Biotechnology Fund normally invests at least 80% of
its assets in securities of companies principally engaged in the research,
development, and manufacture of various biotechnological products, services,
and processes. These companies may include, but are not limited to, the follow-
ing: companies involved with applications and developments in such areas as
health care; pharmaceuticals; agricultural and veterinary applications; chemi-
cals; medical/surgical; and industrial applications. They may also include com-
panies that manufacture biotechnological and biomedical products, including
devices and instruments; companies that provide biotechnological processes or
services; companies that provide scientific and technological advances in bio-
technology; and companies involved with new or experimental technologies
related to any of the above. The fund may also invest its assets in securities
of companies that distribute biotechnological and biomedical products, includ-
ing devices and instruments, and companies that benefit significantly from sci-
entific and technological advances in biotechnology.
The Global Biotechnology Fund may invest without limitation in securities of
foreign issuers and will invest in securities of issuers located in at least
three countries, including the U.S. The fund invests primarily in companies
with medium and large market capitalizations. To a lesser extent, the fund also
may invest in equity securities of companies with small market capitalizations.
Medium and large market capitalization companies are those companies with mar-
ket capitalizations exceeding $5 billion.
Selection process The Global Biotechnology Fund normally invests at least 80%
of its assets in companies doing business in the biotechnology sector. The
remainder of the fund's assets are not required to be invested in that sector.
To determine whether a Company is principally doing business in the sector, it
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;
Sector Funds
2
<PAGE>
. At least 50% of its assets must be devoted to producing revenues from the
sector; or
. Based on other available information, the manager determines that the
company's primary business is within the sector.
In buying and selling securities, the Global Biotechnology Fund relies on fun-
damental analysis of each issuer and its potential for success in light of its
current financial condition and its industry position. Factors considered,
among other things, include long-term growth potential, earnings estimates and
quality of management. The fund may lend its securities to earn income for the
fund.
The Global Biotechnology Fund may, but is not required to, use various tech-
niques, 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 Global Biotechnology Fund
Investors could lose money on their investments in the Global Biotechnology
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.
. The fund may invest a substantial portion of its assets in foreign securi-
ties. Foreign markets can be more volatile than the U.S. market because of
increased risks of adverse issuer, political, regulatory, market or economic
developments and can perform differently than the U.S. market. Currency fluc-
tuations may adversely impact the fund's investments.
. The biotechnology industry can be significantly affected by patent considera-
tions, intense competition, rapid technological change and obsolescence, and
government regulation. Biotechnology companies can have persistent losses
during a new product's transition from development to production, and revenue
patterns can be erratic.
. The value of an individual security or particular type of security can be
more volatile than the market as a whole and can perform differently than the
market as a whole. The value of smaller capitalized companies
Smith Barney Mutual Funds
3
<PAGE>
may involve greater risks, such as limited product lines, markets and finan-
cial or managerial resources.
. The Global Biotechnology Fund is "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 fund's
investments are spread across the sector on which it focuses. However,
because those investments are limited to a comparatively narrow segment of
the economy, the fund's investments are not as diversified as most mutual
funds, and far less diversified than the broad securities markets. This means
that the fund tends to be more volatile than other mutual funds, and the val-
ues of its portfolio investments tend to increase and decrease more rapidly.
As a result, the value of your investment in the fund may rise or fall rapid-
ly.
. The judgment of the fund's manager about the attractiveness, growth
prospects, value or potential appreciation of a particular stock may prove to
be incorrect.
Who may want to invest The Global Biotechnology Fund may be an appropriate
investment if you:
. Are seeking to participate in the long-term growth potential of the biotech-
nology sector
. Are seeking capital appreciation and can tolerate short-term volatility.
. Are looking for an investment with potentially greater return but higher risk
than a fund investing primarily in fixed income securities
. Are comfortable with the risks of the stock market and the special risks of
foreign securities, including emerging market securities
. Currently have exposure to the stock market and can tolerate concentrated
investment in a single market sector
Sector Funds
4
<PAGE>
Performance
The Global Biotechnology 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
Global Biotechnology 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) 5.00% None 1.00% None
Maximum deferred sales charge (load) (as a %
of the lower of net asset value at purchase or
redemption) None* 5.00% 1.00% 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>
* You may buy Class A shares in amounts of $1,000,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge of
1.00%.
** The Global Biotechnology 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
5
<PAGE>
Example
This example helps you compare the costs of investing in the Global
Biotechnology 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
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. 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 (with or without redemption) $ $
Class B (redemption at end of period) $ $
Class B (no redemption) $ $
Class L (redemption at end of period) $ $
Class L (no redemption) $ $
Class Y (with or without redemption) $ $
</TABLE>
Sector Funds
6
<PAGE>
Investments, risks and performance
Smith Barney Global Media & Telecommunications Fund
Investment objective
Smith Barney Global Media & Telecommunications Fund (the "Global Media & Tele-
communications Fund") seeks long-term capital appreciation by investing primar-
ily in common stocks.
Principal Investment Strategies
Key investments The Global Media & Telecommunications Fund normally invests at
least 80% of its assets in securities of companies principally engaged in the
development, production, sale and distribution of goods or services used in the
broadcast and media industries, as well as companies engaged in design, devel-
opment, manufacture, distribution, or sale of communications services and
equipment and companies that are involved in supplying equipment or services to
such companies.
The media and telecommunications sector includes, without limitation, advertis-
ing companies; companies that own, operate, or broadcast free or pay televi-
sion, radio, or cable stations, theaters or film studios; television and movie
programming, broadcasting and Internet access; publishers or sellers of newspa-
pers, magazines, books, or video products; printing, cable television and video
companies and equipment providers; companies involved in emerging technologies
for the broadcast and media industries; companies involved in the development,
syndication, and transmission of television, movie programming, advertising,
and cellular communications; companies that offer local and long-distance tele-
phone service or equipment, wireless communications, satellite communications;
or companies principally engaged in the development, manufacture, or sale of
communications services or communications equipment. These companies may
include companies that provide the following: cellular, paging, and local and
wide area product networks, service or equipment; microwave and cable televi-
sion or equipment; and new technologies such as fiber optics, semiconductors,
and data transmission; and companies that distribute data-base information; and
other companies involved in the ownership, operation, or development of media
and telecommunications products or services.
The Global Media & Telecommunications Fund may invest without limitation in
securities of foreign issuers and will invest in securities of issuers located
in at least three countries, including the U.S. The fund invests
Smith Barney Mutual Funds
7
<PAGE>
primarily in companies with medium and large market capitalizations. To a
lesser extent, the fund also may invest in equity securities of companies with
small market capitalizations. Medium and large market capitalization companies
are those companies with market capitalizations exceeding $5 billion.
Selection process The Global Media & Telecommunications Fund normally invests
at least 80% of its assets in companies doing business in the media and tele-
communications sector. The remainder of the fund's assets are not required to
be invested in that sector. To determine whether a potential investment is
principally 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
sector; or
. Based on other available information, the manager determines that the
company's primary business is within the sector.
In buying and selling securities, the Global Media & Telecommunications 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, among other things, include long-term growth potential, earnings
estimates and quality of management. The fund may lend its securities to earn
income for the fund.
The Global Media & Telecommunication Fund may, but is not required to, use var-
ious techniques, such as buying and selling futures and options contracts, to
increase or decrease the fund's 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 Global Media & Telecommunication Fund
Investors could lose money on their investments in the Global Media & Telecom-
munications 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.
Sector Funds
8
<PAGE>
. The fund may invest a substantial portion of its assets in foreign securi-
ties. Foreign markets can be more volatile than the U.S. market because of
increased risks of adverse issuer, political, regulatory, market or economic
developments and can perform differently than the U.S. market. Currently
fluctuations may adversely impact the fund's investments.
. The media companies can be significantly affected by the federal deregulation
of cable and broadcasting, competitive pressures and government regulation.
The telecommunications companies is subject to government regulation of rates
of return and services that may be offered and can be significantly (and
adversely) affected by intense competition.
