<PAGE>
A SPECIAL NOTICE TO SHAREHOLDERS OF
SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND
YOUR VOTE IS IMPORTANT
Dear Shareholder:
The Board of Trustees of Smith Barney Shearson Short-Term World Income Fund
(the "Company") has recently reviewed and endorsed a proposal for a
reorganization of the Company which it judges to be in the best interests of the
Company's shareholders.
UNDER THE TERMS OF THE PROPOSAL, SMITH BARNEY SHEARSON GLOBAL BOND FUND
("GLOBAL BOND FUND"), A SEPARATE INVESTMENT PORTFOLIO OF SMITH BARNEY SHEARSON
INCOME FUNDS ("INCOME FUNDS"), WOULD ACQUIRE SUBSTANTIALLY ALL OF THE ASSETS AND
LIABILITIES OF THE COMPANY. After the transaction, the Company would be
dissolved and you would become a shareholder of Global Bond Fund, having
received the same class of shares with an aggregate value equivalent to the
aggregate net asset value of your investment in the Company at the time of the
transaction. The transaction would, in the opinion of counsel, be free from
federal income taxes to you, Global Bond Fund and Income Funds.
SPECIAL MEETING OF SHAREHOLDERS: YOUR VOTE IS IMPORTANT
The Board of Trustees of the Company has determined that the proposed
reorganization should provide benefits to shareholders due, in part, to savings
in expenses borne by shareholders. We have therefore called a Special Meeting of
Shareholders to be held July 5, 1994 to consider this transaction. WE STRONGLY
INVITE YOUR PARTICIPATION BY ASKING YOU TO REVIEW, COMPLETE AND RETURN YOUR
PROXY NO LATER THAN JULY 5, 1994.
Detailed information about the proposed transaction is described in the
enclosed proxy statement. On behalf of the board, I thank you for your
participation as a shareholder and urge you to please exercise your right to
vote by completing, dating and signing the enclosed proxy card. A
self-addressed, postage-paid envelope has been enclosed for your convenience.
If you have any questions regarding the proposed transaction, please feel
free to call your financial consultant.
IT IS VERY IMPORTANT THAT YOUR VOTING INSTRUCTIONS BE RECEIVED PROMPTLY.
Sincerely,
HEATH B. McLENDON
Chairman of the Board
June 2, 1994
<PAGE>
SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND
Two World Trade Center
New York, New York 10048
--------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on July 5, 1994
--------------------------
To our Shareholders:
Notice is hereby given that a Special Meeting of Shareholders (the
"Meeting") of Smith Barney Shearson Short-Term World Income Fund (the "Company")
will be held at Two World Trade Center, 100th Floor, New York, New York on July
5, 1994, commencing at 10:00 A.M. for the following purposes:
1. To consider and act upon the Agreement and Plan of Reorganization (the
"Plan") dated as of June 1, 1994 providing for (i) the acquisition of
substantially all of the assets of the Company by Smith Barney Shearson Global
Bond Fund ("Global Bond Fund"), a separate investment series of Smith Barney
Shearson Income Funds ("Income Funds"), in exchange for shares of Global Bond
Fund and the assumption by Global Bond Fund of certain liabilities of the
Company, (ii) the distribution of such shares of Global Bond Fund to
shareholders of the Company in liquidation of the Company and (iii) the
subsequent dissolution and termination of the Company.
2. To transact such other business as may properly come before the Meeting
or any adjournment or adjournments thereof.
The Trustees of the Company have fixed the close of business on May 16, 1994
as the record date for the determination of shareholders entitled to notice of
and to vote at the Meeting and any adjournment or adjournments thereof.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE SPECIAL MEETING ARE URGED TO SIGN AND RETURN WITHOUT DELAY
THE ENCLOSED PROXY CARD IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE SO
THAT THEIR SHARES MAY BE REPRESENTED AT THE MEETING. INSTRUCTIONS FOR THE PROPER
EXECUTION OF PROXY CARDS ARE SET FORTH ON THE FOLLOWING PAGE.
By Order of the Board of Trustees
CHRISTINA T. SYDOR
Secretary
June 2, 1994
YOUR PROMPT ATTENTION TO THE ENCLOSED PROXY WILL HELP TO AVOID THE EXPENSE
OF FURTHER SOLICITATION.
<PAGE>
INSTRUCTIONS FOR SIGNING PROXY CARDS
The following general rules for signing proxy cards may be of assistance to
you and avoid the time and expense involved in validating your vote if you fail
to sign your proxy card properly.
1. Individual Accounts: Sign your name exactly as it appears in the
registration on the proxy card.
2. Joint Accounts: Either party may sign, but the name of the party signing
should conform exactly to the name shown in the registration on the proxy card.
3. All Other Accounts: The capacity of the individual signing the proxy
card should be indicated unless it is reflected in the form of registration. For
example:
<TABLE>
<CAPTION>
REGISTRATION VALID SIGNATURES
- ------------------------------------------------------- ----------------------------
<S> <C>
CORPORATE ACCOUNTS
(1) ABC Corp....................................... ABC Corp.
(2) ABC Corp....................................... John Doe, Treasurer
(3) ABC Corp.
c/o John Doe, Treasurer....................... John Doe
(4) ABC Corp. Profit Sharing Plan.................. John Doe, Trustee
TRUST ACCOUNTS
(1) ABC Trust...................................... Jane B. Doe, Trustee
(2) Jane B. Doe, Trustee
u/t/d 12/28/78................................ Jane B. Doe
CUSTODIAL OR ESTATE ACCOUNTS
(1) John B. Smith, Cust.
f/b/o John B. Smith, Jr. UGMA................. John B. Smith
(2) John B. Smith.................................. John B. Smith, Jr., Executor
</TABLE>
<PAGE>
PROSPECTUS/PROXY STATEMENT DATED JUNE 2, 1994
ACQUISITION OF THE ASSETS OF
SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 720-9218
BY AND IN EXCHANGE FOR CLASS A AND CLASS B SHARES OF
SMITH BARNEY SHEARSON GLOBAL BOND FUND
A SEPARATE INVESTMENT SERIES OF
SMITH BARNEY SHEARSON INCOME FUNDS
TWO WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
(212) 720-9218
This Prospectus/Proxy Statement is being furnished to shareholders of Smith
Barney Shearson Short-Term World Income Fund (the "Acquired Fund") in connection
with a proposed plan of reorganization to be submitted to shareholders of the
Acquired Fund for consideration at a Special Meeting of Shareholders to be held
on July 5, 1994 at 10:00 A.M. (the "Meeting"), at Two World Trade Center, 100th
Floor, New York, New York or any adjournment or adjournments thereof.
The plan provides for all or substantially all of the assets of the Acquired
Fund to be acquired by Smith Barney Shearson Global Bond Fund (the "Acquiring
Fund"), a separate series of Smith Barney Shearson Income Funds ("Income
Funds"), in exchange for Class A and Class B shares of the Acquiring Fund and
the assumption by the Acquiring Fund of certain liabilities of the Acquired Fund
(hereinafter referred to as the "Reorganization"; the Acquiring Fund and the
Acquired Fund are sometimes referred to hereinafter as the "Funds" and
individually as a "Fund"). The Class A and Class B shares of the Acquiring Fund
would be distributed to shareholders of the Acquired Fund in liquidation of the
Acquired Fund and the Acquired Fund would be dissolved and terminated. As a
result of the proposed Reorganization, each shareholder of the Acquired Fund
will receive that number of shares of the Acquiring Fund having an aggregate net
asset value equal to the aggregate net asset value of such shareholder's shares
of the Acquired Fund. Holders of Class A shares in the Acquired Fund will
receive Class A shares of the Acquiring Fund, and no sales charge will be
imposed on the Class A shares of the Acquiring Fund received by the Acquired
Fund's Class A shareholders. Holders of Class B shares in the Acquired Fund will
receive Class B shares of
1
<PAGE>
the Acquiring Fund; any contingent deferred sales charge ("CDSC") which is
applicable to an Acquired Fund shareholder's investment will continue to apply
as it did and at the same rate prior to the Reorganization and, in calculating
the applicable CDSC payable upon the subsequent redemption of Class B shares of
the Acquiring Fund, the period during which an Acquired Fund shareholder held
Class B shares of the Acquired Fund will be counted. This transaction is
structured to be tax-free for federal income tax purposes to shareholders and to
both the Acquiring Fund and the Acquired Fund.
The Acquiring Fund is a diversified fund and is a separate series of Income
Funds, an open-end management, investment company. Smith Barney Global Capital
Management Inc. ("SBGCM") serves as investment adviser to the Acquiring Fund.
SBGCM is a wholly owned subsidiary of Smith Barney Shearson Holdings Inc., which
is itself a wholly owned subsidiary of The Travelers Inc. PanAgora Asset
Management Limited ("PanAgora") serves as investment adviser to the Acquired
Fund. Fifty percent of the outstanding voting stock of PanAgora is owned by
Nippon Life Insurance Company and fifty percent is owned by Lehman Brothers Inc.
Lehman Brothers Inc. is a wholly owned subsidiary of Lehman Brothers Holdings
Inc. ("LBHI"), which until 12:00 midnight on May 31, 1994 was a wholly owned
subsidiary of American Express Company. As of such date, the common stock of
LBHI was distributed to the holders of common stock of American Express Company.
The investment objectives of the Acquiring Fund are generally similar to
those of the Acquired Fund. The Acquiring Fund's investment objective is current
income and capital appreciation. The Acquired Fund's investment objective is the
maximization of current income consistent with the protection of principal and
relative stability of net asset value. Notwithstanding the similarities of the
investment objectives, the Acquiring Fund generally invests in securities with
longer term maturities than those of the Acquired Fund. Certain differences in
the investment policies of the Acquiring Fund and the Acquired Fund, however,
are described under "Comparison of Investment Objectives and Policies" in this
Prospectus/Proxy Statement.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor should know before investing. Certain relevant documents
listed below, which have been filed with the Securities and Exchange Commission
("SEC"), are incorporated in whole or in part by reference. A Statement of
Additional Information dated June 2, 1994, relating to this Prospectus/Proxy
Statement and the Reorganization, has been filed with the SEC and is
incorporated by reference into this Prospectus/Proxy Statement. A copy of such
Statement of Additional Information is available upon request
2
<PAGE>
and without charge by writing to the Acquired Fund at the address listed on the
cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-221-8806.
1. The Prospectus of Smith Barney Shearson Global Bond Fund dated December
1, 1993, as supplemented by Prospectus Supplements dated December 20, 1993,
January 21, 1994 and April 5, 1994, is incorporated in its entirety by reference
and a copy is included herein.
2. The Prospectus of Smith Barney Shearson Short-Term World Income Fund
dated September 1, 1993, as supplemented by Prospectus Supplements dated January
3, 1994, February 1, 1994 and April 1, 1994, is incorporated in its entirety by
reference.
Also accompanying this Prospectus/Proxy Statement as Exhibit A is a copy of
the Agreement and Plan of Reorganization (the "Plan") for the proposed
transaction.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Summary...................................................................... 5
Reasons for the Reorganization............................................... 10
Information About the Reorganization......................................... 10
Comparison of Investment Objectives and Policies............................. 15
Information on Shareholders' Rights.......................................... 17
Additional Information About Smith Barney Shearson Short-Term World Income
Fund and Smith Barney Shearson Global Bond Fund............................. 19
Other Business............................................................... 19
Voting Information........................................................... 20
Financial Statements and Experts............................................. 21
Legal Matters................................................................ 22
Exhibit A: Agreement and Plan of Reorganization.............................. A-1
</TABLE>
ADDITIONAL MATERIALS
Prospectus of Smith Barney Shearson
Global Bond Fund dated
December 1, 1993, as supple-
mented by Prospectus Supplements
dated December 20, 1993,
January 21, 1994 and
April 15, 1994.
4
<PAGE>
SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE ADDITIONAL
INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS/PROXY STATEMENT, THE
AGREEMENT AND PLAN OF REORGANIZATION, A COPY OF WHICH IS ATTACHED TO THIS
PROSPECTUS/ PROXY STATEMENT AS EXHIBIT A, THE ACCOMPANYING PROSPECTUS OF THE
ACQUIRING FUND DATED DECEMBER 1, 1993, AS SUPPLEMENTED BY PROSPECTUS SUPPLEMENTS
DATED DECEMBER 20, 1993, JANUARY 21, 1994 AND APRIL 5, 1994, AND THE PROSPECTUS
OF THE ACQUIRED FUND DATED SEPTEMBER 1, 1993, AS SUPPLEMENTED BY PROSPECTUS
SUPPLEMENTS DATED JANUARY 3, 1994, FEBRUARY 1, 1994 AND APRIL 1, 1994.
PROPOSED REORGANIZATION. The Plan provides for the transfer of all of the
assets of the Acquired Fund to the Acquiring Fund in exchange for Class A and
Class B shares of the Acquiring Fund and the assumption by the Acquiring Fund of
certain liabilities of the Acquired Fund. The Plan also calls for the
distribution of shares of the Acquiring Fund to the Acquired Fund's shareholders
in liquidation of the Acquired Fund. As a result of the Reorganization, each
shareholder of the Acquired Fund will become the owner of that number of full
and fractional shares of the Acquiring Fund having an aggregate net asset value
equal to the aggregate net asset value of the shareholder's shares of the
Acquired Fund as of the close of business on the date that the Acquired Fund's
assets are exchanged for shares of the Acquiring Fund. See "Information About
the Reorganization -- Plan of Reorganization."
For the reasons set forth below under "Reasons for the Reorganization," the
Board of Trustees of the Acquired Fund, including the Trustees of the Acquired
Fund who are not "interested persons" (the "Independent Trustees"), as that term
is defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
has concluded that the Reorganization would be in the best interests of the
shareholders of the Acquired Fund and that the interests of the Acquired Fund's
existing shareholders will not be diluted as a result of the transaction
contemplated by the Reorganization and therefore has submitted the Plan for
approval by the Acquired Fund's shareholders. The Board of Trustees of Income
Funds has reached similar conclusions with respect to the Acquiring Fund also
approved the Reorganization.
Approval of the Reorganization will require the affirmative vote of a
majority, as defined in the 1940 Act, of the outstanding shares of the Acquired
Fund, which is the lesser of: (i) 67% of the voting securities of the Acquired
Fund present at the Meeting, if the holders of more than 50% of the outstanding
voting securities of the Acquired Fund are present or represented by proxy; or
(ii) more than 50% of the outstanding voting securities of the Acquired Fund.