. The value of an individual security or particular type of security can be
more volatile than the market as a whole and can perform differently than the
market as a whole. The value of smaller capitalized companies may involve
greater risks, such as limited product lines, markets and financial or mana-
gerial resources.
. The Global Media & Telecommunication Fund is "non-diversified," which means
it may invest a larger percentage of its assets in one issuer than a diversi-
fied fund. To the extent the fund concentrates its assets in fewer issuers,
the fund will be more susceptible to events affecting those issuers. The
fund's investments are spread across the sector on which it focuses. However,
because those investments are limited to a comparatively narrow segment of
the economy, the fund's investments are not as diversified as most mutual
funds, and far less diversified than the broad securities markets. This means
that the fund tends to be more volatile than other mutual funds, and the val-
ues of its portfolio investments tend to increase or decrease more rapidly.
As a result, the value of your investment in the fund may rise or fall rapid-
ly.
. The judgment of the fund's manager about the attractiveness, growth
prospects, value or potential appreciation of a particular stock may prove to
be incorrect.
Who may want to invest The Global Media & Telecommunications Fund may be an
appropriate investment if you:
. Are seeking to participate in the long-term growth potential of the media and
telecommunications sector
. Are seeking capital appreciation and can tolerate significant short-term vol-
atility
. Are looking for an investment with potentially greater return but higher risk
than a fund investing primarily in fixed income securities
. Are comfortable with the risks of the stock market and the special risks of
foreign securities, including emerging market securities
Smith Barney Mutual Funds
9
<PAGE>
. Currently have exposure to the stock market and can tolerate concentrated
investment in a single market sector
Performance
The Global Media & Telecommunications 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
Global Media & Telecommunications 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) 5.00% None 1.00% None
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption) None* 5.00% 1.00% 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>
* You may buy Class A shares in amounts of $1,000,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge of
1.00%.
** The Global Media and Telecommunications 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.
Sector Funds
10
<PAGE>
Example
This example helps you compare the costs of investing in the Global Media &
Telecommunications 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
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. 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 (with or without redemption) $ $
Class B (redemption at end of period) $ $
Class B (no redemption) $ $
Class L (redemption at end of period) $ $
Class L (no redemption) $ $
Class Y (with or without redemption) $ $
</TABLE>
Smith Barney Mutual Funds
11
<PAGE>
Investments, risks and performance
Smith Barney Global Technology Fund
Investment objective
Smith Barney Global Technology Fund (the "Global Technology Fund") seeks long-
term capital appreciation by investing primarily in common stocks.
Principal Investment Strategies
Key investments The Global Technology 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, software, electronics, media, commu-
nications, health care, and biotechnology sectors industries.
The Global Technology Fund may invest without limitation in securities of
foreign issuers and will invest in securities of issuers located in at least
three countries, including the U.S. 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 capitalizations.
Medium and large market capitalization companies are those companies with
market capitalizations exceeding $5 billion.
Selection process The Global Technology Fund normally invests at least 80% of
its assets in companies doing business in the technology sector. The remainder
of the fund's assets are not required to be invested in that sector. To deter-
mine whether a potential investment is principally doing business in the sec-
tor, 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
sector; or
. Based on other available information, the manager determines that the
company's primary business is within the sector.
In buying and selling securities, the Global Technology 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,
among other things, include long-term growth potential, earnings estimates and
quality of management. The fund may lend its securities to earn income for the
fund.
Sector Funds
12
<PAGE>
The Global Technology 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 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 Global Technology Fund
Investors could lose money on their investments in the Global Technology 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. The fund may invest a substantial portion of its assets in for-
eign securities. Foreign markets can be more volatile than the U.S. market
because of increased risks of adverse issuer, political, regulatory, market
or economic developments and can perform differently than the U.S. market.
Currency fluctuations may adversely impact the fund's investments.
. Technology companies can be significantly affected by obsolescence of exist-
ing technology, short product cycles, falling prices and profits, and compe-
tition 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
market as a whole. The value of smaller capitalized companies may involve
greater risks such as limited product lines, markets and financial or manage-
rial resources.
. The Global Technology Fund is "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 fund's
investments are spread across the sector on which it focuses. However,
because those investments are limited to a comparatively narrow segment of
the economy, the fund's investments are not as diversi -
Smith Barney Mutual Funds
13
<PAGE>
fied as most mutual funds, and far less diversified than the broad securities
markets. This means that the fund tends to be more volatile than other mutual
funds, and the values of its portfolio investments tend to increase or
decrease more rapidly. As a result, the value of your investment in the fund
may rise or fall rapidly.
. The judgment of the fund's manager about the attractiveness, growth pros-
pects, value or potential appreciation of a particular stock may prove to be
incorrect.
Who may want to invest The Global Technology Fund may be an appropriate invest-
ment if you:
. Are seeking to participate in the long-term growth potential of the technol-
ogy sector
. Are seeking capital appreciation and can tolerate significant short-term vol-
atility
. Are looking for an investment with potentially greater return but higher risk
than a fund investing primarily in fixed income securities
. Are comfortable with the risks of the stock market and the special risks of
foreign securities, including emerging market securities
. Currently have exposure to the stock market and can tolerate concentrated
investment in a single market sector.
Performance
The Global Technology Fund is new and does not yet have the performance infor-
mation 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
Global Technology 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) 5.00% None 1.00% None
Maximum deferred sales charge (load)
(as a % of the lower of net asset value at
purchase or redemption) None* 5.00% 1.00% None
</TABLE>
Sector Funds
14
<PAGE>
Annual fund operating expenses
<TABLE>
<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 1.43% 2.18% 2.18% 1.18%
</TABLE>
* You may buy Class A shares in amounts of $1,000,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge of
1.00%.
** The Global Technology 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.
Example
This example helps you compare the costs of investing in the Global Technology
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
. Your investment has a 5% return each year
. You reinvest all distributions and dividends without a sales charge
. 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 (with or without redemption) $ $
Class B (redemption at end of period) $ $
Class B (no redemption) $ $
Class L (redemption at end of period) $ $
Class L (no redemption) $ $
Class Y (with or without redemption) $ $
</TABLE>
More on the funds' investments
Foreign investments Each fund's investments in securities of foreign issuers
involves greater risk than investments in securities of U.S. issuers. Many for-
eign countries the funds may invest in have markets that are less liquid and
more volatile than markets in the U.S. In some foreign countries, less informa-
tion is available about foreign issuers and markets because of less rigorous
accounting
Smith Barney Mutual Funds
15
<PAGE>
and regulatory standards than in the U.S. Currency fluctuations could erase
investment gains or add to investment losses. The risks of investing in foreign
securities are greater for securities of emerging market issuers because polit-
ical or economic instability, lack of market liquidity, and negative government
actions such as 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
. To settle transactions in securities quoted in foreign currencies
. As a substitute for buying or selling securities
A derivative contract will obligate or entitle a fund, to deliver or receive an
asset or cash payment based on the change in value of one or more securities,
currencies or indices. Even a small investment in derivative contracts can have
a big impact on a 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 interest rates are
changing. A 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
the fund's holdings. The other parties to certain derivative contracts present
the same types of credit risk as issuers of fixed income securities. Deriva-
tives can also make a 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.
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.
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.
Pursuant to a written agreement, State Street Bank and Trust Company provides
certain fund accounting services and calculates the daily net asset value for
each fund. The principal business address of State Street is 225 Franklin
Street, Boston, Massachusetts 02110.
Subadviser Citibank, N.A., through its Citibank Global Asset Management divi-
sion, an affiliate of the manager located at 100 First Stamford Place, Stam-
ford, Connecticut 06902, serves as subadviser to each fund. The manager, and
not the funds, pays the subadviser for its services out of its management fee.
The subadviser, utilizing a portfolio management team approach, manages the
fund's investment portfolio, subject to the supervision of the manager. The
subadviser provides investment management and advisory services to other mutual
funds and, with its affiliates, currently manages over $351 billion in assets
worldwide.
Management fees For services provided to the funds, each fund pays the manager
the annual investment management fee described below (equal to the following
percentage of the fund's average daily net assets):
Global Biotechnology Fund: %
Global Media & Telecommunications Fund: %
Global Technology Fund: %
Sub-Advisory fees For services provided to the funds, the manager pays the
subadviser the annual subadvisory fee described below (equal to the following
percentage of the fund's average daily net assets):
Global Biotechnology Fund: %
Global Media & Telecommunications Fund: %
Global Technology Fund: %
Smith Barney Mutual Funds
17
<PAGE>
Distributor Each fund has entered into an agreement with Salomon Smith Barney
to distribute the fund's shares.
Distribution plans Each fund has adopted a Rule 12b-1 distribution plan 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.
Transfer agent and shareholder servicing agent Citi Fiduciary Trust Company
serves as each fund's transfer agent and shareholder servicing agent (the
"transfer agent"). Pursuant to a sub-transfer agency and services agreement
with the transfer agent, PFPC Global Fund Services serves as each fund's sub-
transfer agent (the "sub-transfer agent") to render certain function, including
shareholder record keeping and accounting services.
Subscription offering period
Salomon Smith Barney and investment dealers in the selling group will solicit
subscriptions for shares of a fund during the subscription offering period,
which is scheduled to end on , 2000. On the third business day after the
end of the subscription offering period, subscriptions for the shares will be
payable, exchanges into the fund will be permitted, shares will be issued and
the fund will commence investment operations.
A fund will suspend the offering of shares to new investors on , 2000.
This suspension, which is expected to last two weeks, may be lengthened or
shortened at a fund's discretion. During the suspension, existing shareholders
of a fund may still purchase, redeem or exchange fund shares. After the suspen-
sion, a fund will commence a continuous offering of shares to the public.
For more information on how to subscribe for fund shares during the subscrip-
tion offering period, please contact a Salomon Smith Barney Financial Consul-
tant.
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.
Sector Funds
18
<PAGE>
. 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 broker-dealer, financial intermediary, or financial institution (called a
Service Agent) that has entered into a sales or service agreement with the
distributor concerning the fund.
. 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
Smith Barney Mutual Funds
19
<PAGE>
Comparing the funds' classes
Your Service Agent can help you decide which class meets your goals. They may
receive different compensation 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
$1,000,000
or more
------------------------------------------------------------------------
Deferred sales charge 1% on pur- Up to 5% 1% if you None
chases of charged redeem
$1,000,000 when you within 1
or more if redeem year of
you 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 Service Agent or visit the web site for the Smith Barney funds
available for exchange.
Sector Funds
20
<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.
The table below shows the rate of sales charge that you pay, depending on the
amount that you purchase.
The table below also shows the amount of broker/dealer compensation that is
paid out of the sales charge. This compensation includes commissions and other
fees that Service Agents that sell shares of the Fund receive. The distributor
keeps up to approximately 10% of the sales charge imposed on Class A shares.
Service Agents that sell Class A shares will also receive the service fee pay-
able on Class A shares at an annual rate equal to 0.25% of the average daily
net assets represented by the Class A shares sold by them.
<TABLE>
<CAPTION>
Sales Charge as a % of Broker/Dealer
---------------------- commission
Offering Net amount as a % of
Amount of purchase price (%) invested (%) offering price
<S> <C> <C> <C>
Less than $25,000 5.00 5.26 4.50
$25,000 but less than $50,000 4.25 4.44 3.83
$50,000 but less than $100,000 3.75 3.90 3.38
$100,000 but less than $250,000 3.25 3.36 2.93
$250,000 but less than $500,000 2.75 2.83 2.48
$500,000 but less than $1,000,000 2.00 2.04 1.80
$1,000,000 or more -0- -0- up to 1.00
</TABLE>
Investments of $1,000,000 or more You do not pay an initial sales charge when
you buy $1,000,000 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.
Smith Barney Mutual Funds
21
<PAGE>
. 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
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 financial consultants or other registered representatives who re-
cently joined a broker-dealer affiliated with Citigroup that has a sales
agreement with the distributor concerning the fund, if certain conditions are
met
. Investors who redeemed Class A shares of a Smith Barney fund in the past 60
days, if the investor's Service Agent is notified
If you want to learn about additional waivers of Class A initial sales charges,
contact your Service Agent or consult the Statement of Additional Information
("SAI").
Sector Funds
22
<PAGE>
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>
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). Service Agents selling
Class L shares receive a commission of up to % of the purchase price of the
Class L shares that they sell. 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 any 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.
Smith Barney Mutual Funds
23
<PAGE>
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 redeem shares, the fund will first redeem 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 Service Agent.
The funds distributor receives deferred sales charges as partial compensation
for its expenses in selling shares, including the payment of compensation to
your Service Agent.
Service Agents selling Class B shares receive a commission of up to 4.50% of
the purchase price of the Class B shares that they sell, except for sales
exempt from the CDSC. Service Agents also receive a service fee at an annual
rate equal to 0.25% of the average daily net assets represented by the Class B
shares that they have sold.
Service Agents selling Class L shares receive a commission of up to % of the
purchase price of the Class L shares that they sell.
Sector Funds
24
<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 Service Agent or consult the SAI.
Buying shares
Through a You should contact your Service Agent to open a brokerage
Service Agent account and make arrangements to buy shares. If you do not
provide the following information, your order will be
rejected:
.Class of shares being bought
.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. Your Service Agent may charge an annual account main-
tenance 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 sub-transfer agent at the following address:
Smith Barney Sector Series Inc.
(Specify fund and class of shares)
c/o PFPC Global Fund Services
P.O. Box 9699
Providence, Rhode Island 02940-9699
. Enclose a check made payable to the applicable fund to pay
for the shares. For initial purchases, complete and send an
account application.
. For more information, call the transfer agent at
1-800-451-2010.
Smith Barney Mutual Funds
25
<PAGE>
--------------------------------------------------------------------------------
Through a
systematic You may authorize your Service Agent or the sub-transfer
investment agent to transfer funds automatically from (i) a regular bank
plan account, (ii) cash held in a brokerage account opened with a
Service Agent or (iii) certain money market funds, in order
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, your Service Agent or the sub-transfer agent
may charge you a fee
For more information, contact your or the transfer agent or
consult the SAI.
Exchanging shares
Smith Barney
offers a You should contact your Service Agent to exchange into other
distinctive Smith Barney funds. Be sure to read the prospectus of the
family of Smith Barney fund you are exchanging into. An exchange is a
funds taxable transaction.
tailored to
help meet the . You may exchange shares only for shares of the same class
varying needs of another Smith Barney fund. Not all Smith Barney funds
of both large offer all classes.
and small
investors . Not all Smith Barney funds may be offered in your state of
residence. Contact your Service Agent or the transfer
agent.
. You must meet the minimum investment amount for each fund
(except for systematic exchanges).
. If you hold share certificates, the sub-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
26
<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 with a Service Agent,
you may be eligible to exchange shares through the transfer
agent. You must complete 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 4:00 p.m. (Eastern time).
You can make telephone exchanges only between accounts that
have identical registrations.
--------------------------------------------------------------------------------
By mail
If you do not have a brokerage account, contact your Service
Agent or write to the sub-transfer agent at the address on
the following page.
Smith Barney Mutual Funds
27
<PAGE>
Redeeming shares
Generally
Contact your Service Agent to redeem shares of a fund.
If you hold share certificates, the sub-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 brokerage account with a Service Agent, 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 a fund, send written requests
to the sub-transfer agent at the following address:
Smith Barney Sector Series Inc.
(Specify fund and class of shares)
c/o PFPC Global Fund Services
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
28
<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
4:00 p.m. (Eastern time).
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 Service Agent or consult
the SAI.
Smith Barney Mutual Funds
29
<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 sub-transfer
agent
. Instruct the sub-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 reg-
istration
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
30
<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 sub-transfer agent. If
you hold share certificates it will take longer to exchange or redeem shares.
Salomon Smith Barney Retirement Programs
You may be eligible to participate in a retirement program sponsored by Salomon
Smith Barney or one of its affiliates. The funds offer Class A shares at net
asset value to participating plans under the programs. You can meet minimum
investment and exchange amounts, if any, by combining the plan's investments in
any of the Smith Barney mutual 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 and/or the
date your account is opened. Once a class of shares is chosen, all additional
purchases must be of the same class.