See "Voting Information."
5
<PAGE>
TAX CONSEQUENCES. Prior to completion of the Reorganization, the Acquired
Fund will have received an opinion of counsel that, upon the Reorganization and
the transfer of the assets of the Acquired Fund, no gain or loss will be
recognized by the Acquired Fund or its shareholders for federal income tax
purposes. The holding period and aggregate tax basis of the Acquiring Fund Class
A and Class B shares that are received by each Acquired Fund shareholder will be
the same as the holding period and aggregate tax basis of the shares of the
Acquired Fund previously held by such shareholder. In addition, the holding
period and tax basis of the assets of the Acquired Fund in the hands of the
Acquiring Fund as a result of the Reorganization will be the same as in the
hands of the Acquired Fund immediately prior to the Reorganization.
INVESTMENT OBJECTIVES AND POLICIES. The Acquired Fund and the Acquiring
Fund have generally similar investment objectives, policies and restrictions.
The Acquiring Fund's investment objective is current income and capitalization.
The Acquired Fund's investment objective is the maximization of current income
consistent with the protection of principal and relative stability of net asset
value. To achieve their objectives, both Funds invest in high-quality debt
securities denominated in U.S. dollars as well as other major currencies.
Notwithstanding the similarities of the investment objectives, the Acquiring
Fund generally invests in securities with longer term maturities than those of
the Acquired Fund. Nevertheless, there are certain differences between the
investment policies of the Acquiring Fund and the Acquired Fund, which are
described under "Comparison of Investment Objectives and Policies."
FEES AND EXPENSES. Total management fees payable by the Acquired Fund are
0.75% of the Acquired Fund's average daily net assets, consisting of a monthly
fee computed at an annual rate of 0.55% which is paid to PanAgora as investment
adviser and a monthly fee computed at an annual rate of 0.20% which is paid to
Smith, Barney Advisors, Inc. ("Smith Barney Advisors") as Administrator (from
which The Boston Company Advisors, Inc. ("Boston Advisors") is compensated for
its services as sub-administrator). As a result of a voluntary agreement by
PanAgora and Boston Advisors to waive certain management fees, the cumulative
management fees paid by the Acquired Fund to PanAgora and Boston Advisors was
0.49% of the Acquired Fund's average daily net assets for the fiscal year ended
April 30, 1993. Total management fees payable by the Acquiring Fund are 0.80% of
the Acquiring Fund's average daily net assets, consisting of a monthly fee
computed at an annual rate of 0.60% which is paid to SBGCM as investment adviser
and a monthly fee computed at an annual rate of 0.20% which is paid to Smith
Barney Advisors as administrator (from which Boston Advisors is compensated for
its services as sub-administrator).
6
<PAGE>
The expense ratio of the Acquiring Fund subsequent to the Reorganization is
expected to be lower than that payable by the Acquired Fund. See "Reasons for
the Reorganization." Total operating expenses for the Acquiring Fund stated as a
percentage of average net assets for the fiscal year ended July 31, 1993 for
Class A shares and Class B shares were 1.71% and 2.22%, respectively. Total
operating expenses for the Acquired Fund stated as a percentage of average net
assets for the fiscal year ended April 30, 1993 for Class A shares and Class B
shares were 1.40% and 1.75%, respectively, which includes the voluntary
agreements of PanAgora and Boston Advisors to waive a portion of their fees. If
these voluntary agreements had not been in place, total operating expenses for
the fiscal year ended April 30, 1993 would have been 1.67% for Class A shares
and 2.02% for Class B shares of the Acquired Fund. In effecting the
Reorganization, it is estimated that, although the investment advisory fee
payable by the Acquiring Fund shareholders, as a percentage of its average daily
net assets, would be higher than that payable by the Acquired Fund, the expense
ratios for the Class A shares and Class B shares of the combined fund would be
reduced to 1.44% and 1.94%, respectively.
Shares of the Acquiring Fund and the Acquired Fund are both sold subject to
distribution plans adopted pursuant to Rule 12b-1 under the 1940 Act. Under
their respective plans, Smith Barney Shearson Inc. ("Smith Barney Shearson") is
paid a service fee calculated at the annual rate of 0.25% of the value of each
Fund's average daily net assets attributable to the respective Fund's Class A
and Class B shares. In addition, each Fund's Class B shares pays a distribution
fee primarily intended to compensate Smith Barney Shearson for its initial
expense of paying financial consultants a commission upon sales of the
respective shares. The distribution fees for both Funds' Class B shares are
calculated at the annual rate of 0.50% of the value of the respective Fund's
average net assets attributable to the shares of the respective Class. Class B
shares of the Acquiring Fund will convert automatically to Class A shares eight
years after the date of purchase based on the relative net asset values of
shares of each Class and, after such conversion, will not be subject to a
distribution fee. Class B shares of the Acquired Fund, however, convert
automatically to Class A shares four years after the date of purchase based on
the relative net asset values of shares of each Class and, after such
conversion, will not be subject to a distribution fee. All Class B shares of the
Acquired Fund that are exchanged for Class B shares of the Acquiring Fund in the
Reorganization will retain the four year conversion feature and will
automatically convert to Class A shares of the Acquiring Fund four years after
the date that such shares were initially purchased (unless such shares were
acquired through an exchange, in which case such shares will retain the
conversion feature of the fund from which the exchange was made).
7
<PAGE>
EXCHANGE PRIVILEGES. Shareholders of both the Acquired Fund and the
Acquiring Fund are entitled to exchange shares of each Class for shares of the
same Class in certain funds in the Smith Barney Shearson Group of Funds ("Group
of Funds") to the extent shares are offered for sale in the shareholder's state
of residence. After the Reorganization, each shareholder of Class A and Class B
shares of the Acquired Fund who becomes the owner of the respective Class of
shares of the Acquiring Fund will be entitled to the exchange privileges offered
by that Class of shares. Any exchange will be a taxable event for which a
shareholder may have to recognize a gain or loss under federal income tax
provisions. For the purposes of any exchange of shares acquired through the
Reorganization, the Acquired Fund Class A shareholders will be deemed to have
paid the maximum sales charge currently applicable for Class A shares of the
Acquiring Fund. A "sales charge differential" will be imposed on any Acquiring
Fund shareholder who chooses to exchange shares of the Acquiring Fund for shares
of another fund in the Group of Funds which imposes a higher sales charge than
that imposed on the Acquiring Fund shares. The Acquiring Fund reserves the right
to amend or terminate the exchange privilege after providing notice to
shareholders. See "Exchange Privilege" in the accompanying Prospectus of the
Acquiring Fund.
DIVIDENDS. The policies of each Fund with regard to dividends and
distributions are generally the same. It is the policy of the Acquired Fund to
declare daily and distribute monthly its net investment income (that is, its
taxable income other than its net realized capital gains). Dividends from the
net investment income, if any, of the Acquiring Fund are declared and paid
monthly. Each Fund's policy is to distribute its net realized capital gains, if
any, once a year. Unless a shareholder instructs that dividends and capital
gains distributions be paid in cash and credited to the shareholder's account at
Smith Barney Shearson, dividends and capital gains distributions will be
reinvested automatically in additional shares of the Acquiring Fund at net asset
value, without a sales charge or CDSC. The Acquired Fund shareholders that have
elected to receive dividends and distributions in cash will continue to receive
distributions in such manner from the Acquiring Fund. Subsequent to the
Reorganization, the Acquired Fund shareholders may elect at any time to have
their dividends and distributions reinvested automatically in additional shares
of the Acquiring Fund by contacting their Smith Barney Shearson Financial
Consultant. See "Dividends, Distributions and Taxes" in the accompanying
Prospectus of the Acquiring Fund.
PURCHASE AND REDEMPTION PROCEDURES. Purchase of shares of the Acquiring
Fund and the Acquired Fund must be made through a brokerage account maintained
with Smith Barney Shearson or with a broker that clears securities transactions
through Smith Barney Shearson on a fully disclosed basis (an "Introducing
Broker"). Class A shares of the Acquiring Fund and the
8
<PAGE>
Acquired Fund are sold subject to a maximum initial sales charge of up to 4.50%
and 3.00% of the public offering price, respectively. Class B shares of the
Acquiring Fund and the Acquired Fund are sold without an initial sales charge
but are subject to a CDSC and certain higher expenses. See "Purchase of Shares"
in the accompanying Prospectus of the Acquiring Fund.
Class A shares of the Acquiring Fund and the Acquired Fund may be redeemed
at their net asset value per share without charge; Class B shares of the
Acquiring Fund and the Acquired Fund may be redeemed at their net asset value
per share subject to a maximum CDSC of 4.50% and 3.00%, respectively.
Redemptions may be made by submitting a redemption request through Smith Barney
Shearson or an Introducing Broker or the respective Fund's transfer agent. See
"Redemption of Shares" in the accompanying Prospectus of the Acquiring Fund.
The Acquiring Fund also offers Class D shares. Class D shares are available
to participants in the Smith Barney Shearson 401(k) Program and are sold at net
asset value per share. Class D shares of the Acquiring Fund are not subject to
an initial sales charge or CDSC. Class D shares are subject to an annual service
fee of 0.25% and an annual distribution fee of 0.50% of the value of average
daily net assets attributable to such Class. No Class D shares of the Acquiring
Fund will be issued to any shareholder of the Acquired Fund as part of the
Reorganization. See "Purchase of Shares" in the accompanying Prospectus of the
Acquiring Fund.
SHAREHOLDERS' RIGHTS. Shareholders of the Acquiring Fund and the Acquired
Fund have similar voting rights. For example, neither the Acquired Fund nor
Income Funds, on behalf of the Acquiring Fund, holds an annual meeting of
shareholders and there is normally no meeting of shareholders for the purpose of
electing Trustees unless and until such time as less than a majority of the
Trustees holding office have been elected by shareholders. In addition, under
the laws of The Commonwealth of Massachusetts and the Master Trust Agreement of
the Acquired Fund, shareholders of the Acquired Fund do not have appraisal
rights in connection with a combination or acquisition of the assets of the
Acquired Fund by another entity. Shareholders of the Acquired Fund may, however,
redeem their shares at net asset value (subject to any applicable CDSC) prior to
the date of the Reorganization. See "Information on Shareholder Rights."
RISK FACTORS. Due to the similarities of investment objectives and policies
of the Acquiring Fund and the Acquired Fund, an investment in the Acquiring Fund
involves investment risks that are substantially similar to those of the
Acquired Fund. Such risks are those generally associated with investing in a
managed portfolio consisting primarily of high-quality, debt securities
denominated in U.S. dollars as well as other currencies. In addition, both Funds
have policies, such as those relating to investing in foreign securities,
9
<PAGE>
and investment techniques, such as entering into futures contracts and options
on futures contracts, entering into options on foreign currencies, entering into
forward currency contracts, lending portfolio securities and entering into
repurchase agreements, that involve certain risks and special considerations.
For a full description of the risk factors involved in investing in the
Acquiring Fund, refer to "Risk Factors and Special Considerations" in the
accompanying Prospectus of the Acquiring Fund.
REASONS FOR THE REORGANIZATION
The Board of Trustees of the Acquired Fund has determined that it is
advantageous to combine the Acquired Fund with the Acquiring Fund. The Funds
have generally similar investment objectives and policies and the Funds have the
same administrator, sub-administrator, custodian and transfer agent.
The Board of Trustees of the Acquired Fund has determined that the
Reorganization should provide certain benefits to shareholders. In making such
determination, the Board of Trustees considered, among other things, the savings
in expenses borne by shareholders expected to be realized by the Reorganization
and the comparative investment performance of the Funds.
In light of the foregoing, the Board of Trustees of the Acquired Fund,
including the Independent Trustees, has decided that it is in the best interests
of the Acquired Fund and its shareholders to combine with the Acquiring Fund.
The Board of Trustees of the Acquired Fund has also determined that a
combination of the Acquired Fund and the Acquiring Fund would not result in a
dilution of the interests of the Acquired Fund's shareholders.
The Board of Trustees of Income Funds considered various factors in
approving the Reorganization and it has determined that it is advantageous to
acquire the assets of the Acquired Fund. Among other factors, the Board of
Trustees of Income Funds considered pro forma financial information provided by
Smith Barney Shearson which indicated that the Reorganization is likely to
slightly reduce the expense ratios on both Class A and Class B shares of the
Acquiring Fund. In addition, the Board of Trustees concluded that the
Reorganization will be effected as a tax-free reorganization. Accordingly, the
Board of Trustees of Income Funds, including a majority of the non-interested
Trustees, has determined that the Reorganization is in the best interests of the
Acquiring Fund's shareholders and that the interests of the Acquiring Fund's
shareholders will not be diluted as a result of the Reorganization.
INFORMATION ABOUT THE REORGANIZATION
PLAN OF REORGANIZATION. The following summary of the Plan is qualified in
its entirety by reference to the Plan (Exhibit A hereto). The Plan provides that
10
<PAGE>
the Acquiring Fund will acquire all or substantially all of the assets of the
Acquired Fund in exchange for shares of the Acquiring Fund and the assumption by
the Acquiring Fund of certain liabilities of the Acquired Fund on July 15, 1994
or such later date as may be agreed upon by the parties (the "Closing Date").
Prior to the Closing Date, the Acquired Fund will endeavor to discharge all
of its known liabilities and obligations. The Acquiring Fund will not assume any
liabilities or obligations other than those reflected on an unaudited statement
of assets and liabilities of the Acquired Fund prepared as of the close of
regular trading on the New York Stock Exchange, Inc. (the "NYSE"), currently
4:00 p.m. New York time, on the Closing Date. The number of full and fractional
Class A and Class B shares of the Acquiring Fund to be issued to the Acquired
Fund shareholders will be determined on the basis of the Acquiring Fund's and
the Acquired Fund's relative net asset values per Class A and Class B shares,
respectively, computed as of the close of regular trading on the NYSE on the
Closing Date. The net asset value per share of each Class will be determined by
dividing assets, less liabilities, by the total number of outstanding shares.
Both the Acquired Fund and the Acquiring Fund will utilize Boston Advisors
as agent to determine the value of their respective portfolio securities. The
Acquired Fund and the Acquiring Fund also will use the same independent pricing
service to determine the value of each security so that Boston Advisors, as
agent, can determine the aggregate value of each Fund's portfolio. The method of
valuation employed will be consistent with the requirements set forth in the
Prospectus of each Fund, Rule 22c-1 under the 1940 Act and the interpretation of
such rule by the SEC's Division of Investment Management.