. For plans opened on or after March 1, 2000 that are not plans for which
Paychex Inc. or an affiliate provides administrative services ("Paychex
plans"), Class A shares may be purchased regardless of the amount invested.
. For plans opened prior to March 1, 2000 and for Paychex plans, the class of
shares you may purchase depends on the amount of your initial investment:
. 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:
Smith Barney Mutual Funds
31
<PAGE>
If the plan was opened on or after June 21, 1996 and a total of $1 million
is invested in Smith Barney Funds 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 plan was opened before June 21, 1996 and a total of $500,000 is
invested in Smith Barney Funds Class L shares (other 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 Service Agent or the 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 a fund is about to declare a long-term capital
Sector Funds
32
<PAGE>
gain distribution 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 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. When reliable market prices or quotations are not readily available, or
when the value of a security has been materially affected by events occurring
after a foreign exchange closes, a fund may price those securities at fair val-
ue. Fair value is determined in accordance with procedures approved by the
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 a fund could change on days when you can-
not 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
33
<PAGE>
SalomonSmithBarney
----------------------------
A member of citigroup [LOGO]
Global Biotechnology
Fund
Global Media & Telecommunications Fund
Global 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 Service Agent 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.
SMSalomon Smith Barney is a service mark of Salomon Smith Barney Inc.
(Investment Company Act
file no. 811-04757)
FD 01756 2/00
Part B-Statement of Additional Information for the Biotechnology Fund, Global
Media & Telecommunications Fund and Global Technology Fund
August 14, 2000
STATEMENT OF ADDITIONAL INFORMATION
SMITH BARNEY SECTOR SERIES INC.
Smith Barney Global Biotechnology Fund
Smith Barney Global Media & Telecommunications Fund
Smith Barney Global 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 combined prospectus of Smith
Barney Global Biotechnology Fund ("Global Biotechnology
Fund"), Smith Barney Global Media & Telecommunications Fund
("Global Media & Telecommunications Fund") and Smith Barney
Global Technology Fund ("Global Technology Fund") (each, a
"Fund") dated August 14, 2000, as amended or supplemented
from time to time (the "prospectus"), and is incorporated by
reference in its entirety into the prospectus. Each Fund is
a series of the Smith Barney Sector Series Inc. (the
"Company") which also offers four other series: Smith Barney
Natural Resources Fund, Smith Barney Financial Services
Fund, Smith Barney Health Sciences Fund and Smith Barney
Technology Fund. The prospectus and copies of other
information on the Funds 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.
TABLE OF CONTENTS
Investment Objective and Management Policies 2
Risk Factors 8
Investment Restrictions 18
Directors and Executive Officers of the Company 20
Investment Management and Other Services 22
Portfolio Transactions 25
Portfolio Turnover 27
Purchase of Shares 27
Redemption of Shares 34
Valuation of Shares 35
Exchange Privilege 36
Performance Information 37
Dividends, Distributions and Taxes 39
Other Information About the Company 44
Financial Statements 45
Other Information 45
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
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. Citibank, N.A.,
through its Citibank Global Asset Management division
("CGAM" or the "Sub-Adviser"), an affiliate of the Manager,
serves as the sub-adviser to each Fund.
Global Biotechnology Fund
Global Biotechnology Fund seeks long-term capital
appreciation by investing primarily in common stocks. The
Fund invests at least 80% of its assets in securities of
companies principally engaged in the research, development,
and manufacture of various biotechnological products,
services, and processes. The Fund will also invest in
securities of companies that distribute biotechnological and
biomedical products and companies that benefit significantly
from scientific and technological advances in biotechnology.
The Fund may invest without limitation in securities of
foreign issuers and will invest in securities of issuers
located in at least three countries, including the U.S.
Global Media & Telecommunications Fund
Global Media & Telecommunications Fund seeks long-term
capital appreciation by investing primarily in common
stocks. The Fund invests at least 80% of its assets in
securities of companies principally engaged in the
following: the development, production, sale, and
distribution of goods or services used in the broadcast and
media industries; and in securities of companies principally
engaged in the development, manufacture, or sale of
communications services or communications equipment. The
Fund may invest without limitation in securities of foreign
issuers and will invest in securities of issuers located in
at least three countries, including the U.S.
Global Technology Fund
Global Technology Fund seeks long-term capital appreciation
by investing 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, software,
electronics, media, communications, health care, and
biotechnology sectors. The Fund may invest without
limitation in securities of foreign issuers and will invest
in securities of issuers located in at least three
countries, including the U.S.
Each Fund
Each Fund may invest its assets in securities of domestic
and/or foreign issuers. Each Fund may invest without
limitation in securities of foreign issuers and will invest
in securities of issuers located in at least three
countries, including the U.S. Because each Fund is
considered non-diversified, the Fund may invest a
significant percentage of its assets in a single issuer.
In buying and selling securities for each Fund, CGAM 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 quality of
management.
CGAM may lend each Fund's securities to broker-dealers or
other institutions to earn income for the Fund. CGAM 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
CGAM'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 equity securities, 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, Delayed-Delivery Transactions and
Forward Commitments. 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, delayed-
delivery securities or securities on a forward commitment
basis, 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, delayed-delivery transactions or forward
commitment 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 without limitation
in foreign securities. 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. 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,
a Fund 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.
Currency Risks. The U.S. dollar value of securities
denominated in a foreign currency will vary with changes in
currency exchange rates, which can be volatile.
Accordingly, changes in the value of the currency in which a
Fund's investments are denominated relative to the U.S.
dollar will affect the Fund's net asset value. Exchange
rates are generally affected by the forces of supply and
demand in the international currency markets, the relative
merits of investing in different countries and the
intervention or failure to intervene of U.S. or foreign
governments and central banks. However, currency exchange
rates may fluctuate based on factors intrinsic to a
country's economy. Some emerging market countries also may
have managed currencies, which are not free floating against
the U.S. dollar. In addition, emerging markets are subject
to the risk of restrictions upon the free conversion of
their currencies into other currencies. Any devaluations
relative to the U.S. dollar in the currencies in which a
Fund's securities are quoted would reduce the Fund's net
asset value per share.
Securities of Developing/Emerging Markets Countries. A
developing or emerging markets country generally is
considered to be a country that is in the initial stages of
its industrialization cycle. Investing in the equity markets
of developing countries involves exposure to economic
structures that are generally less diverse and mature, and
to political systems that can be expected to have less
stability, than those of developed countries. Historical
experience indicates that the markets of developing
countries have been more volatile than the markets of the
more mature economies of developed countries; however, such
markets often have provided higher rates of return to
investors.
One or more of the risks discussed above could affect
adversely the economy of a developing market or a Fund's
investments in such a market. The claims of many property
owners against those of governments may remain unsettled.
There can be no assurance that any investments that a Fund
might make in such emerging markets would be expropriated,
nationalized or otherwise confiscated at some time in the
future. In such an event, the Fund could lose its entire
investment in the market involved. Moreover, changes in the
leadership or policies of such markets could halt the
expansion or reverse the liberalization of foreign
investment policies now occurring in certain of these
markets and adversely affect existing investment
opportunities.
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 or CGAM. The Manager or CGAM 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 or CGAM 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 or CGAM
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 CGAM 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 account 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 liquid
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.
Borrowing. Each Fund also may borrow for temporary or
emergency purposes, but not for leveraging purposes, in an
amount up to 331/3% of its total assets, and may pledge its
assets in connection with such borrowings. If a Fund borrows
money, its share price may be subject to greater fluctuation
until the borrowing is paid off. If a Fund makes additional
investments while borrowings are outstanding, this may be
considered a form of leverage.
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 FACTORS
Companies in the each sector face special risks. For
example, their products or services may not prove
commercially successful or may become obsolete quickly. The
value of a 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, a 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. Each sector 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 each sector 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.