At or prior to the Closing Date, each of the Acquired Fund and Acquiring
Fund shall have declared a dividend or dividends which, together with all
previous such dividends, shall have the effect of distributing to their
respective shareholders all taxable income for the taxable year ending on or
prior to the Closing Date (computed without regard to any deduction for
dividends paid) and all of the respective Funds' net capital gains realized in
the taxable year ending on or prior to the Closing Date (after reductions for
any capital loss carryforward).
As soon after the Closing Date as conveniently practicable, the Acquired
Fund will liquidate and distribute pro rata to shareholders of record as of the
close of business on the Closing Date the full and fractional shares of the
Acquiring Fund received by the Acquired Fund. Such liquidation and distribution
will be accomplished by the establishment of accounts in the names of the
Acquired Fund's shareholders on the share records of the Acquiring Fund's
transfer agent. Each account will represent the respective pro rata
11
<PAGE>
number of full and fractional shares of the Acquiring Fund due to each of the
Acquired Fund's shareholders. After such distribution and the winding up of its
affairs, the Acquired Fund and its registration under the 1940 Act will be
terminated.
The consummation of the Reorganization is subject to the conditions set
forth in the Plan. Notwithstanding approval of the Acquired Fund's shareholders,
the Plan may be terminated at any time at or prior to the Closing Date (1) by
mutual agreement of the Acquired Fund and the Acquiring Fund or (2) by either
party to the Plan upon a material breach by the other party of any
representation, warranty or agreement contained therein.
Approval of the Plan will require the affirmative vote of a majority, as
defined in the 1940 Act, of the outstanding voting securities of the Acquired
Fund. The 1940 Act defines "majority" as the lesser of: (i) 67% of the voting
securities of the Acquired Fund present at the Meeting, if the holders of more
than 50% of the outstanding voting securities of the Acquired Fund are present
or represented by proxy; or (ii) more than 50% of the outstanding voting
securities of the Acquired Fund. If the Reorganization is not approved by
shareholders of the Acquired Fund, the Board of Trustees of the Acquired Fund
will consider other possible courses of action, including liquidation of the
Acquired Fund.
DESCRIPTION OF THE ACQUIRING FUND'S SHARES. Full and fractional shares of
beneficial interest of the respective Class of the Acquiring Fund will be issued
to the Acquired Fund in accordance with the procedures detailed in the Plan and
as described in the Acquiring Fund's Prospectus. Generally, the Acquiring Fund
does not issue share certificates to shareholders unless a specific request is
submitted to the Acquiring Fund's transfer agent. The shares of the Acquiring
Fund to be issued to the Acquired Fund shareholders and registered on the
shareholder records of the transfer agent will have no pre-emptive or conversion
rights. Class B shares of the Acquiring Fund will convert automatically to Class
A shares of such Fund eight years after the date of purchase, based on the
relative net asset values of shares of each Class and will, after such
conversion, not be subject to a distribution fee. Class B shares of the Acquired
Fund, however, convert automatically to Class A shares four years after the date
of purchase based on the relative net asset values of shares of each Class and,
after such conversion, will not be subject to a distribution fee. All Class B
shares of the Acquired Fund that are exchanged for Class B shares of the
Acquiring Fund in the Reorganization will retain the four years conversion
feature and will automatically convert to Class A shares of the Acquiring Fund
four years after the date that such shares were initially
12
<PAGE>
purchased (unless such shares were acquired through an exchange, in which case
such shares will retain the conversion feature of the fund from which the
exchange was made).
FEDERAL INCOME TAX CONSEQUENCES. The exchange of assets for shares of the
Acquiring Fund is intended to qualify for federal income tax purposes as a
tax-free reorganization under Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). As a condition to the closing of the
Reorganization, the Acquired Fund will receive an opinion from Willkie Farr &
Gallagher, counsel to both the Acquired Fund and the Acquiring Fund, to the
effect that, on the basis of the existing provisions of the Code, U.S. Treasury
regulations issued thereunder, current administrative rules, pronouncements and
court decisions, for federal income tax purposes, upon consummation of the
Reorganization:
(1) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund's shares and the assumption by the
Acquiring Fund of certain identified liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code, and the Acquiring Fund and the Acquired Fund are each a "party to
a reorganization" within the meaning of Section 368(b) of the Code;
(2) no gain or loss will be recognized by the Acquiring Fund upon the
receipt of the assets of the Acquired Fund in exchange for the Acquiring
Fund's shares and the assumption of certain identified liabilities of the
Acquired Fund;
(3) no gain or loss will be recognized by the Acquired Fund upon the
transfer of the Acquired Fund's assets to the Acquiring Fund in exchange for
the Acquiring Fund's shares and the assumption of certain identified
liabilities of the Acquired Fund or upon the distribution (whether actual or
constructive) of the Acquiring Fund's shares to the Acquired Fund's
shareholders;
(4) no gain or loss will be recognized by shareholders of the Acquired
Fund upon the exchange of their shares of the Acquired Fund for shares of
the Acquiring Fund and the assumption by the Acquiring Fund of certain
identified liabilities of the Acquired Fund;
(5) the aggregate tax basis for shares of the Acquiring Fund received by
each shareholder of the Acquired Fund pursuant to the Reorganization will be
the same as the aggregate tax basis of shares of the Acquired Fund held by
that shareholder immediately prior to the Reorganization, and the holding
period of shares of the Acquiring Fund to be received by each shareholder of
the Acquired Fund will include the
13
<PAGE>
period during which shares of the Acquired Fund exchanged therefor were held
by such shareholder (provided shares of the Acquired Fund were held as
capital assets on the date of the Reorganization); and
(6) the tax basis of the Acquired Fund's assets acquired by the
Acquiring Fund will be the same as the tax basis of such assets to the
Acquired Fund immediately prior to the Reorganization, and the holding
period of the assets of the Acquired Fund in the hands of the Acquiring Fund
will include the period during which those assets were held by the Acquired
Fund.
Shareholders of the Acquired Fund should consult their tax advisors
regarding the effect, if any, of the proposed Reorganization in light of their
individual circumstances. Since the foregoing discussion only relates to the
federal income tax consequences of the Reorganization, shareholders of the
Acquired Fund should also consult their tax advisors as to state and local tax
consequences, if any, of the Reorganization.
CAPITALIZATION. The following table shows the capitalization of the
Acquiring Fund and the Acquired Fund as of March 31, 1994, and on a pro forma
basis as of that date, giving effect to the proposed acquisition of assets at
net asset value.
<TABLE>
<CAPTION>
SMITH BARNEY
SHEARSON SMITH BARNEY
SHORT-TERM SHEARSON
WORLD INCOME GLOBAL BOND PRO FORMA FOR
FUND FUND REORGANIZATION
(UNAUDITED) (UNAUDITED) (UNAUDITED)
-------------- -------------- ---------------
<S> <C> <C> <C>
CLASS A SHARES
Net Assets............................ $ 43,717,219 $ 2,579,400 $ 46,296,619
Net asset value per share............. $ 6.40 $ 15.65 $ 15.65
Shares outstanding.................... 6,833,489 164,822 2,958,324
CLASS B SHARES
Net Assets............................ $ 22,151,207 $ 71,956,870 $ 94,108,077
Net asset value per share............. $ 6.40 $ 15.65 $ 15.65
Shares outstanding.................... 3,461,846 4,598,460 6,014,050
</TABLE>
As of the Record Date, May 16, 1994, there were 6,434,819 outstanding Class
A shares and 3,036,912 outstanding Class B shares of the Acquired Fund and
168,303 outstanding Class A shares, 4,512,221 outstanding Class B shares and
1,523 outstanding Class D shares of the Acquiring Fund. As of the Record Date,
the officers and Trustees of the Acquired Fund beneficially owned as a group
less than 1% of the outstanding shares of the Acquired Fund. To the best
knowledge of the Trustees of the Acquired Fund, as of the Record Date, no
shareholder or "group" (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934, as amended, (the "Exchange Act")) beneficially owned more
than 5% of the Acquired Fund. As
14
<PAGE>
of the Record Date, the officers and Trustees of Income Funds beneficially owned
as a group less than 1% of the outstanding shares of the Acquiring Fund. To the
best knowledge of the Trustees of Income Funds, as of the Record Date, no other
shareholder or "group" (as that term is used in Section 13(d) of the Exchange
Act) beneficially owned more than 5% of the Acquiring Fund.
COMPARISON OF INVESTMENT OBJECTIVES AND POLICIES
The following discussion comparing investment objectives, policies and
restrictions of the Acquiring Fund and the Acquired Fund is based upon and
qualified in its entirety by the respective investment objectives, policies and
restrictions sections of the Prospectuses of the Acquiring Fund and the Acquired
Fund. For a full discussion of the investment objectives, policies and
restrictions of the Acquiring Fund, refer to the Acquiring Fund's Prospectus,
which accompanies this Prospectus/Proxy Statement, under the caption "Investment
Objective and Management Policies," and for a discussion of these issues as they
apply to the Acquired Fund, refer to the Acquired Fund's Prospectus under the
caption "Investment Objective and Management Policies."
INVESTMENT OBJECTIVE. The investment objective of the Acquiring Fund is
current income and capital appreciation. The investment objective of the
Acquired Fund is the maximization of current income consistent with protection
of principal and relative stability of net asset value per share. Both the
Acquiring Fund's and the Acquired Fund's investment objectives are considered
fundamental policies which cannot be changed without shareholder approval.
PRIMARY INVESTMENTS. The Acquiring Fund invests primarily in high-quality
bonds, debentures and notes of foreign and domestic issuers. At least 85% of the
obligations of issuers in which the Acquiring Fund invests will have an
outstanding debt issue rated no lower than Aa by Moody's Investors Services,
Inc. ("Moody's") or AA by Standard & Poor's Ratings Group ("S&P") or comparable
unrated securities.
The Acquired Fund invests primarily in high-quality foreign and/or domestic
debt securities. The Acquired Fund will invest only in debt issues rated no
lower than Aa by Moody's or AA by S&P, or if unrated, deemed to be of comparable
quality by its investment adviser.
The Acquiring Fund and the Acquired Fund may both invest a substantial
portion of their net assets in the securities of foreign issuers and in
securities denominated in currencies other than the U.S. dollar. For a
discussion of the risks involved in investing in foreign securities and in
securities denominated
15
<PAGE>
in currencies other than the U.S. dollar, refer to "Investment Objective and
Management Policies -- Investment Policies and Strategies" in the accompanying
Prospectus of the Acquiring Fund.
The Acquired Fund is a non-diversified investment company which concentrates
its investments in the banking industry. The Acquiring Fund is a diversified
fund and does not have an industry concentration policy. Correspondingly,
shareholders of the Acquired Fund will, after the Reorganization, have a reduced
exposure to the risks associated with such restrictive investment policies as
non-diversification and industry concentration. As of April 30, 1994, the
Acquired Fund's investments had an average weighted maturity of 1.90 years
denominated in U.S. dollars and the Acquiring Fund's investments had an average
weighted maturity of 6.39 years denominated in U.S. dollars.
INVESTMENT TECHNIQUES. From time to time, each Fund may lend its portfolio
securities to brokers, dealers and other financial organizations. These loans
will not exceed 20% of each Fund's total assets taken at value. Loans of
portfolio securities by each Fund must be collateralized by cash, letters of
credit or obligations of the United States government and its agencies and
instrumentalities ("U.S. government securities") which are maintained at all
times in an amount equal to at least 100% of the current market value of the
loaned securities.
The Acquired Fund may invest in money market instruments, including U.S.
government securities and certain bank obligations. The Acquiring Fund may hold
up to 20% of its assets in such instruments and may invest in the same without
limitation for defensive purposes. Each Fund may also enter into repurchase
agreements with certain member banks of the Federal Reserve System and with
certain dealers on the Federal Reserve Bank of New York's list of reporting
dealers.
Both the Acquiring Fund and the Acquired Fund may enter into futures
contracts and options on futures contracts and may engage in currency exchange
transactions and purchase exchange traded put and call options on foreign
currencies. The Acquiring Fund may write covered call options on its portfolio
securities and enter into closing transactions with respect to such options,
purchase or sell portfolio securities on a when issued or delayed-delivery basis
and may purchase and sell put, call and other types of option securities that
are traded on domestic or foreign exchanges or over-the-counter. A detailed
discussion of the foregoing investment practices of the Acquiring Fund and their
associated risks can be found under the caption "Investment Objective and
Management Policies" in the Acquiring Fund's Prospectus, which accompanies this
Prospectus/Proxy Statement.
16
<PAGE>
INFORMATION ON SHAREHOLDERS' RIGHTS
GENERAL. Income Funds and the Acquired Fund are open-end management
investment companies registered under the 1940 Act which continuously offer to
sell shares at their current net asset value. The Acquiring Fund is a separate
series of Income Funds, which is organized as a business trust under the laws of
The Commonwealth of Massachusetts and is governed by a Master Trust Agreement,
By-laws and Board of Trustees. The Acquired Fund is also organized as a business
trust under the laws of The Commonwealth of Massachusetts and is also governed
by a Master Trust Agreement, By-laws and Board of Trustees. Both Funds are also
governed by applicable state and federal law.
TRUSTEES. Under the Master Trust Agreement of each of Income Funds and the
Acquired Fund, persons serving as Trustees will continue as Trustees for the
duration of each of the Fund's existence until they resign, die or are removed
by a written instrument, signed by at least two-thirds of the Trustees or by
vote of the shareholders holding not less than two-thirds of the shares then
outstanding, cast in person or by proxy at any meeting called for that purpose
or by a written declaration signed by the shareholders holding not less than
two-thirds of the shares then outstanding and filed with the Fund's custodian.
Vacancies on the Boards of either Income Funds or the Acquired Fund may be
filled by a majority of the Trustees remaining in office. A meeting of
shareholders will be required for the purpose of electing additional Trustees
whenever fewer than a majority of the Trustees then in office were elected by
shareholders.
SHAREHOLDER LIABILITY. Under Massachusetts law, shareholders of Income
Funds and the Acquired Fund may, under certain circumstances, be held personally
liable for the obligations of either Income Funds or the Acquired Fund,
respectively. The Acquired Fund's and Income Funds' Master Trust Agreements,
however, both disclaim shareholder liability for acts or obligations of the
Acquiring Fund or the Acquired Fund, as the case may be, and require that notice
of such disclaimer be given in each agreement, obligation or instrument entered
into or executed by Income Funds or the Acquired Fund, as the case may be. The
Master Trust Agreement for each of the Acquired Fund and Income Funds provides
for indemnification out of the Acquired Fund's or a series of Income Funds'
property, as the case may be, for all losses and expenses of any shareholder
held personally liable for the obligations of either the Acquired Fund or the
series of Income Funds, as the case may be. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is considered
remote since it is limited to circumstances in which a disclaimer is inoperative
and the Acquired Fund or the series of Income Funds itself, as the case may be,
would be unable to meet its obligations. A substantial number of mutual funds in
the United States are organized as Massachusetts business trusts.
17
<PAGE>
VOTING RIGHTS. Neither Income Funds nor the Acquired Fund holds annual
meetings of shareholders. However, special meetings of shareholders of each of
the Funds must be called upon the written request of holders of not less than
10% of the then outstanding voting securities of the respective Fund. On each
matter submitted to a vote of the shareholders of either the Acquired Fund or
Income Funds, each shareholder is entitled to one vote for each whole share
owned and a proportionate fractional vote for any fractional share outstanding
in the shareholder's name on the Fund's books. Shares of each series of Income
Funds votes as a separate class except as to the election of Trustees and as
otherwise required by the 1940 Act. As to any matter which does not affect the
interest of a particular series, only the holders of shares of the one or more
series are entitled to vote.
LIQUIDATION OR DISSOLUTION. In the event of the liquidation or dissolution
of the Acquiring Fund or the Acquired Fund, the shareholders of either Fund are
entitled to receive, when, and as declared by the Trustees, the excess of the
assets belonging to the Fund over the liabilities belonging to the Fund. In
either case, the assets so distributed to shareholders of the Fund will be
distributed among the shareholders in proportion to the number of shares of the
Fund held by them and recorded on the books of the Fund.
LIABILITY OF TRUSTEES. Under the Master Trust Agreement of each of Income
Funds and the Acquired Fund, a Trustee will be personally liable only for his or
her own willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of the office of Trustee. The Master Trust
Agreements of each Fund further provide that Trustees and officers will be
indemnified for the expenses of litigation against them unless it is determined
that the person did not act in good faith in the reasonable belief that the
person's actions were in or not opposed to the best interests of the Fund or the
person's conduct is determined to constitute willful misfeasance, bad faith,
gross negligence or reckless disregard of the person's duties.
RIGHTS OF INSPECTION. Shareholders of the Acquiring Fund and the Acquired
Fund have the same inspection rights as are permitted shareholders of a
Massachusetts corporation under Massachusetts corporate law. Currently, each
shareholder of a Massachusetts corporation is permitted to inspect the records,
accounts and books of a corporation for any legitimate business purpose.
The foregoing is only a summary of certain characteristics of the operations
of the Acquired Fund and the Acquiring Fund, the Master Trust Agreements of the
Acquired Fund and Income Funds, their respective By-laws and Massachusetts law.
The foregoing is not a complete description of the documents cited. Shareholders
should refer to the provisions of the corporate documents and state laws
governing each of the Funds for a more thorough description.
18
<PAGE>
ADDITIONAL INFORMATION ABOUT
SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND
AND
SMITH BARNEY SHEARSON GLOBAL BOND FUND
SMITH BARNEY SHORT-TERM WORLD INCOME FUND. Information about the Acquired
Fund is included in its current Prospectus dated September 1, 1993, as
supplemented by Prospectus Supplements dated January 3, 1994, February 1, 1994
and April 1, 1994, and in the statement of additional information that has been
filed with the SEC, both of which are incorporated herein by reference. A copy
of the Prospectus and the statement of additional information is available upon
request and without charge by writing the Acquired Fund at the address listed on
the cover page of this Prospectus/Proxy Statement or by calling toll-free
1-800-221-8806.
SMITH BARNEY SHEARSON GLOBAL BOND FUND. Information concerning the
operation and management of the Acquiring Fund is incorporated herein by
reference from the Prospectus dated December 1, 1993, as supplemented by
Prospectus Supplements dated December 20, 1993, January 21, 1994 and April 5,
1994, and statement of additional information dated December 1, 1993. A copy of
such statement of additional information is available upon request and without
charge by writing the Acquiring Fund at the address listed on the cover page of
this Prospectus/Proxy Statement or by calling toll-free 1-800-221-8806.
Both the Acquiring Fund and the Acquired Fund are subject to the
informational requirements of the Exchange Act and in accordance therewith file
reports and other information including proxy material, reports and charter
documents with the SEC. These materials can be inspected and copies obtained at
the Public Reference Facilities maintained by the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the New York Regional Office of the SEC at 75 Park
Place, New York, New York 10007. Copies of such material can also be obtained
from the Public Reference Branch, Office of Consumer Affairs and Information
Services, SEC, Washington, D.C. 20549 at prescribed rates.
OTHER BUSINESS
The Trustees of the Acquired Fund do not intend to present any other
business at the Meeting. If, however, any other matters are properly brought
before the Meeting, the persons named in the accompanying form of proxy will
vote thereon in accordance with their judgment.
19
<PAGE>
VOTING INFORMATION
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of Trustees of the Acquired Fund to be used
at the Special Meeting of Shareholders to be held at 10:00 a.m. on July 5, 1994,
at Two World Trade Center, New York, New York 10048-0002 and at any adjournment
thereof. This Prospectus/Proxy Statement, along with a Notice of the Meeting and
a proxy card, is first being mailed to shareholders of the Acquired Fund on or
about June 2, 1994. Only shareholders of record as of the close of business on
the Record Date will be entitled to notice of, and to vote at the Meeting or any
adjournment thereof. The holders of a majority of the shares of the Acquired
Fund outstanding at the close of business on the Record Date present in person
or represented by proxy will constitute a quorum for the Meeting. For purposes
of determining the presence of a quorum for transacting business at the Meeting,
abstention and broker "non-votes" (that is, proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owner or other persons entitled to vote the shares with respect to which the
brokers or nominees do not have discretionary power) will be treated as shares
that are present but which have not been voted. For this reason, abstentions and
broker non-votes will have the effect of a "no" vote for purposes of obtaining
the requisite approval of the Plan. If the enclosed form of proxy is properly
executed and returned in time to be voted at the Meeting, the proxies named
therein will vote the shares represented by the proxy in accordance with the
instructions marked thereon. Unmarked proxies will be voted FOR the proposed
Reorganization and FOR any other matters deemed appropriate. A proxy may be
revoked at any time on or before the Meeting by written notice to the Secretary
of the Acquired Fund, Christina T. Sydor, 1345 Avenue of the Americas, New York,
New York 10105. Unless revoked, all valid proxies will be voted in accordance
with the specifications thereon or, in the absence of such specifications, for
approval of the Plan and the Reorganization contemplated thereby.
Approval of the Plan will require the affirmative vote of a majority, as
defined in the 1940 Act, of the outstanding voting securities of the Acquired
Fund, which is the lesser of: (i) 67% of the voting securities of the Acquired
Fund present at the Meeting, if the holders of more than 50% of the outstanding
voting securities of the Acquired Fund are present or represented by proxy; or
(ii) more than 50% of the outstanding voting securities of the Acquired Fund.
Shareholders of the Acquired Fund are entitled to one vote for each share.
Fractional shares are entitled to proportional voting rights.
Proxy solicitations will be made primarily by mail, but proxy solicitations
also may be made by telephone, telegraph or personal interviews conducted by
officers and employees of the Acquired Fund, Smith Barney Shearson,
20
<PAGE>
SBGCM, Smith Barney Advisors, Boston Advisors and/or The Shareholer Services
Group, Inc., a subsidiary of First Data Corporation. The aggregate cost of
solicitation of the shareholders of the Acquired Fund is expected to be
approximately $15,000. Expenses incurred in connection with the Reorganization,
including the costs of the proxy solicitation and the preparation of the
enclosures to the Prospectus/Proxy Statement (including reimbursement of
expenses of forwarding solicitation material to beneficial owners of shares of
the Acquired Fund) and expenses incurred in connection with the preparation of
this Prospectus/Proxy Statement, will be borne by the Acquiring Fund and the
Acquired Fund in proportion to their assets.
In the event that sufficient votes to approve the Reorganization are not
received by July 5, 1994, the persons named as proxies may propose one or more
adjournments of the Meeting to permit further solicitation of proxies. In
determining whether to adjourn the Meeting, the following factors may be
considered: the percentage of votes actually cast, the percentage of negative
votes actually cast, the nature of any further solicitation and the information
to be provided to shareholders with respect to the reasons for the solicitation.
Any such adjournment will require an affirmative vote by the holders of a
majority of the shares present in person or by proxy and entitled to vote at the
Meeting. The persons named as proxies will vote upon a decision to adjourn the
Meeting.
The votes of the shareholders of the Acquiring Fund are not being solicited
by this Prospectus/Proxy Statement.
FINANCIAL STATEMENTS AND EXPERTS
The statement of assets and liabilities of the Acquired Fund, including the
schedule of portfolio investments, as of April 30, 1993 the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the condensed financial
information for each of the two years in the period ended April 30, 1993 and for
the period from May 22, 1990 (commencement of operations) to April 30, 1991, and
the statement of assets and liabilities of the Acquiring Fund, including the
schedule of portfolio investments, as of July 31, 1993, the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended and the financial highlights for
each of the six years in the period then ended and for the period October 27,
1986 (commencement of operations) to July 31, 1987 have been incorporated by
reference into this Prospectus/Proxy Statement in reliance on the reports of
Coopers & Lybrand, independent accountants, given on the authority of such firm
as experts in accounting and auditing. In addition, the unaudited financial
statements for the Acquired Fund for the semi-annual period ended October 31,
1993 are incorporated by reference.
21
<PAGE>
LEGAL MATTERS
Certain legal matters concerning the issuance of shares of the Acquiring
Fund will be passed upon by Willkie Farr & Gallagher, One Citicorp Center, 153
East 53rd Street, New York, New York 10022.
THE BOARD OF TRUSTEES OF THE ACQUIRED FUND, INCLUDING THE INDEPENDENT
TRUSTEES, RECOMMEND APPROVAL OF THE PLAN, AND ANY UNMARKED PROXIES WITHOUT
INSTRUCTIONS TO THE CONTRARY WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
22
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of
this 1st day of June, 1994, by and between SMITH BARNEY SHEARSON SHORT-TERM
WORLD INCOME FUND (the "Acquired Fund"), a business trust organized under the
laws of The Commonwealth of Massachusetts, with its principal place of business
at Two World Trade Center, New York, New York 10048, and SMITH BARNEY SHEARSON
INCOME FUNDS ("Income Funds"), a business trust organized under the laws of The
Commonwealth of Massachusetts, with its principal place of business at Two World
Trade Center, New York, New York 10048, on behalf of SMITH BARNEY SHEARSON
GLOBAL BOND FUND (the "Acquiring Fund"), a series of Income Funds.
This Agreement is intended to be and is adopted as a plan of reorganization
and liquidation within the meaning of Section 368(a)(1)(C) of the United States
Internal Revenue Code of 1986, as amended (the "Code"). The reorganization (the
"Reorganization") will consist of the transfer of all or substantially all of
the assets of the Acquired Fund in exchange solely for Class A and Class B
shares of beneficial interest of the Acquiring Fund (the "Acquiring Fund
Shares") and the assumption by the Acquiring Fund of certain liabilities of the
Acquired Fund and the distribution, after the Closing Date herein referred to,
of Acquiring Fund Shares to the shareholders of the Acquired Fund in liquidation
of the Acquired Fund and the dissolution and termination of the Acquired Fund,
all upon the terms and conditions hereinafter set forth in this Agreement.
WHEREAS, Income Funds and the Acquired Fund are registered investment
companies of the management type and both Income Funds and the Acquired Fund are
authorized to issue shares of beneficial interest;
WHEREAS, the Board of Trustees of the Acquired Fund has determined that the
exchange of all or substantially all of the assets and certain of the
liabilities of the Acquired Fund for Acquiring Fund Shares and the assumption of
such liabilities by the Acquiring Fund is in the best interests of the Acquired
Fund shareholders and that the interests of the existing shareholders of the
Acquired Fund would not be diluted as a result of this transaction;
WHEREAS, the Board of Trustees of Income Funds has determined that the
exchange of all or substantially all of the assets and certain of the
liabilities of the Acquired Fund for Acquiring Fund Shares and the assumption of
such liabilities by the Acquiring Fund is in the best interests of the Acquiring
Fund shareholders and that the interests of the existing shareholders of the
Acquiring Fund would not be diluted as a result of this transaction;
A-1
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE
FOR ACQUIRING FUND SHARES AND ASSUMPTION OF THE ACQUIRED FUND'S STATED
LIABILITIES AND LIQUIDATION, DISSOLUTION AND TERMINATION OF THE ACQUIRED
FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer the Acquired Fund's assets as set forth in paragraph 1.2 to the
Acquiring Fund, and the Acquiring Fund agrees in exchange therefor: (i) to
deliver to the Acquired Fund the number of Class A Acquiring Fund Shares,
including fractional Class A Acquiring Fund Shares, determined by dividing the
value of the Acquired Fund's net assets attributable to its Class A shares,
computed in the manner and as of the time and date set forth in paragraph 2.1,
by the net asset value of one Acquiring Fund Class A Share, computed in the
manner and as of the time and date set forth in paragraph 2.2; (ii) to deliver
to the Acquired Fund the number of Class B Acquiring Fund Shares, including
fractional Class B Acquiring Fund Shares, determined by dividing the value of
the Acquired Fund's net assets attributable to its Class B shares, computed in
the manner and as of the time and date set forth in paragraph 2.1, by the net
asset value of one Acquiring Fund Class B Share, computed in the manner and as
of the time and date set forth in paragraph 2.2; and (iii) to assume certain
liabilities of the Acquired Fund, as set forth in paragraph 1.3. Such
transactions shall take place at the closing provided for in paragraph 3.1 (the
"Closing").
1.2. (a) The assets of the Acquired Fund to be acquired by the Acquiring
Fund shall consist of all property, including without limitation, all cash,
securities and dividends or interest receivables which are owned by the Acquired
Fund and any deferred or prepaid expenses shown as an asset on the books of the
Acquired Fund on the closing date provided in paragraph 3.1 (the "Closing
Date").
(b) The Acquired Fund has provided the Acquiring Fund with a list of
all of the Acquired Fund's assets as of the date of execution of this Agreement.