The types of companies in which a Fund invests present
risks. The market may value companies according to size, or
market capitalization, rather than on financial performance.
The companies in each sector may be developing or changing.
They may be subject to greater business risks and more
sensitive to changes in economic conditions than larger,
more established companies. Company earnings in these
sectors may fluctuate more than those of other companies
because of short product cycles and competitive pricing.
Investors' enthusiasm for these stocks can also change
dramatically, causing stock prices to rise and fall sharply.
Global Biotechnology Fund
Patent considerations, intense competition, rapid
technological change and obsolescence, and government
regulation can significantly (and adversely) affect the
biotechnology sector. Biotechnology companies can have
persistent losses during a new product's transition from
development to production, and revenue patterns can be
erratic.
This sector generally is subject to extensive governmental
regulation, which may change frequently. In addition, the
profitability of businesses in financial services depends
heavily upon the availability and cost of capital, 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 financial services companies.
Global Media & Telecommunications Fund
Companies in the media and telecommunications sector are
subject to the risks of rapid obsolescence, lack of investor
or consumer acceptance, lack of standardization or
compatibility with existing technologies, an unfavorable
regulatory environment, intense competition, and a
dependency on patent and copyright protection. The media
sector can be significantly (and adversely) affected by the
federal deregulation of cable and broadcasting, competitive
pressures, and government regulation, including regulation
of the concentration of investment in AM, FM, or TV
stations. The telecommunications industry, particularly
telephone operating companies, is subject to both federal
and state government regulations of rates of return and
services that may be offered. Many telecommunications
companies fiercely compete for market share.
The telecommunications industry is subject to governmental
regulation and greater price volatility than the overall
market and the products and services of telecommunications
companies may be subject to rapid obsolescence resulting
from changing consumer tastes, intense competition and
strong market reactions to technological developments
throughout the industry. Certain companies in the United
States, for example, are subject to both state and federal
regulations affecting permitted rates of return and the
kinds of services that may be offered. Such companies are
becoming subject to increasing levels of competition. As a
result, stocks of these companies may be subject to greater
price volatility.
Companies in the communications, entertainment, media and
publishing industries are subject to governmental
regulation and a greater price volatility than the overall
market and the products and services of such companies
may be subject to rapid obsolescence resulting from
changing consumer tastes, intense competition and strong
market reactions to technological developments throughout
the industry.
Certain of the companies in which the Fund invests may
allocate greater than usual financial resources to research
and product development. The securities of such companies
may experience above-average price movements associated with
the perceived prospects of success of the research and
development programs. In addition, companies in which the
Fund invests may be adversely affected by lack of commercial
acceptance of a new product or process or by technological
change and obsolescence.
Global 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.
Sector Risks CGAM believes that because of rapid advances
in each sector, an investment in companies with business
operations in these areas may 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 investors can
result in price fluctuations. Industries likely to be owned
by the Funds include computers, networking and
internetworking software, computer aided design,
telecommunications, media and information services, medical
devices and biotechnology. A Fund may also invest in the
stocks of companies that may benefit from the
commercialization of technological advances, although they
may not be directly involved in research and development.
The sectors have exhibited and may continue to exhibit rapid
growth, both through increasing demand for existing products
and services and the broadening of the sector. In general,
the stocks of large capitalized companies that are well
established in the sector can be expected to grow with the
market and will frequently be found in a Fund's portfolio.
The expansion of each sector and its related industries,
however, also provides a favorable environment for
investment in small to medium capitalized companies. A
Fund's investment policy is not limited to any minimum
capitalization requirement and a Fund may hold securities
without regard to the capitalization of the issuer. CGAM's
overall stock selection for a Fund is not based on the
capitalization or size of the company but rather on an
assessment of the company's fundamental prospects.
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. Investments in foreign and emerging
markets carry special risks, including currency, political,
regulatory and diplomatic risks. Each Fund may invest
without limitation in securities of foreign issuers and will
invest in securities of issuers located in at least three
countries, including the U.S.
Many countries impose various types of ownership
restrictions on investments both in mass media companies,
such as broadcasters and cable operators, as well as in
common carrier companies, such as the providers of local and
cellular telephone service.
Government actions around the world, specifically in the
area of pre-marketing clearance of products and prices, can
be arbitrary and unpredictable. Changes in world currency
values are also unpredictable and can have a significant
short-term impact on revenues, profits and share valuations.
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 and Diplomatic Risk. Political actions, events or
instability may result in unfavorable changes in the value
of a security. In addition, a change in diplomatic
relations between the U.S. and a foreign country could
affect the value or liquidity of investments.
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.
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. CGAMr 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 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 Fund's use of options, futures and
options on futures ("derivatives") involves additional risks
and transaction costs, such as, (i) adverse changes in the
value of these instruments, (ii) imperfect corrrelation
between the price of derivatives and movements in the price
of the underlying securities, index or futures contracts,
(iii) the fact that use of derivatives requires different
skills than those needed to select portfolio securities, and
(iv) the possible absence of a liquid secondary market for a
particular derivative at any moment in time.
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 their portfolio securities than funds that
are more broadly diversified. Each 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 seek to increase
total return or hedge its portfolio, i.e., reduce the
overall level of investment risk normally associated with a
Fund. There can be no assurance that such efforts will
succeed.
In order to assure that a 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 a 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 a Fund's assets.
To attempt to hedge against adverse movements in exchange
rates between currencies, a 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. A
Fund may enter into forward currency contracts either with
respect to specific transactions or with respect to its
portfolio positions. For example, when CGAM 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
CGAM believes a particular currency may decline compared to
the U.S. dollar or another currency, a Fund may enter into a
forward contract to sell the currency CGAM expects to
decline in an amount approximating the value of some or all
of a Fund's securities denominated in that currency, or when
CGAM believes one currency may decline against a currency in
which some or all of the portfolio securities held by a 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, a 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 CGAM 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 a Fund are
denominated ("cross hedging"). A 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 a
Fund having a value equal to the aggregate amount of a
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 account will equal the
amount of the Fund's commitments with respect to such
contracts.
For hedging purposes, a 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 a Fund or which CGAM intends to include
in its portfolio. A Fund also may use interest rates futures
contracts and options thereon to hedge against changes in
the general level in interest rates.
A Fund may write call options on securities and currencies
only if they are covered, and such options must remain
covered so long as a Fund is obligated as a writer. A call
option written by a 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.
A 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 a 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 a Fund 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 CGAM'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 a Fund invests; and 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 a 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. A 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.
A Fund may write (a) in-the-money call options when CGAM
expects the price of the underlying security to remain flat
or decline moderately during the option period, (b) at-the-
money call options when CGAM 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 CGAM 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 a 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. A Fund expects to write options only on national
securities exchanges or in the over-the-counter market. A
Fund may purchase put options issued by the Clearing
Corporation or in the over-the-counter market.
A 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 a Fund generally will purchase or write only those
options for which the Manager and/or CGAM 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, a 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 Funds 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 a 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 CGAM will attempt to take appropriate measures to
minimize the risks relating to a 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 appreciation 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 and/or CGAM'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 intend 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
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 the 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.
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
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 77). Director
Private Investor. Director or trustee of 16 investment
companies associated with Citigroup Inc. ("Citigroup") His
address is 273 Montgomery Avenue, Bala Cynwyd, Pennsylvania,
19004.
*ALFRED J. BIANCHETTI (Age 77). Director
Retired; formerly Senior Consultant to Dean Witter Reynolds
Inc. Director or trustee of 11 investment companies
associated with Citigroup. His address is 19 Circle End
Drive, Ramsey, New Jersey 07466.
MARTIN BRODY (Age 78). Director
Consultant, HMK Associates. Retired Vice Chairman of the
Board of Restaurant Associates Corp. Director or trustee of
21 investment companies associated with Citigroup. His
address is c/o HMK Associates, 30 Columbia Turnpike, Florham
Park, New Jersey 07932.
DWIGHT B. CRANE (Age 62). Director
Professor, Harvard Business School. Director or trustee of
24 investment companies associated with Citigroup. His
address is c/o Harvard Business School, Soldiers Field Road,
Boston, Massachusetts 02163.
BURT N. DORSETT (Age 69). Director
Managing Partner of the investment counseling firm Dorsett
McCabe Management, Inc. Director of Research Corporation
Technologies, Inc., a nonprofit patent clearing and
licensing firm. Director or trustee of 11 investment
companies associated with Citigroup. His address is 201
East 62nd Street, New York, New York 10021.
ELLIOT S. JAFFE (Age 74). Director
Chairman of the Board and President of The Dress Barn, Inc.
Director or trustee of 11 investment companies associated
with Citigroup. His address is 30 Dunnigan Drive, Suffern,
New York 10021.
STEPHEN E. KAUFMAN (Age 68). Director
Attorney. Director or trustee of 13 investment companies
associated with Citigroup. His address is 277 Park Avenue,
New York, New York 10172.
JOSEPH J. McCANN (Age 69). Director
Financial Consultant. Retired Financial Executive, Ryan
Homes, Inc. Director or trustee of 11 investment companies
associated with Citigroup. His address is 200 Oak Park
Place, Pittsburgh, Pennsylvania 15243.
*HEATH B. McLENDON (Age 67). Chairman of the Board,
President and Chief Executive Officer. Managing Director of
Salomon Smith Barney Inc. ("Salomon Smith Barney"),
President of SSB Citi and Travelers Investment Adviser, Inc.
("TIA"); Chairman or Co-Chairman of the Board of 71
investment companies associated with Citigroup. His address
is 7 World Trade Center, New York, New York 10048.
CORNELIUS C. ROSE, JR. (Age 66). Director
President, Cornelius C. Rose Associates, Inc., financial
consultants, and Chairman and Director of Performance
Learning Systems, an educational consultant. Director or
trustee of 11 investment companies associated with
Citigroup. His address is Meadowbrook Village, Building 4,
Apt. 6, West Lebanon, New Hampshire 03784.
LEWIS E. DAIDONE (Age 42). 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 SSB Citi and TIA; Senior Vice
President and Treasurer of 61 investment companies
associated with Citigroup.
IRVING DAVID (Age 40). Controller
Director of Salomon Smith Barney; Formerly Assistant
Treasurer of First Investment Management Company; Controller
or Assistant Treasurer of 43 investment companies associated
with Citigroup.
CHRISTINA T. SYDOR (Age 49). Secretary
Managing Director of Salomon Smith Barney. General Counsel
and Secretary of SSB Citi and TIA; Secretary of 61
investment companies associated with Citigroup.
As of January 12, 2000, the Directors and officers of the
Company, as a group, owned less than 1% of the outstanding
shares of common stock of the Company. As of January 12,
2000, 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
Company 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 $2000 per annum plus $250 per in-
person meeting and $100 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.**
$3,250.00
$3,000.00
$2,750.00
$3,250.00
$3,250.00
$2,500.00
$3,250.00
$3,250.00
$
0.00
$3,000.00
$0
0
0
0
0
0
0
0
0
0
$105,425.00
$
51,200.00
$132,500.00
$139,975.00
$
51,200.00
$
47,550.00
$
96,400.00
$
51,200.00
$
0.00
$
51,200.00
18
13
22
25
13
13
15
13
71
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 MANAGEMENT AND OTHER SERVICES
Manager - SSB Citi
SSB Citi serves as 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., 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
each 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 Company. The
Manager bears all expenses in connection with the
performance of its services. The Manager also: (a) assists
in supervising all aspects of each Fund's operations; (b)
supplies each Fund with office facilities (which may be in
SSB Citi'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 each Fund, (ii)
applicable 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 each Fund, tax returns
and reports to and filings with the SEC and state blue sky
authorities.
As compensation for investment management services, the
respective Fund pays the Manager the annual investment
management fee described below (based on the fund's average
daily net assets):
Global Biotechnology Fund: 0.%
Global Media & Telecommunications: 0.%
Global Technology Fund: 0.%
Sub-adviser - Citibank, N.A.
CGAM serves as investment sub-adviser to each Fund pursuant
to a sub-advisory agreement (the "Sub-advisory 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 and, together with its affiliates, managed more
than $351 billion in assets as of March 31, 2000. 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 under which its portfolio
managers, fundamental and quantitative analysts work
together to meet client objectives.
As compensation for investment sub-advisory services, the
Manager pays the sub-adviser the fee described below (based
on the Fund's average daily net assets):
Global Biotechnology Fund: 0.%
Global Media & Telecommunications: 0.%
Global Technology Fund: 0.%
Custodian and Sub-administration
State Street Bank and Trust Company ("State Street"), whose
principal business address is 225 Franklin Street, Boston,
Massachusetts, 02110, serves as the custodian of each Fund's
assets pursuant to a custodian agreement (the "Custody
Contract") with the Company. State Street is also the
custodian with respect to the custody of foreign securities
held by the Funds. Under the Custody Contract, State Street
(i) holds and transfers portfolio securities on account of
each Fund, (ii) accepts receipts and makes disbursements of
money on behalf of each Fund, (iii) collects and receives
all income and other payments and distributions on account
of each Fund's securities and (iv) makes periodic reports to
the Board of Directors concerning the Funds' operations.
State Street also serves as sub-administrator for each Fund,
pursuant to a written agreement (the "Agreement") with the
manager and each Fund.
Under the Agreement, State Street has agreed to oversee the
computation of each Fund's net asset value, net income and
realized capital gains, if any; furnish statistical and
research data, clerical services, and stationery and office
supplies; prepare and file various reports with the
appropriate regulatory agencies; and prepare various
materials required by the SEC.
Transfer Agent and Sub-Transfer Agent
Citi Fiduciary Trust Company ("CFTC" or the "transfer
agent") located at 388 Greenwich Street, New York, New York
10013, serves as each Fund's transfer agent. Under the
transfer agency agreement, CFTC 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,
CFTC 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.
PFPC Global Fund Services (formerly known as First Data
Investor Services Group, Inc.) ("sub-transfer agent")
located at Exchange Place, Boston, Massachusetts 02109, a
subsidiary of PNC Bank, serves as each Fund's sub-transfer
agent. Under the sub-transfer agency agreement, the sub-
transfer agent 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, the
sub-transfer agent receives a monthly fee from CFTC 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 Company and to render opinions on each Fund's financial
statements.
Counsel
Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New
York 10019, serves as counsel to the Company and each Fund.
Stroock & Stroock & Lavan LLP serves as counsel to the "non-
interested" Directors of each Fund.
Distributor
Salomon Smith Barney Inc., located at 388 Greenwich Street,
New York, New York 10013 serves as each Fund's distributor
pursuant to a written agreement with the Company dated June
5, 2000 (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 31, 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 Agreement for continuance.
Distribution Arrangements
To compensate Salomon Smith Barney for the services it
provides and for the expense it bears under the Distribution
Agreement, each 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 0.25% 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 0.75% 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.
Code of Ethics Pursuant to Rule 17j-1 of the 1940 Act, the
funds, their investment advisers and principal underwriter
have adopted a code of ethics that permits personnel to
invest in securities for their own accounts, including
securities that may be purchased or held by the funds. All
personnel must place the interests of clients first and
avoid activities, interests and relationships that might
interfere with the duty to make decisions in the best
interests of the clients. All personal securities
transactions by employees must adhere to the requirements of
the code and must be conducted in such a manner as to avoid
any actual or potential conflict of interest, the appearance
of such a conflict, or the abuse of an employee's position
of trust and responsibility.
A copy of the funds' code of ethics is on file with the
Securities and Exchange Commission.
PORTFOLIO TRANSACTIONS
CGAM 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. CGAM 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 CGAM or its affiliates to supplement its own research
and analysis.
Decisions to buy and sell securities for the Fund are made
by CGAM, 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 CGAM.
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 each Fund's policy to seek the best overall
terms available. CGAM, 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.
CGAM 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 CGAM 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 sub-adviser'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 CGAM to cause the Fund to pay a broker that
provides brokerage and research services to CGAM 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 CGAM'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
CGAM, 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 CGAM 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 CGAM 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 or any affiliate 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
Each 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.