The Acquired Fund reserves the right to sell any of the securities consisting a
part of such assets, but will not, without the prior approval of the Acquiring
Fund, acquire any additional securities other than securities of the type in
which the Acquiring Fund is permitted to invest. The Acquiring Fund will, within
a reasonable time prior to the Closing Date, furnish the Acquired Fund with a
statement of the Acquiring Fund's investment objectives, policies and
restrictions and a list of the securities, if any, on the Acquired Fund's list
referred to in the first sentence of this paragraph which do not conform to the
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Acquiring Fund's investment objectives, policies and restrictions. In the event
that the Acquired Fund holds any investments which the Acquiring Fund may not
hold, the Acquired Fund will dispose of such securities prior to the Closing
Date. In addition, if it is determined that the portfolios of the Acquired Fund
and the Acquiring Fund, when aggregated, would contain investments exceeding
certain percentage limitations imposed upon the Acquiring Fund with respect to
such investments, the Acquired Fund if requested by the Acquiring Fund will
dispose of and/or reinvest a sufficient amount of such investments as may be
necessary to avoid violating such limitations as of the Closing Date.
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date. The Acquiring Fund
shall assume all liabilities, expenses, costs, charges and reserves reflected on
an unaudited Statement of Assets and Liabilities of the Acquired Fund prepared
by The Boston Company Advisors, Inc. ("Boston Advisors"), as sub-administrator
of the Acquiring Fund and the Acquired Fund, as of the Valuation Date (as
defined in paragraph 2.1), in accordance with generally accepted accounting
principles consistently applied from the prior audited period. The Acquiring
Fund shall assume only those liabilities of the Acquired Fund reflected in and
quantified on the face of that unaudited Statement of Assets and Liabilities and
shall not assume any other liabilities, whether absolute or contingent, not
reflected thereon.
1.4. As soon after the Closing Date as is conveniently practicable (the
"Liquidation Date"), the Acquired Fund will liquidate and distribute pro rata to
the Acquired Fund's shareholders of record determined as of the close of
business on the Closing Date (the "Acquired Fund Shareholders"), the Acquiring
Fund Shares it receives pursuant to paragraph 1.1. Such liquidation and
distribution will be accomplished by the transfer of the Acquiring Fund Shares
then credited to the account of the Acquired Fund on the books of the Acquiring
Fund to open accounts on the share records of the Acquiring Fund in the name of
the Acquired Fund's shareholders and representing the respective pro rata number
of the Acquiring Fund Shares due such shareholders. All issued and outstanding
shares of the Acquired Fund will simultaneously be cancelled on the books of the
Acquired Fund, although share certificates representing interests in the
Acquired Fund will represent a number of Acquiring Fund Shares after the Closing
Date as determined in accordance with paragraph 1.1. The Acquiring Fund shall
not issue certificates representing the Acquiring Fund Shares in connection with
such exchange.
1.5. Ownership of Acquiring Fund Shares will be shown on the books of the
Acquiring Fund's transfer agent. Acquiring Fund Shares will be issued in the
manner described in the Acquiring Fund's current prospectus and statement of
additional information.
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1.6. Any transfer taxes payable upon issuance of the Acquiring Fund Shares
in a name other than the registered holder of the Acquired Fund shares on the
books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.7. Any reporting responsibility of the Acquired Fund is and shall remain
the responsibility of the Acquired Fund up to and including the Closing Date and
such later dates on which the Acquired Fund is dissolved and deregistered.
1.8. The Acquired Fund shall be dissolved and terminated under the relevant
laws of its state of organization and in accordance with its governing
documents, promptly following the Closing Date and the making of all
distributions pursuant to paragraph 1.4.
2. VALUATION
2.1. The value of the Acquired Fund's assets to be acquired by the
Acquiring Fund hereunder shall be the value of such assets computed as of the
close of regular trading on the New York Stock Exchange, Inc. (the "NYSE") on
the Closing Date (such time and date being hereinafter called the "Valuation
Date"), using the valuation procedures set forth in Income Funds' Master Trust
Agreement and the Acquiring Fund's then current prospectus or statement of
additional information.
2.2. The net asset value of Acquiring Fund Shares shall be the net asset
value per share computed as of the close of regular trading on the NYSE on the
Valuation Date, using the valuation procedures set forth in Income Funds' Master
Trust Agreement and the Acquiring Fund's then current prospectus or statement of
additional information.
2.3. All computations of value shall be made by Boston Advisors in
accordance with its regular practice as pricing agent for the Acquiring Fund.
2.4. In carrying out the valuations and calculations required in this
section, Acquiring Fund Class A Shares shall be issued only to the extent of the
value of the assets of the Acquired Fund representing the pro rata interest of
Class A shares of the Acquired Fund. Acquiring Fund Class B Shares shall be
issued only to the extent of the value of the assets of the Acquired Fund
representing the pro rata interest of Class B shares of the Acquired Fund.
3. CLOSING AND CLOSING DATE
3.1. The Closing Date shall be July 15, 1994, or such later date as the
parties may agree to in writing. All acts taking place at the Closing shall be
deemed to take place simultaneously as of the close of business on the Closing
Date unless otherwise provided. The Closing shall be held as of
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5:00 p.m. at the offices of Boston Advisors, One Boston Place, Boston,
Massachusetts 02108, or at such other time and/or place as the parties may
agree.
3.2. Boston Safe Deposit and Trust Company, as custodian for the Acquiring
Fund (the "Custodian"), shall deliver at the Closing a certificate of an
authorized officer stating that: (a) the Acquired Fund's portfolio securities,
cash and any other assets shall have been delivered in proper form to the
Acquiring Fund within two business days prior to or on the Closing Date and (b)
all necessary transfer taxes including all applicable federal and state stock
transfer stamps, if any, shall have been paid, or provision for payment shall
have been made, in conjunction with the delivery of portfolio securities.
3.3. In the event that on the Valuation Date (a) the NYSE or another
primary trading market for portfolio securities of the Acquiring Fund or the
Acquired Fund shall be closed to trading or trading thereon shall be restricted
or (b) trading or the reporting of trading on the NYSE or elsewhere shall be
disrupted so that accurate appraisal of the value of the net assets of the
Acquiring Fund or the Acquired Fund is impracticable, the Closing Date shall be
postponed until the first business day after the day when trading shall have
been fully resumed and reporting shall have been restored.
3.4. The Acquired Fund shall deliver at the Closing a list of the names and
addresses of the Acquired Fund's shareholders and the number, class and
percentage ownership of outstanding shares owned by each such shareholder
immediately prior to the Closing, certified on behalf of the Acquired Fund by
its President. The Acquiring Fund shall issue and deliver a confirmation
evidencing the Acquiring Fund Shares to be credited on the Closing Date to the
Secretary of the Acquired Fund, or provide evidence satisfactory to the Acquired
Fund that such Acquiring Fund Shares have been credited to the Acquired Fund's
account on the books of the Acquiring Fund. At the Closing, each party shall
deliver to the other such bills of sale, checks, assignments, share
certificates, if any, receipts or other documents as such other party or its
counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES
4.1. The Acquired Fund represents and warrants to Income Funds and the
Acquiring Fund as follows:
(a) The Acquired Fund is a business trust, duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts;
(b) The Acquired Fund is a registered investment company classified as a
management company of the open-end type, and its registration
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with the Securities and Exchange Commission (the "Commission") as an
investment company under the Investment Company Act of 1940, as amended (the
"1940 Act") is in full force and effect;
(c) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in a material violation of
its Master Trust Agreement or By-laws or of any agreement, indenture,
instrument, contract, lease or other undertaking to which the Acquired Fund
is a party or by which it is bound;
(d) The Acquired Fund has no material contracts or other commitments
(other than this Agreement) which will be terminated with liability to it
prior to the Closing Date;
(e) Except as otherwise disclosed in writing to and accepted by the
Acquiring Fund, no litigation or administrative proceeding or investigation
of or before any court or governmental body is presently pending or to its
knowledge threatened against the Acquired Fund or any of its properties or
assets (other than that previously disclosed to the other party to the
Agreement) which, if adversely determined, would materially and adversely
affect its financial condition or the conduct of its business. The Acquired
Fund knows of no facts which might form the basis for the institution of
such proceedings and is not a party to or subject to the provisions of any
order, decree or judgment of any court or governmental body which materially
and adversely affects its business or its ability to consummate the
transactions herein contemplated;
(f) The Statements of Assets and Liabilities of the Acquired Fund for
the fiscal period from May 22, 1990 (commencement of operations) through
April 30, 1991 and for the fiscal years ended April 30, 1992 through April
30, 1993 have been audited by Coopers & Lybrand, certified public
accountants, and are in accordance with generally accepted accounting
principles consistently applied, and such statements (copies of which have
been furnished to the Acquiring Fund) fairly reflect the financial condition
of the Acquired Fund as of such dates, and there are no known contingent
liabilities of the Acquired Fund as of such dates not disclosed therein;
(g) Since April 30, 1993, there has not been any material adverse change
in the Acquired Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquired Fund of indebtedness maturing more than one year
from the date that such indebtedness was incurred, except as otherwise
disclosed to and accepted by the Acquiring Fund.
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For the purposes of this subparagraph (g), a decline in net asset value per
share of the Acquired Fund shall not constitute a material adverse change;
(h) At the Closing Date, all material federal and other tax returns and
reports of the Acquired Fund required by law then to have been filed by such
dates shall have been filed, and all federal and other taxes shown as due on
such returns shall have been paid so far as due, or provision shall have
been made for the payment thereof and, to the best of the Acquired Fund's
knowledge, no such return is currently under audit and no assessment has
been asserted with respect to such returns;
(i) For the most recent fiscal year and for the current year of its
operation, the Acquired Fund has met the requirements of Subchapter M of the
Code for qualification and treatment as a regulated investment company;
(j) All issued and outstanding shares of the Acquired Fund are, and at
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable. All of the issued and outstanding shares of the
Acquired Fund will, at the time of Closing, be held by the persons and in
the amounts set forth in the records of the transfer agent as provided in
paragraph 3.4. The Acquired Fund does not have outstanding any options,
warrants or other rights to subscribe for or purchase any of the Acquired
Fund's shares, nor is there outstanding any security convertible into any of
the Acquired Fund's shares;
(k) At the Closing Date, the Acquired Fund will have good and marketable
title to its assets to be transferred to the Acquiring Fund pursuant to
paragraph 1.2 and full right, power and authority to sell, assign, transfer
and deliver such assets hereunder and, upon delivery and payment for such
assets, the Acquiring Fund will acquire good and marketable title thereto,
subject to no restrictions on the full transfer thereof, including such
restrictions as might arise under the Securities Act of 1933, as amended
(the "1933 Act"), other than as disclosed to the Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action on the part of the Acquired Fund's
Board of Trustees, and subject to the approval of the Acquired Fund's
shareholders, this Agreement will constitute a valid and binding obligation
of the Acquired Fund, enforceable in accordance with its terms, subject as
to enforcement, to bankruptcy, insolvency, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
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(m) The information to be furnished by the Acquired Fund for use in
no-action letters, applications for exemptive orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations thereunder applicable
thereto; and
(n) The proxy statement of the Acquired Fund (the "Proxy Statement") to
be included in the Registration Statement referred to in paragraph 5.7
(other than information therein that relates to the Acquiring Fund) will, on
the effective date of the Registration Statement and on the Closing Date,
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such
statements were made, not materially misleading.
4.2. Income Funds and the Acquiring Fund represent and warrant to the
Acquired Fund as follows:
(a) The Acquiring Fund is a series of Income Funds which is a business
trust, duly organized, validly existing and in good standing under the laws
of The Commonwealth of Massachusetts;
(b) Income Funds is a registered investment company classified as a
management company of the open-end type and its registration with the
Commission as an investment company under the 1940 Act is in full force and
effect;
(c) The current prospectus of the Acquiring Fund and statement of
additional information of Income Funds conform in all material respects to
the applicable requirements of the 1933 Act and the 1940 Act and the rules
and regulations of the Commission thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not materially misleading;
(d) At the Closing Date, Income Funds will have good and marketable
title to the Acquiring Fund's assets;
(e) Income Funds is not, and the execution, delivery and performance of
this Agreement will not result, in a material violation of its Master Trust
Agreement or By-laws or of any agreement, indenture, instrument, contract,
lease or other undertaking with respect to the Acquiring Fund to which
Income Funds is a party or by which it is bound;
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(f) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or threatened against Income Funds with respect to the Acquiring
Fund or any of the Acquiring Fund's properties or assets, except as
previously disclosed in writing to the Acquired Fund. Income Funds and the
Acquiring Fund know of no facts which might form the basis for the
institution of such proceedings and neither Income Funds nor the Acquiring
Fund is a party to or subject to the provisions of any order, decree or
judgment of any court or governmental body which materially and adversely
affects the Acquiring Fund's business or Income Funds' ability on behalf of
the Acquiring Fund to consummate the transactions contemplated herein;
(g) The Statement of Assets and Liabilities of the Acquiring Fund for
the fiscal period from October 27, 1986 (commencement of operations) through
July 31, 1987 and for the fiscal years ended July 31, 1988 through July 31,
1993 have been audited by Coopers & Lybrand, certified public accountants,
and are in accordance with generally accepted accounting principles
consistently applied, and such statements (copies of which have been
furnished to the Acquired Fund) fairly reflect the financial condition of
the Acquiring Fund as of such dates, and there are no known contingent
liabilities of the Acquiring Fund as of such dates not disclosed therein;
(h) Since July 31, 1993, there has not been any material adverse change
in the Acquiring Fund's financial condition, assets, liabilities or business
other than changes occurring in the ordinary course of business, or any
incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date that such indebtedness was incurred. For the purposes of this
subparagraph (h), a decline in net asset value per share of the Acquiring
Fund shall not constitute a material adverse change;
(i) At the Closing Date, all material federal and other tax returns and
reports of the Acquiring Fund required by law then to have been filed by
such dates shall have been filed, and all federal and other taxes shown as
due on said returns shall have been paid so far as due, or provision shall
have been made for the payment thereof and, to the best of the Acquiring
Fund's knowledge, no such return is currently under audit and no assessment
has been asserted with respect to such returns;
(j) For the most recent fiscal year and for the current year of its
operation, the Acquiring Fund has met the requirements of Subchapter M of
the Code for qualification and treatment as a regulated investment company
and the Acquiring Fund intends to do so in the future;
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(k) At the date hereof, all issued and outstanding Acquiring Fund Shares
are, and at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable, with no personal liability
attaching to the ownership thereof. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any shares of the Acquiring Fund, nor is there outstanding any
security convertible into any shares of the Acquiring Fund;
(l) The execution, delivery and performance of this Agreement has been
duly authorized by all necessary action, on the part of Income Funds' Board
of Trustees and, assuming due authorization, execution and delivery by the
Acquired Fund, this Agreement constitutes a valid and binding obligation of
Income Funds on behalf of the Acquiring Fund, enforceable in accordance with
its terms, subject as to enforcement, to bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(m) The Acquiring Fund Shares to be issued and delivered to the Acquired
Fund, for the account of the Acquired Fund's Shareholders, pursuant to the
terms of this Agreement, will at the Closing Date have been duly authorized
and, when so issued and delivered, will be duly and validly issued Acquiring
Fund Shares, and will be fully paid and non-assessable with no personal
liability attaching to the ownership thereof;
(n) The information to be furnished by the Acquiring Fund for use in
no-action letters, applications for exemptive orders, registration
statements, proxy materials and other documents which may be necessary in
connection with the transactions contemplated hereby shall be accurate and
complete in all material respects and shall comply in all material respects
with federal securities and other laws and regulations applicable thereto;
(o) The Proxy Statement to be included in the Registration Statement
(only insofar as it relates to in formation provided by the Acquiring Fund
and Income Funds specifically for inclusion therein) will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; and
(p) Income Funds, on behalf of the Acquiring Fund, agrees to use all
reasonable efforts to obtain the approvals and authorizations required by
the 1933 Act, the 1940 Act and such of the state Blue Sky or securities laws
as it may deem appropriate in order to continue the Acquiring Fund's
operations after the Closing Date.