CGAM may cause a Fund to sell or purchase securities to
ensure compliance with the Fund's investment policies.
PURCHASE OF SHARES
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
4.25
4.44
3.60
50,000 -
99,999
3.75
3.90
3.15
100,000 -
249,999
3.25
3.36
2.70
250,000 -
499,999
2.75
2.83
1.80
500,000 -
999,999
2.00
2.04
*
1,000,000 and
over
*
*
*
* Purchases of Class A shares of $1,00,000 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 $1,000,000 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 Funds' 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 the sub-transfer
agent. Share certificates are issued only upon a
shareholder's written request to the sub-transfer agent.
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 a 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 CitiStreet 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 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 the sub-transfer agent 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 the sub-transfer agent
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 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 share 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
shareholder 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
the sub-transfer agent in the case of all other
shareholders) of the shareholder's status or holdings, as
the case may be.
Smith Barney Retirement Programs
You may be eligible to participate in a retirement program
sponsored by Salomon Smith Barney or one of its affiliates.
Each Fund offers Class A and Class L shares at net asset
value to participating plans under the programs. You can
meet minimum investment and exchange amounts, if any by
combining the plan's investments in any of the Smith Barney
mutual 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 and/or the date your account is
opened. Once a class of shares is chosen, all additional
purchases must by of the same class.
For plans opened on or after March 1, 2000 that are not part
of the Paychex offering, Class A shares may be purchased
regardless of the amount invested.
For plans opened prior to March 1, 2000 and for plans that
are part of the Paychex offering, the class of shares you
may purchase depends on the amount of your initial
investment:
Class A Shares. Class A shares may be purchased by plans
investing at least $1million.
Class L Shares. Class L shares may be purchased by plans
investing less than $1 million. Class L shares are eligible
to exchange into Class A shares not later than 8 years after
the plan joined the program. They are eligible for exchange
in the following circumstances:
If the plan was opened on or after June 21, 1996 and a total
of $1 million is invested in Smith Barney Funds Class L
shares (other than money market funds), all Class L shares
are eligible for exchange after the plan is in the program
for 5 years.
If the plan was opened before June 21, 1996 and a total of
$500,000 is invested in Smith Barney Funds Class L shares
(other 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 the transfer agent.
Retirement Programs 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 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.
Retirement Programs 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
ExecChoiceTM Program, 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 or ExecChoiceTM 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, but instead may acquire Class A
shares of the same Fund. Any Class L shares not converted
will continue to be subject to the distribution fee.
Participating plans wishing to acquire shares of a 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.
Retirement Programs Investing in Class B Shares: Class B
shares of a Fund are not available for purchase by
participating plans opened on or after June 21, 1996, but
may continue to be purchased by any participating plan in
the Smith Barney 401 (k) Program opened prior to such date
and originally investing in such Class. Class B shares
acquired are subject to a deferred sales charge of 3.00% of
redemption proceeds if the participating plan terminates
within eight years of the date the participating plan first
enrolled in the Smith Barney 401 (k) Program.
At the end of the eighth year after the date the
participating plan enrolled in the Smith Barney 401 (k)
Program, the participating plan will be offered the
opportunity to exchange all of its Class B shares for Class
A shares of the same Fund. Such participating plan 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 the exchange has occurred, a participating plan will
not be eligible to acquire additional Class B shares, but
instead may acquire Class A shares of the same Fund. If the
participating elects not to exchange all of its Class B
shares at that time, each Class B share held by the
participating plan will have the same conversion feature as
Class B shares held by other investors. See "Purchase of
Shares-Deferred Sales Charge Alternatives."
No deferred sales charge is imposed on redemptions of Class
B shares to the extent the net asset value of the shares
redeemed does not exceed the current net asset value of the
shares purchased through reinvestment of dividends or
capital gain distributions, plus the current net asset vlaue
of Class B shares purchased more than eight years prior to
the redemption, plus increases in the net asset value of the
shareholder's Class B shares above the purchase payments
made during the preceding eight years. Whether or not the
deferred sales charge applies to the redemption by a
participating plan depends on the number of years since the
participating plan first became enrolled in the Smith Barney
401(k) Program, unlike the applicability of the deferred
sales charge to redemptions by other shareholders, which
depends on the number of years since those shareholders made
the purchase payment from which the amount is being
redeemed.
The deferred sales charge will be waived on redemptions of
Class B shares in connection with lump-sum or other
distributions made by a participating plan; as a result of
(a) the retirement of an employee in the participating plan;
(b) the termination of employment of an employee in the
participating plan; (c) the death or disability or an
employee in the participating plan; (d) the attainment of
age 59 1/2 by an employee in the participating plan; (e)
hardship of an employee in the participating plan to the
extent permitted under Section 401(k) of the Code; or (f)
redemptions of shares in connection with a loan made by the
participating plan to an employee.
Determination of Public Offering Price
Each Fund offers its shares to current shareholders of the
Fund on a continuous basis. 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 deferred sales
charge 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
The right of redemption of shares of a 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 the sub-transfer agent 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. The sub-transfer agent 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 the sub-transfer agent 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 fifteen days.
Distributions in Kind
If the Board of Directors of the Company determines that it
would be detrimental to the best interests of the remaining
shareholders to make a redemption payment wholly in cash, a
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
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.
Foreign securities trading may not take place on all days on
which the NYSE is open. Further, trading takes place in
various foreign markets on days on which the NYSE is not
open. Accordingly, the determination of the net asset value
of the fund may not take place contemporaneously with the
determination of the prices of investments held by such
fund. Events affecting the values of investments that occur
between the time their prices are determined and 4:00 P.M.
on each day that the NYSE is open will not be reflected in
the fund's net asset value unless the Manager, under the
supervision of the Company's Board of Directors, determines
that the particular event would materially affect net asset
value. As a result, a fund's net asset value may be
significantly affected by such trading on days when a
shareholder has no access to that fund.
EXCHANGE PRIVILEGE
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 deferred
sales charge of the two funds and, for purposes of
calculating deferred sales charge 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 deferred sales charge
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.
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 a
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 INFORMATION
From time to time, the Company may advertise a 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 the 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 Business 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
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 accounts are held
directly by the sub-transfer agent should notify them 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
tax purposes, 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 Funds and Their Investments
Each Fund intends to continue to qualify to be treated as a
regulated investment company each taxable year under the
Code. To so qualify, a 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 a Fund controls and which are
determined to be engaged in the same or similar trades or
businesses or related trades or businesses.
As a regulated investment company, a Fund will not be
subject to United States federal income tax on its
investment company taxable income (i.e., income other than
any excess of its net realized long-term capital gains over
its net realized short-term capital losses ("net realized
capital gains") or on its net realized capital gains, if
any, that it distributes to its shareholders, provided that
an amount equal to at least 90% of the sum of its investment
company taxable income, 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, a 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 a 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 a 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. Each 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, a 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 a 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 a 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) with respect to certain of its assets in
order to qualify as a regulated investment company in a
subsequent year.
A 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 a 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 a 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. Each 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.
Each Fund's investment in Section 1256 contracts, such as
regulated futures contracts, most forward currency contracts
traded in the interbank market and options on most stock
indices, are subject to special tax rules. All section 1256
contracts held by a 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.
Index Swaps. As a result of entering into index swaps, a
Fund may make or receive periodic net payments. It may also
make or receive a payment when a swap is terminated prior to
maturity through an assignment of the swap or other closing
transaction. Periodic net payments will constitute ordinary
income or deductions, while termination of a swap will
result in capital gain or loss (which will be a long-term
capital gain or loss if the Fund has been a party to the
swap for more than one year).
Foreign Investments. Dividends or other income (including,
in some cases, capital gains) received by a 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. A
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 a Fund will reduce the
return from the Fund's investments.
Passive Foreign Investment Companies. If a 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 a 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, a Fund would be required to obtain certain
annual information from the PFICs in which it invests, which
may be difficult or not possible to obtain.
Alternatively, a Fund may make a mark-to-market election
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
Internal Revenue Service (the "IRS"). By making the
election, a 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 stock.