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5. COVENANTS OF THE ACQUIRED FUND, INCOME FUNDS AND
THE ACQUIRING FUND
5.1. The Acquired Fund and Income Funds on behalf of the Acquiring Fund
each will operate its business in the ordinary course between the date hereof
and the Closing Date, it being understood that such ordinary course of business
will include the declaration and payment of customary dividends and
distributions and any other dividends and distributions deemed advisable.
5.2. The Acquired Fund will call a meeting of its shareholders to consider
and act upon this Agreement and to take all other action necessary to obtain
approval of the transactions contemplated herein.
5.3. The Acquired Fund covenants that the Acquiring Fund Shares to be
issued hereunder are not being acquired for the purpose of making any
distribution thereof other than in accordance with the terms of this Agreement.
5.4. The Acquired Fund will assist Income Funds and the Acquiring Fund in
obtaining such information as the Acquiring Fund reasonably requests concerning
the beneficial ownership of the Acquired Fund's shares.
5.5. Subject to the provisions of this Agreement, the Acquired Fund and
Income Funds on behalf of the Acquiring Fund each will take, or cause to be
taken, all action, and do or cause to be done, all things reasonably necessary,
proper or advisable to consummate and make effective the transactions
contemplated by this Agreement.
5.6. As promptly as practicable, but in any case within sixty days after
the Closing Date, the Acquired Fund shall furnish the Acquiring Fund, in such
form as is reasonably satisfactory to the Acquiring Fund, a statement of the
earnings and profits of the Acquired Fund for federal income tax purposes which
will be carried over to the Acquiring Fund as a result of Section 381 of the
Code, and which will be certified by the Acquired Fund's President and its
Treasurer.
5.7. The Acquired Fund will provide the Acquiring Fund with information
reasonably necessary for the preparation of a prospectus (the "Prospectus")
which will include the Proxy Statement, referred to in paragraph 4.1(n), all to
be included in a Registration Statement on Form N-14 of the Acquiring Fund (the
"Registration Statement"), in compliance with the 1933 Act, the Securities
Exchange Act of 1934 (the "1934 Act") and the 1940 Act in connection with the
meeting of the Acquired Fund's shareholders to consider approval of this
Agreement and the transactions contemplated herein.
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6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED
FUND
The obligations of the Acquired Fund to consummate the transactions provided
for herein shall be subject, at its election, to the performance by Income Funds
and the Acquiring Fund of all of the obligations to be performed by them
hereunder on or before the Closing Date and, in addition thereto, the following
further conditions:
6.1. All representations and warranties of Income Funds and the Acquiring
Fund contained in this Agreement shall be true and correct in all material
respects as of the date hereof and, except as they may be affected by the
transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date;
6.2. Income Funds on behalf of the Acquiring Fund shall have delivered to
the Acquired Fund a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in a form reasonably
satisfactory to the Acquired Fund and dated as of the Closing Date, to the
effect that the representations and warranties of Income Funds and the Acquiring
Fund made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement and as to such other matters as the Acquired Fund shall reasonably
request; and
6.3. The Acquired Fund shall have received on the Closing Date a favorable
opinion from Willkie Farr & Gallagher, counsel to the Acquiring Fund, dated as
of the Closing Date, in a form reasonably satisfactory to Christina T. Syder,
Esq., Secretary of the Acquired Fund, covering the following points:
That (a) the Acquiring Fund is a series of Income Funds which is a
business trust duly organized, validly existing and in good standing under
the laws of The Commonwealth of Massachusetts and has the power, under its
Master Trust Agreement, to own all of its properties and assets and to carry
on its business as presently conducted; (b) this Agreement has been duly
authorized, executed and delivered by Income Funds on behalf of the
Acquiring Fund and, assuming that the Prospectus, Registration Statement and
Proxy Statement comply with the 1933 Act, the 1934 Act and the 1940 Act and
the rules and regulations thereunder and, assuming due authorization,
execution and delivery of the Agreement by the Acquired Fund, is a valid and
binding obligation of Income Funds on behalf of the Acquiring Fund
enforceable against Income Funds in accordance with its terms, subject as to
enforcement, to
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bankruptcy, insolvency, reorganization, moratorium and other laws relating
to or affecting creditors' rights generally and to general equity
principles; (c) the Acquiring Fund Shares to be issued to the Acquired
Fund's shareholders as provided by this Agreement are duly authorized and
upon such delivery will be validly issued and outstanding and are fully paid
and non-assessable with no personal liability attaching to ownership
thereof, and no shareholder of the Acquiring Fund has any preemptive rights
to subscription or purchase in respect thereof; (d) the execution and
delivery of this Agreement did not, and the consummation of the transactions
contemplated hereby will not, result in a material violation of Income
Funds' Master Trust Agreement or By-laws or any provision of any agreement
(known to such counsel) to which Income Funds is a party with respect to the
Acquiring Fund or by which it is bound or, to the knowledge of such counsel,
result in the acceleration of any obligation or the imposition of any
penalty, under any agreement, judgment, or decree to which Income Funds is a
party with respect to the Acquiring Fund or by which it is bound; (e) to the
knowledge of such counsel, no consent, approval, authorization or order of
any court or governmental authority of the United States, the State of New
York or The Commonwealth of Massachusetts is required for the consummation
by Income Funds of the transactions contemplated herein, except such as have
been obtained under the 1933 Act, the 1934 Act and the 1940 Act, and such as
may be required under state securities law; (f) only insofar as they relate
to Income Funds and the Acquiring Fund, the descriptions in the Proxy
Statement of statutes, legal and governmental proceedings and contracts and
other documents, if any, are accurate and fairly present the information
required to be shown; (g) such counsel does not know of any legal or
governmental proceedings, only insofar as they relate to the Acquiring Fund,
existing on or before the effective date of the Registration Statement or
the Closing Date required to be described in the Registration Statement or
to be filed as exhibits to the Registration Statement which are not
described as required; (h) Income Funds is registered as an investment
company under the 1940 Act and its registration with the Commission as an
investment company under the 1940 Act is in full force and effect; and (i)
to the best knowledge of such counsel, no litigation or administrative
proceeding or investigation of or before any court or governmental body is
presently pending or threatened as to Income Funds with respect to the
Acquiring Fund or any of the properties or assets of the Acquiring Fund and
Income Funds is not a party to or subject to the provisions of any order,
decree or judgment of any court or governmental body, which materially and
adversely affects the business of the Acquiring Fund, other than as
previously disclosed in the Registration Statement. In addition, such
counsel also shall state that they have participated in conferences with
officers and other representatives of
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Income Funds at which the contents of the Proxy Statement and related
matters were discussed and, although they are not passing upon and do not
assume any responsibility for the accuracy, completeness or fairness of the
statements contained in the Proxy Statement (except to the extent indicated
in paragraph (f) of their above opinion), on the basis of the foregoing
(relying as to materiality to a large extent upon the opinions of officers
and other representatives of Income Funds), no facts have come to their
attention that lead them to believe that the Proxy Statement as of its date,
as of the date of the Acquired Fund shareholders' meeting, and as of the
Closing Date, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein regarding Income Funds
or the Acquiring Fund or necessary to make the statements therein regarding
Income Funds or the Acquiring Fund, in the light of the circumstances under
which they were made, not misleading. Such opinion may state that such
counsel does not express any opinion or belief as to the financial
statements or other financial data or as to the information relating to
Income Funds or the Acquired Fund contained in the Proxy Statement or
Registration Statement, and that such opinion is solely for the benefit of
the Acquired Fund, its trustees and its officers. Such counsel may rely, as
to matters governed by the laws of The Commonwealth of Massachusetts, on an
opinion of Massachusetts counsel. Such opinion also shall include such other
matters incident to the transaction contemplated hereby as the Acquired Fund
may reasonably request.
In this paragraph 6.3, references to the Proxy Statement include and relate
only to the text of such Proxy Statement and not to any exhibits or attachments
thereto or to any documents incorporated by reference therein.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF INCOME FUNDS
AND THE ACQUIRING FUND
The obligations of Income Funds and the Acquiring Fund to complete the
transactions provided for herein shall be subject, at its election, to the
performance by the Acquired Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1. All representations and warranties of the Acquired Fund contained in
this Agreement shall be true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated by
this Agreement, as of the Closing Date with the same force and effect as if made
on and as of the Closing Date;
7.2. The Acquired Fund shall have delivered to the Acquiring Fund a
statement of the Acquired Fund's assets and liabilities, together with a list of
A-14
<PAGE>
the Acquired Fund's portfolio securities showing the tax costs of such
securities by lot and the holding periods of such securities, as of the Closing
Date, certified by the Treasurer or Assistant Treasurer of the Acquired Fund;
7.3. The Acquired Fund shall have delivered to the Acquiring Fund on the
Closing Date a certificate executed in its name by its President or Vice
President and its Treasurer or Assistant Treasurer, in form and substance
satisfactory to the Acquiring Fund and dated as of the Closing Date, to the
effect that the representations and warranties of the Acquired Fund made in this
Agreement are true and correct at and as of the Closing Date, except as they may
be affected by the transactions contemplated by this Agreement, and as to such
other matters as the Acquiring Fund shall reasonably request; and
7.4. The Acquiring Fund shall have received on the Closing Date a favorable
opinion of Willkie Farr & Gallagher, counsel to the Acquired Fund, in a form
satisfactory to Christina T. Syder, Esq., Secretary of the Acquiring Fund,
covering the following points:
That (a) the Acquired Fund is a business trust duly organized, validly
existing and in good standing under the laws of The Commonwealth of
Massachusetts and has the power, under its Master Trust Agreement, to own
all of its properties and assets and to carry on its business as presently
conducted; (b) this Agreement has been duly authorized, executed and
delivered by the Acquired Fund and, assuming that the Prospectus, the
Registration Statement and the Proxy Statement comply with the 1933 Act, the
1934 Act and the 1940 Act and the rules and regulations thereunder and,
assuming due authorization, execution and delivery of the Agreement by
Income Funds on behalf of the Acquiring Fund, is a valid and binding
obligation of the Acquired Fund enforceable against the Acquired Fund in
accordance with its terms, subject as to enforcement to bankruptcy,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and to general equity principles; (c)
the execution and delivery of this Agreement did not, and the consummation
of the transactions contemplated hereby will not, result in a material
violation of the Acquired Fund's Master Trust Agreement or By-laws or any
provision of any agreement (known to such counsel) to which the Acquired
Fund is a party or by which it is bound or, to the knowledge of such
counsel, result in the acceleration of any obligation or the imposition of
any penalty, under any agreement, judgment or decree to which the Acquired
Fund is a party or by which it is bound; (d) to the knowledge of such
counsel, no consent, approval, authorization or order of any court or
governmental authority of the United States, the State of New York or The
Commonwealth of Massachusetts is required for the consummation by the
Acquired Fund of the transactions
A-15
<PAGE>
contemplated herein, except such as have been obtained under the 1933 Act,
the 1934 Act and the 1940 Act, and such as may be required under state
securities laws and except for an order of the Commission under Section 8(f)
of the 1940 Act declaring that the Acquired Fund has ceased to be an
investment company; (e) only insofar as they relate to the Acquired Fund,
the descriptions in the Proxy Statement of statutes, legal and governmental
proceedings and contracts and other documents, if any, are accurate and
fairly present the information required to be shown; (f) such counsel does
not know of any legal or governmental proceedings, only insofar as they
relate to the Acquired Fund existing on or before the effective date of the
Registration Statement or the Closing Date, required to be described in the
Proxy Statement or to be filed as exhibits to the Registration Statement
which are not described and filed as required; (g) the Acquired Fund is
registered as an investment company under the 1940 Act and its registration
with the Commission as an investment company under the 1940 Act is in full
force and effect; and (h) to the best knowledge of such counsel, no
litigation or administrative proceeding or investigation of or before any
court or governmental body is presently pending or threatened as to the
Acquired Fund or any of its properties or assets and the Acquired Fund is
neither a party to nor subject to the provisions of any order, decree or
judgment of any court or governmental body, which materially and adversely
affects its business other than as previously disclosed in the Proxy
Statement. Such counsel also shall state that they have participated in
conferences with officers and other representatives of the Acquired Fund at
which the contents of the Proxy Statement and related matters were discussed
and, although they are not passing upon and do not assume any responsibility
for the accuracy, completeness or fairness of the statements contained in
the Proxy Statement (except to the extent indicated in paragraph (e) of
their above opinion), on the basis of the foregoing (relying as to
materiality to a large extent upon the opinions of officers and other
representatives of the Acquired Fund), no facts have come to their attention
that lead them to believe that the Proxy Statement as of its date, as of the
date of the Acquired Fund shareholders' meeting, and as of the Closing Date,
contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein regarding the Acquired Fund or
necessary in the light of the circumstances under which they were made, to
make the statements therein regarding the Acquired Fund not misleading. Such
opinion may state that such counsel does not express any opinion or belief
as to the financial statements or other financial data, or as to the
information relating to the Acquiring Fund, contained in the Proxy Statement
or Registration Statement, and that such opinion is solely for the benefit
of Income Funds, its trustees and its officers. Such
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<PAGE>
counsel may rely, as to matters governed by the laws of the Commonwealth of
Massachusetts, on an opinion of Massachusetts counsel. Such opinion also
shall include such other matters incident to the transaction contemplated
hereby as Income Funds on the behalf of the Acquiring Fund may reasonably
request.