A Fund may have to distribute this "phantom" income and gain
to satisfy its distribution requirement and to avoid
imposition of the 4% excise tax. Each 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 a
Fund a 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. Each Fund intends to
distribute annually to its shareholders substantially all of
its investment company taxable income and any net realized
capital gains. However, if a Fund retains for investment an
amount equal to all or a portion of its net realized capital
gains, it will be subject to a corporate tax (currently at a
rate of 35%) on the amount retained. In that event, the Fund
will designate such retained amounts as undistributed
capital gains in a notice to its shareholders who (a) will
be required to include in income for United Stares federal
income tax purposes, as long-term capital gains, their
proportionate shares of the undistributed amount, (b) will
be entitled to credit their proportionate shares of the 35%
tax paid by the Fund on the undistributed amount against
their United States federal income tax liabilities, if any,
and to claim refunds to the extent their credits exceed
their liabilities, if any, and (c) will be entitled to
increase their tax basis, for United States federal income
tax purposes, in their shares by an amount equal to 65% of
the amount of undistributed capital gains included in the
shareholder's income. Organizations or persons not subject
to federal income tax on such capital gains will be entitled
to a refund of their pro rata share of such taxes paid by
the Fund upon filing appropriate returns or claims for
refund with the IRS.
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 a 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 a 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 a 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 an 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 a 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, a
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 such
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 a 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 a 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 or 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. A 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 each
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 a
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 each 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 Funds.
OTHER INFORMATION ABOUT THE COMPANY
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 Company's name has been changed 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, Financial Services
Fund, Health Sciences Fund, Technology Fund, Biotechnology
Fund, Global Media & Telecommunications Fund, and Global
Technology each classified as a series of the Company.
The Company offers shares of seven separate series with a
par value of $.001 per share. Each 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 shareholder's meeting for the election of
Directors. The Directors must call a meeting of
shareholders for the purpose of voting upon the question of
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 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
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 funds.
SMITH BARNEY
SECTOR SERIES INC.
Global Biotechnology Fund
Global Media &
Telecommunications Fund
Global Technology Fund
August 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
are incorporated 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 are incorporated by reference to Post-Effective Amendment No. 25
to the Registration Statement filed on December 1, 1999 ("Post-Effective
Amendment No. 25").
(a)(11)Articles Supplementary dated November 29, 1999 are incorporated by
reference to Post-Effective Amendment No. 25.
(a)(12)Certificate of Correction dated November 29, 1999 is incorporated by
reference to Post-Effective Amendment No. 25.
(a)(13)Certificate of Correction dated November 29, 1999 is incorporated by
reference to Post-Effective Amendment No. 25.
(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)(1)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").
(d)(2)Form of Investment Management Agreement between the Registrant and SSB
Citi Fund Management LLC ("SSB Citi") on behalf of the Financial Services Fund
is incorporated by reference to Post-Effective Amendment No. 26 to the
Registration Statement filed on February 11, 2000 ("Post-Effective Amendment
No. 26").
(d)(3)Form of Investment Management Agreement between the Registrant and SSB
Citi on behalf of the Health Sciences Fund is incorporated by reference to Post-
Effective Amendment No. 26.
(d)(4)Form of Investment Management Agreement between the Registrant and SSB
Citi on behalf of the Technology Fund is incorporated by reference to Post-
Effective Amendment No. 26.
(d)(5)Form of Subadvisory Agreement between Smith Barney Sector Series Inc. on
behalf of the Financial Services Fund, SSB Citi and Citibank, N.A. ("Citibank")
is incorporated by reference to Post-Effective Amendment No. 26.
(d)(6)Form of Subadvisory Agreement between Smith Barney Sector Series Inc. on
behalf of the Health Sciences Fund, SSB Citi and Citibank is incorporated by
reference to Post-Effective Amendment No. 26.
(d)(7)Form of Subadvisory Agreement between Smith Barney Sector Series Inc. on
behalf of the Technology Fund, SSB Citi and Citibank is incorporated by
reference to Post-Effective Amendment No. 26.
(e)(1)Distribution Agreement between the Registrant and Smith Barney Shearson
Inc. is incorporated by reference to Post-Effective Amendment No. 12.
(e)(2)Amended 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").
(e)(4)Form of Distribution Agreement between Registrant and CFBDS, Inc. is
incorporated by reference to Post-Effective Amendment No. 26.
(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").
(m)(3)Form of Amended Service and Distribution Plan pursuant to Rule 12b-1
between Smith Barney Sector Series Inc. on behalf of Financial Services Fund
and Salomon Smith Barney Inc. ("Salomon Smith Barney") is incorporated by
reference to Post-Effective Amendment No. 26.
(m)(4)Form of Amended Service and Distribution Plan pursuant to Rule 12b-1
between Smith Barney Sector Series Inc. on behalf of Health Sciences Fund and
Salomon Smith Barney is incorporated by reference to Post-Effective Amendment
No. 26.
(m)(5)Form of Amended Service and Distribution Plan pursuant to Rule 12b-1
between Smith Barney Sector Series Inc. on behalf of Technology Fund and
Salomon Smith Barney is incorporated by reference to Post-Effective Amendment
No. 26.
(n)Financial Data Schedule to be filed by Amendment.
(o)(1)Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post-Effective Amendment No. 23.
(o)(2)Form of Rule 18f-3(d) Multiple Class Plan of the Registrant is
incorporated by reference to Post-Effective Amendment No. 26.
(p) Code of Ethics is incorporated by reference to Post-Effective Amendment
No. 27.
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. (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)
Salomon Smith Barney, Inc., ("Salomon Smith Barney")
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.
(b) The information required by this Item 27 with respect
to each director, officer and partner
of Salomon Smith Barney is incorporated by reference
to Schedule A of FORM BD filed by Salomon Smith Barney
pursuant to the Securities Exchange Act of 1934
(SEC File No. 812-8510).
(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)(a) SSB Citi Fund Management LLC
(formerly known as SSBC Fund Management Inc.)
388 Greenwich Street
New York, New York 10013
(2)(b) Citibank, N.A.
100 First Stamford Place
Stamford, Connecticut 06902
(Sub-adviser to all funds except Natural Resources Fund)
(3)(a) PNC Bank, National Association
17th and Chestnut Streets
Philadelphia, Pennsylvania 19103
(3)(b) State Street Bank & Trust Company
225 Franklin Street
Boston, Massachusetts 02110
(as to all Funds except the Natural Resources Fund)
(4) Citi Fiduciary Trust Company,
as Transfer Agent
388 Greenwich Street
New York, New York 10013
(5) PFPC Global Fund Services, as Sub-Transfer Agent
(formerly known as First Data Investor Services Group,
Inc.)
P. O. Box 9699
Providence, RI 02940-9699
(6) Salomon Smith Barney Inc.
388 Greenwich Street
New York, New York 10013
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 7th day of
July, 2000.
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, July 7, 2000Heath B. McLendon
President and Chief
Executive Officer
/s/ Lewis E. Daidone Senior Vice President July 7, 2000
Lewis E. Daidone and Treasurer, Chief
Financial and Accounting Officer
/s/Herbert Barg Director July 7, 2000
Herbert Barg
/s/Alfred J. Bianchetti Director July 7, 2000
Alfred J. Bianchetti
/s/Martin Brody Director July 7, 2000
Martin Brody
/s/Dwight B. Crane Director July 7, 2000
Dwight B. Crane
/s/Burt N. Dorsett Director July 7, 2000
Burt N. Dorsett
/s/Elliot S. Jaffe Director July 7, 2000
Elliot S. Jaffe
/s/Stephen E. Kaufman Director July 7, 2000
Stephen E. Kaufman
/s/Joseph J. McCann Director July 7, 2000
Joseph J. McCann
/s/Cornelius C. Rose, Jr. Director July 7, 2000
Cornelius C. Rose, Jr.
EXHIBIT INDEX
Exhibit No. Exhibit
(j) Consent of Independent Accountants to be filed by Amendment
(n) Financial Data Schedule to be filed by Amendment