In this paragraph 7.4, references to the Proxy Statement include and relate
to only the text of such Proxy Statement and not to any exhibits or attachments
thereto or to any documents incorporated by reference therein.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
ACQUIRED FUND, INCOME FUNDS AND THE ACQUIRING FUND
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to Income Funds on behalf of the Acquiring Fund or the
Acquired Fund, the other party to this Agreement shall, at its option, not be
required to consummate the transactions contemplated by this Agreement:
8.1. The Agreement and the transactions contemplated herein shall have been
approved by the requisite vote of the holders of the outstanding shares of the
Acquired Fund in accordance with the provisions of its Master Trust Agreement
and By-laws and certified copies of the votes evidencing such approval shall
have been delivered to the Acquiring Fund. Notwithstanding anything herein to
the contrary, neither the Acquired Fund nor Income Funds on behalf of the
Acquiring Fund may waive the conditions set forth in this paragraph 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein;
8.3. All consents of other parties and all other consents, orders and
permits of federal, state and local regulatory authorities (including those of
the Commission and of state Blue Sky and securities authorities, including "no-
action" positions of and exemptive orders from such federal and state
authorities) deemed necessary by the Acquiring Fund or the Acquired Fund to
permit consummation, in all material respects, of the transactions contemplated
hereby shall have been obtained, except where failure to obtain any such
consent, order or permit would not involve a risk of a material adverse effect
on the assets or properties of the Acquiring Fund or the Acquired Fund, provided
that either party hereto may for itself waive any of such conditions;
8.4. The Registration Statement shall have become effective under the 1933
Act and no stop orders suspending the effectiveness thereof shall have
A-17
<PAGE>
been issued and, to the best knowledge of the parties hereto, no investigation
or proceeding for that purpose shall have been instituted or be pending,
threatened or contemplated under the 1933 Act;
8.5. The Acquired Fund and Income Funds on behalf of the Acquiring Fund,
shall have declared and paid a dividend or dividends on the outstanding shares
of the Acquired Fund and the Acquiring Fund, respectively, which, together with
all previous such dividends, shall have the effect of distributing to the
shareholders of the Acquired Fund and the Acquiring Fund all of the investment
company taxable income of the Acquired Fund and the Acquiring Fund for all
taxable years ending on or prior to the Closing Date (computed without regard to
any deduction for dividends paid) and all of each fund's net capital gain
realized in all taxable years ending on or prior to the Closing Date (after
reduction for any capital loss carry forward);
8.6. The parties shall have received a favorable opinion of Willkie Farr &
Gallagher, addressed to the Acquired Fund and Income Funds and satisfactory to
Christina T. Syder, Esq., Secretary of the Acquiring Fund and the Acquired Fund,
substantially to the effect that for federal income tax purposes:
(a) the transfer of all or substantially all of the Acquired Fund's
assets in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain identified liabilities of the Acquired Fund will
constitute a "reorganization" within the meaning of Section 368(a)(1)(C) of
the Code, and the Acquiring Fund and the Acquired Fund are each a "party to
a reorganization" within the meaning of Section 368(b) of the Code; (b) no
gain or loss will be recognized by the Acquiring Fund upon the receipt of
the assets of the Acquired Fund in exchange for the Acquiring Fund Shares
and the assumption by the Acquiring Fund of certain identified liabilities
of the Acquired Fund; (c) no gain or loss will be recognized by the Acquired
Fund upon the transfer of the Acquired Fund's assets to the Acquiring Fund
in exchange for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain identified liabilities of the Acquired Fund or
upon the distribution (whether actual or constructive) of the Acquiring Fund
Shares to the Acquired Fund's shareholders; (d) no gain or loss will be
recognized by shareholders of the Acquired Fund upon the exchange of their
Acquired Fund shares for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of certain identified liabilities of the Acquired Fund; (e)
the aggregate tax basis for the Acquiring Fund Shares received by each of
the Acquired Fund's shareholders pursuant to the Reorganization will be the
same as the aggregate tax basis of the Acquired Fund shares held by such
shareholder immediately prior to the Reorganization, and the holding period
of
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<PAGE>
the Acquiring Fund Shares to be received by each Acquired Fund shareholder
will include the period during which the Acquired Fund shares exchanged
therefor were held by such shareholder (provided that the Acquired Fund
shares were held as capital assets on the date of the Reorganization); and
(f) the tax basis of the Acquired Fund's assets acquired by the Acquiring
Fund will be the same as the tax basis of such assets to the Acquired Fund
immediately prior to the Reorganization, and the holding period of the
assets of the Acquired Fund in the hands of the Acquiring Fund will include
the period during which those assets were held by the Acquired Fund.
Notwithstanding anything herein to the contrary, neither the Acquired Fund
nor Income Funds may waive the conditions set forth in this paragraph 8.6.
9. BROKERAGE FEES AND EXPENSES
9.1. The Acquired Fund and Income Funds on behalf of the Acquiring Fund
each represents and warrants to the other that there are no brokers or finders
entitled to receive any payments in connection with the transactions provided
for herein.
9.2. (a) Except as may be otherwise provided herein, the Acquiring Fund and
the Acquired Fund shall each be liable, in proportion to their assets, for the
expenses incurred in connection with entering into and carrying out the
provisions of this Agreement, including the expenses of: (i) counsel and
independent accountants associated with the Reorganization; (ii) printing and
mailing the Prospectus/Proxy Statement and soliciting proxies in connection with
the meeting of shareholders of the Acquired Fund referred to in paragraph 5.2
hereof; (iii) any special pricing fees associated with the valuation of the
Acquired Fund's or the Acquiring Fund's portfolio on the Closing Date; (iv)
expenses associated with preparing this Agreement and preparing and filing the
Registration Statement under the 1933 Act covering the Acquiring Fund Shares to
be issued in the Reorganization; and (v) registration or qualification fees and
expenses of preparing and filing such forms, if any, necessary under applicable
state securities laws to qualify the Acquiring Fund Shares to be issued in
connection with the Reorganization. The Acquired Fund shall be liable for (i)
all fees and expenses related to the liquidation and termination of the Acquired
Fund; and (ii) fees and expenses of the Acquired Fund's custodian and transfer
agent incurred in connection with the Reorganization. The Acquiring Fund shall
be liable for any fees and expenses of the Acquiring Fund's custodian and
transfer agent incurred in connection with the Reorganization.
(b) Consistent with the provisions of paragraph 1.3, the Acquired Fund,
prior to the Closing, shall pay for or include in the unaudited Statement of
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<PAGE>
Assets and Liabilities prepared pursuant to paragraph 1.3 all of its known and
reasonably estimated expenses associated with the transactions contemplated by
this Agreement.
10. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
10.1. The Acquired Fund and Income Fund on behalf of the Acquiring Fund
agree that neither party has made any representation, warranty or covenant not
set forth herein and that this Agreement constitutes the entire agreement
between the parties.
10.2. The representations, warranties and covenants contained in this
Agreement or in any document delivered pursuant hereto or in connection herewith
shall survive the consummation of the transactions contemplated hereunder.
11. TERMINATION
11.1. This Agreement may be terminated at any time prior to the Closing
Date by: (1) the mutual agreement of the Acquired Fund and Income Funds; (2) the
Acquired Fund in the event Income Funds or the Acquiring Fund shall, or Income
Funds in the event the Acquired Fund shall, materially breach any
representation, warranty or agreement contained herein to be performed at or
prior to the Closing Date; or (3) a condition herein expressed to be precedent
to the obligations of the terminating party has not been met and it reasonably
appears that it will not or cannot be met.
11.2. In the event of any such termination, there shall be no liability for
damages on the part of either the Acquired Fund or Income Funds, or their
respective trustees or officers, to the other party, but each shall bear the
expenses incurred by it incidental to the preparation and carrying out of this
Agreement as provided in paragraph 9.
12. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as
may be mutually agreed upon in writing by the authorized officers of Income
Funds and the Acquired Fund; provided, however, that following the meeting of
the Acquired Fund shareholders called by the Acquired Fund pursuant to paragraph
5.2 of this Agreement, no such amendment may have the effect of changing the
provisions for determining the number of the Acquiring Fund Shares to be issued
to the Acquired Fund's shareholders under this Agreement to the detriment of
such shareholders without their further approval.
13. NOTICES
Any notice, report, statement or demand required or permitted by any
provisions of this Agreement shall be in writing and shall be given by prepaid
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<PAGE>
telegraph, telecopy or certified mail addressed to the Acquired Fund, Two World
Trade Center, 100th Floor, New York, New York 10048, Attention: Heath B.
McLendon; or to Income Funds on behalf of the Acquiring Fund, Two World Trade
Center, 100th Floor, New York, New York 10048, Attention: Heath B. McLendon.
14. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT;
LIMITATION OF LIABILITY
14.1. The article and paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
14.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
14.3. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
14.4. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm, corporation or other entity, other than the parties hereto and their
respective successors and assigns, any rights or remedies under or by reason of
this Agreement.
14.5. (a) It is expressly agreed that the obligations of the Acquired Fund
hereunder shall not be binding upon any of the trustees, shareholders, nominees,
officers, agents or employees of the Acquired Fund personally, but bind only the
trust property of the Acquired Fund, as provided in its Master Trust Agreement.
The execution and delivery of this Agreement have been authorized by the
trustees of the Acquired Fund and this Agreement has been executed by authorized
officers of the Acquired Fund, acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the trust property of the Acquired Fund
as provided in its Master Agreement.
(b) It is expressly agreed that the obligations of Income Funds
hereunder shall not be binding upon any of the trustees, shareholders, nominees,
officers, agents or employees of Income Funds personally, but bind only the
trust property of Income Funds and the Acquiring Fund, as provided in the Master
Trust Agreement of Income Funds. The execution and delivery of this Agreement
have been authorized by the trustees of Income Funds and this Agreement has been
executed by authorized officers of Income Funds on
A-21
<PAGE>
behalf of the Acquiring Fund, acting as such, and neither such authorization by
such trustees nor such execution and delivery by such officers shall be deemed
to have been made by any of them individually or to impose any liability on any
of them personally, but shall bind only the trust property of the Acquiring Fund
as provided in the Master Trust Agreement of Income Funds.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed by its Chairman of the Board, President or Vice President and its
seal to be affixed thereto and attested by its Secretary or Assistant Secretary.
<TABLE>
<S> <C>
Attest: SMITH BARNEY SHEARSON SHORT-TERM
WORLD INCOME FUND
/s/CHRISTINA T. SYDOR By: /s/HEATH B. MCLENDON
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: Chairman of the Board
Attest: SMITH BARNEY SHEARSON INCOME
FUNDS, on behalf of SMITH BARNEY
SHEARSON GLOBAL BOND FUND
/s/CHRISTINA T. SYDOR By: /s/HEATH B. MCLENDON
Name: Christina T. Sydor Name: Heath B. McLendon
Title: Secretary Title: Chairman of the Board
</TABLE>
A-22
<PAGE>
SMITH BARNEY SHEARSON GLOBAL BOND FUND
(THE "FUND")
SUPPLEMENT TO PROSPECTUS DATED DECEMBER 1, 1993
The following information replaces the disclosure found in the Fund's
Prospectus under the headings "Prospectus Summary -- Management of the Fund" and
"Management of the Fund -- Investment Adviser and --
Portfolio Management:"
Smith Barney Global Capital Management, Inc. ("SBGCM") serves as the Fund's
investment adviser pursuant to an investment advisory agreement dated March 22,
1994. SBGCM has agreed to waive 50% of its investment advisory fee until such
time as the Fund's Board of Trustees and SBGCM mutually agree otherwise. SBGCM
is located at 10 Piccadilly, London WIV 9LA England and has been in the
investment counseling business since 1988. SBGCM is a wholly owned subsidiary of
Smith Barney Shearson Holdings Inc., which is in turn a wholly owned subsidiary
of The Travelers Inc. ("Travelers"). Travelers is a financial services holding
company engaged through its subsidiaries principally in the businesses of
consumer financial, investment and insurance services.
Mr. Victor S. Filatov, International Strategist and President of SBGCM, was
elected by the Board of Trustees on January 20, 1994 to serve as Vice President
and Investment Officer of the Fund. Mr. Filatov is responsible for managing the
day-to-day operations of the Fund, including the making of all investment
decisions. Prior to 1993, Mr. Filatov was Business Coordinator and head of
European Fixed Income Research for J.P. Morgan Securities Inc.
Supplement dated, April 5, 1994
<PAGE>
SMITH BARNEY SHEARSON GLOBAL BOND FUND
(THE "FUND")
SUPPLEMENT TO PROSPECTUS
DATED DECEMBER 1, 1993
On January 20, 1994, the Board of Trustees of the Fund terminated the
investment advisory agreement with Lehman Brothers Global Asset Management
Limited. In addition, the Board proposed that the Fund enter into a new
investment advisory agreement with Smith Barney Global Capital Management, Inc.
("SBGCM"). This agreement would contain substantially the same terms, conditions
and fees as the Fund's previous agreement, however, SBGCM has agreed to waive
50% of its investment advisory fees until such time as the Fund's Board of
Trustees and SBGCM mutually agree otherwise. Pending shareholder approval, the
new advisory agreement would become effective on March 22, 1994. The Board of
Trustees has called a shareholder meeting for the purpose of considering the new
agreement.
SBGCM is located at 10 Piccadilly, London, W1V 9LA England and has been in the
investment counseling business since 1988. SBGCM is a wholly owned subsidiary of
Smith Barney Shearson Holdings Inc. ("Holdings"). Holdings is a wholly owned
subsidiary of The Travelers Inc., a financial services holding company engaged
through its subsidiaries principally in the businesses of consumer financial
services, investment services and insurance services.
January 21, 1994
<PAGE>
SMITH BARNEY SHEARSON
<TABLE>
<S> <C>
Limited Maturity Municipals Investment Grade Bond Fund
Fund
Managed Municipals Fund Inc. High Income Fund
Tax-Exempt Income Fund Global Bond Fund
Arizona Municipals Fund Inc. European Fund
Intermediate Maturity Convertible Fund
California Municipals Fund
California Municipals Fund Inc. Utilities Fund
Florida Municipals Fund Strategic Investors Fund
Massachusetts Municipals Fund Premium Total Return Fund
New Jersey Municipals Fund Inc. Growth and Income Fund
Intermediate Maturity New York Appreciation Fund Inc.
Municipals Fund
New York Municipals Fund Inc. Fundamental Value Fund Inc.
Adjustable Rate Government Directions Value Fund
Income Fund
Worldwide Prime Assets Fund Sector Analysis Fund
Short-Term World Income Fund Telecommunications Growth Fund
Limited Maturity Treasury Fund Aggressive Growth Fund Inc.
Diversified Strategic Income Special Equities Fund
Fund
Managed Governments Fund Inc. Global Opportunities Fund
Government Securities Fund Premiums Metals and Minerals
Fund Inc.
</TABLE>
SUPPLEMENT DATED DECEMBER 20, 1993
TO THE PROSPECTUSES*
Effective February 21, 1994, the following information supplements the
disclosure found in the prospectus of each of the funds listed above (each a
"Fund") under "Exchange Privilege:"
Although the exchange privilege is an important benefit, excessive exchange
transactions can be detrimental to the Fund's performance and its shareholders.
The Fund's investment adviser may determine that a pattern of frequent exchanges
is excessive and contrary to the best interests of the Fund's other
shareholders.
<PAGE>
In this event, the Fund's investment adviser will notify Smith Barney
Shearson, and Smith Barney Shearson may, at its discretion, decide to limit
additional purchase and/or exchanges by the shareholder. Upon such a
determination, Smith Barney Shearson 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 Smith Barney Shearson funds ordinarily available, which
position the shareholder would expect to maintain for a significant period of
time. All relevant factors will be considered in determining what constitutes an
abusive pattern of exchanges.
- ------------------
*Prospectuses dated:
<TABLE>
<S> <C>
Limited Maturity 4/1/93
Municipals Fund
Managed Municipals Fund Inc. 7/1/91
Tax-Exempt Income Fund 12/1/93
Arizona Municipals Fund Inc. 10/1/93
Intermediate Maturity 4/1/93
California Municipals Fund
California Municipals Fund Inc. 7/1/93
Florida Municipals Fund 10/19/92
Massachusetts Municipals Fund 4/1/93
New Jersey Municipals Fund Inc. 8/1/93
Intermediate Maturity New York Municipals Fund 4/1/93
New York Municipals Fund Inc. 5/1/93
Adjustable Rate Government Income Fund 10/1/93
Worldwide Prime Assets Fund 4/1/93
Short-Term World Income Fund 9/1/93
Limited Maturity Treasury Fund 4/1/93
Diversified Strategic Income Fund 12/1/93
Managed Governments Fund Inc. 12/1/93
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Government Securities Fund 5/1/93
Investment Grade Bond Fund 5/1/93
High Income Fund 12/1/93
Global Bond Fund 12/1/93
European Fund 5/1/93
Convertible Fund 12/1/93
Utilities Fund 12/1/93
Strategic Investors Fund 6/1/93
Premium Total Return Fund 12/1/93
Growth and Income Fund 6/1/93
Appreciation Fund 5/1/93
Fundamental Value Fund Inc. 11/22/93
Directions Value Fund 5/1/93
Sector Analysis Fund 6/1/93
Telecommunications 5/1/93
Growth Fund
Aggressive Growth Fund Inc. 3/1/93
Special Equities Fund 5/1/93
Global Opportunities Fund 9/1/93
Precious Metals and Minerals Fund Inc. 3/1/93
</TABLE>
<PAGE>
DECEMBER 1, 1993
SMITH BARNEY SHEARSON
GLOBAL
BOND
FUND
PROSPECTUS BEGINS
ON PAGE ONE.
[LOGO]
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- ---------------------------------------------------------------------------
PROSPECTUS December 1, 1993
Two World Trade Center
New York, New York 10048
(212) 720-9218
The Smith Barney Shearson Global Bond Fund (the "Fund"), a diversified fund,
seeks current income and capital appreciation by investing primarily in bonds,
debentures and notes of foreign and domestic issuers in the U.S. dollar and
foreign currency bond and money markets.
The Fund is one of a number of funds, each having distinct investment
objectives and policies, making up the Smith Barney Shearson Income Funds (the
"Trust"). The Trust is an open-end management investment company commonly
referred to as a mutual fund.
This Prospectus sets forth concisely certain information about the Fund and
the Trust, including sales charges, distribution and service fees and expenses,
which prospective investors will find helpful in making an investment decision.
Investors are encouraged to read this Prospectus carefully and retain it for
future reference. Shares of other investment funds offered by the Trust are
described in separate prospectuses that may be obtained by calling the Fund at
the telephone number set forth above or by contacting your Smith Barney Shearson
Financial Consultant.
Additional information about the Fund and the Trust is contained in a
Statement of Additional Information dated December 1, 1993, as amended or
supplemented from time to time, which is available upon request and without
charge by calling or writing the Trust at the telephone number or address set
forth above, or by contacting your Smith Barney Shearson Financial Consultant.
The Statement of Additional Information has been filed with the Securities and
Exchange Commission (the "SEC") and is incorporated by reference into this
Prospectus in its entirety.
SMITH BARNEY SHEARSON INC.
Distributor
LEHMAN BROTHERS GLOBAL ASSET MANAGEMENT LIMITED
Investment Adviser
THE BOSTON COMPANY ADVISORS, INC.
Administrator
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
1
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- ---------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUMMARY 3
---------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 9
---------------------------------------------------------------------
VARIABLE PRICING SYSTEM 12
---------------------------------------------------------------------
THE FUND'S PERFORMANCE 13
---------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND 15
---------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES 16
---------------------------------------------------------------------
PURCHASE OF SHARES 31
---------------------------------------------------------------------
REDEMPTION OF SHARES 39
---------------------------------------------------------------------
VALUATION OF SHARES 43
---------------------------------------------------------------------
EXCHANGE PRIVILEGE 44
---------------------------------------------------------------------
DISTRIBUTOR 50
---------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES 52
---------------------------------------------------------------------
ADDITIONAL INFORMATION 54
---------------------------------------------------------------------
</TABLE>
2
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- ---------------------------------------------------------------------------
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS AND IN THE STATEMENT OF ADDITIONAL
INFORMATION. CROSS REFERENCES IN THIS SUMMARY ARE TO HEADINGS IN THE PROSPECTUS.
SEE "TABLE OF CONTENTS."
BENEFITS TO INVESTORS THE FUND OFFERS INVESTORS SEVERAL IMPORTANT BENEFITS:
- A professionally managed portfolio of bonds, debentures and notes of United
States and foreign issuers.
- Ownership of a diversified portfolio of debt securities.
- Investment liquidity through convenient purchase and redemption procedures.
- A convenient way to invest without the administrative and recordkeeping
burdens normally associated with the direct ownership of securities.
- Different methods for purchasing shares that allow investment flexibility
and a wider range of investment alternatives.
- Automatic dividend reinvestment feature, plus exchange privilege within the
same class of shares of most other funds in the Smith Barney Shearson Group
of Funds.
INVESTMENT OBJECTIVE The Fund is an open-end, diversified management investment
company that seeks current income and capital appreciation by investing
primarily in bonds, debentures and notes of foreign and domestic issuers. At
least 85% of the obligations of companies in which the Fund invests will have an
outstanding debt issue rated no lower than Aa by Moody's Investors Services,
Inc. ("Moody's") or AA by Standard & Poor's Corporation ("S&P") or comparable
unrated securities. See "Investment Objective and Management Policies."
VARIABLE PRICING SYSTEM The Fund offers three classes of shares ("Classes") to
investors designed to provide them with the flexibility of selecting an
investment best suited to their needs. The general public is offered two classes
of shares: Class A shares and Class B shares which differ principally in terms
of the sales charges and rate of expenses to which they are subject. A third
class -- Class D shares -- is offered only to plans
3
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
participating in the Smith Barney Shearson 401(k) Program (the "401(k)
Program"). See "Variable Pricing System" and "Purchase of Shares -- Smith Barney
Shearson 401(k) Program."
CLASS A SHARES These shares are offered at net asset value per share plus a
maximum initial sales charge of 4.50%. The Fund pays an annual service fee of
.25% of the value of average daily net assets of this Class. See "Purchase of
Shares."
CLASS B SHARES These shares are offered at net asset value per share subject to
a maximum contingent deferred sales charge ("CDSC") of 4.50% of redemption
proceeds, declining by .50% after the first year after purchase and by 1% each
year thereafter to zero. The Fund pays an annual service fee of .25% and an
annual distribution fee of .50% of the value of average daily net assets of this
Class. See "Purchase of Shares."
CLASS B CONVERSION FEATURE Class B shares will convert automatically to Class A
shares, based on relative net asset value, eight years after the date of
original purchase. Upon conversion, these shares will no longer be subject to an
annual distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
SMITH BARNEY SHEARSON 401(K) PROGRAM Investors may be eligible to participate in
the 401(k) Program, which is generally designed to assist employers or plan
sponsors in the creation and operation of retirement plans under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code") as well as other
types of participant-directed, tax-qualified employee benefit plans
(collectively, "Participating Plans"). Class A, Class B and Class D shares are
available as investment alternatives for Participating Plans. Class A and Class
B shares acquired through the 401(k) Program are subject to the same service
and/or distribution fee as, but different sales charge and CDSC schedules than,
the Class A and Class B shares acquired by other investors. Class D shares
acquired by Participating Plans are offered at net asset value per share without
any sales charge or CDSC. The Fund pays annual service and distribution fees
based on the value of the average daily net assets attributable to this Class.
See "Purchase of Shares -- Smith Barney Shearson 401(k) Program."
PURCHASE OF SHARES Shares may be purchased through the Trust's distributor,
Smith Barney Shearson Inc. ("Smith Barney Shearson"), or a
4
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
broker that clears securities transactions through Smith Barney Shearson on a
fully disclosed basis (an "Introducing Broker"). Direct purchases of certain
retirement plans may be made through the Trust's transfer agent, The Shareholder
Services Group, Inc. ("TSSG"), a subsidiary of First Data Corporation. Smith
Barney Shearson recommends that, in most cases, single investments of $250,000
or more should be made in Class A. See "Purchase of Shares."
INVESTMENT MINIMUMS Investors are subject to a minimum initial investment
requirement of $1,000 and a minimum subsequent investment requirement of $200.
However, for Individual Retirement Accounts ("IRAs") and Self-Employed
Retirement Plans, the minimum initial investment requirement is $250 and the
minimum subsequent investment requirement is $100 and for certain qualified
retirement plans, the minimum initial and subsequent investment requirement is
$25. See "Purchase of Shares."
SYSTEMATIC INVESTMENT PLAN The Trust also offers shareholders a Systematic
Investment Plan under which they may authorize the automatic placement of a
purchase order each month or quarter for Fund shares in an amount not less than
$100. See "Purchase of Shares."
REDEMPTION OF SHARES Shares may be redeemed on each day the New York Stock
Exchange, Inc. ("NYSE") is open for business. Class A and Class D shares are
redeemable at net asset value and Class B shares are redeemable at net asset
value less any applicable CDSC. See "Redemption of Shares."
MANAGEMENT OF THE FUND Lehman Brothers Global Asset Management Limited ("Global
Asset Management") serves as the Fund's investment adviser. Global Asset
Management is a wholly owned subsidiary of Lehman Brothers Holdings Inc.
("Lehman Holdings"), which is in turn a a wholly owned subsidiary of American
Express Company ("American Express"). American Express owns 100% of Lehman
Holdings' issued and outstanding common stock, which represents approximately
92% of Lehman Holdings' voting stock. The remainder of Holdings' voting stock is
owned by Nippon Life Insurance Company. American Express is principally engaged
in the business of providing travel-related services, information services,
investment services, international banking services and investors' diversified
financial services.
5
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
The Boston Company Advisors, Inc. ("Boston Advisors") serves as the Fund's
administrator. Boston Advisors is a wholly owned subsidiary of The Boston
Company, Inc. ("TBC"), a financial services holding company, which is in turn a
wholly owned subsidiary of Mellon Bank Corporation ("Mellon"). See "Management
of the Trust and the Fund."
EXCHANGE PRIVILEGE Shares of a Class may be exchanged for shares of the same
class of certain other funds in the Smith Barney Shearson Group of Funds.
Certain exchanges may be subject to a sales charge differential. See "Exchange
Privilege."
VALUATION OF SHARES Net asset value of each Class is quoted daily in the
financial section of most newspapers and is also available from any Smith Barney
Shearson Financial Consultant. See "Valuation of Shares."
DIVIDENDS AND DISTRIBUTIONS Dividends are paid monthly from net investment
income and annually from net realized capital gains. See "Dividends,
Distributions and Taxes."
REINVESTMENT OF DIVIDENDS Dividends and distributions paid on shares of a Class
will be reinvested automatically, unless otherwise specified by an investor, in
additional shares of the same Class at current net asset value. Shares acquired
by dividend and distribution reinvestments will not be subject to any sales
charge or CDSC. Class B shares acquired through dividend and distribution
reinvestments will become eligible for conversion to Class A shares on a pro
rata basis. See "Dividends, Distributions and Taxes" and "Variable Pricing
System."
RISK FACTORS AND SPECIAL CONSIDERATIONS There can be no assurance that the Fund
will achieve its investment objective. The market value of fixed-income
securities, which constitute a major part of the investments of the Fund, may
vary inversely in response to changes in prevailing interest rates. The foreign
securities in which the Fund invests may be subject to certain risks in addition
to those inherent in domestic investments. The Fund may employ investment
techniques which involve certain other risks, including entering into repurchase
agreements, engaging in when-issued and delayed-delivery transactions, lending
portfolio securities, purchasing and writing options on securities, entering
into forward currency contracts and options on currencies, and entering into
futures contracts and options on futures contracts. See "Investment Objective
and Management Policies."
6
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
THE FUND'S EXPENSES The following expense table lists the costs and expenses an
investor will incur either directly or indirectly as a shareholder of the Fund,
based on the maximum sales charge or maximum CDSC that may be incurred at the
time of purchase or redemption and the Fund's current operating expenses:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales charge imposed on purchases
(as a percentage of offering price) 4.50% -- --
Maximum CDSC (as a percentage of redemption proceeds) -- 4.50% --
- -------------------------------------------------------------------------------------
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
Management fees .80 .80 .80
12b-1 fees* .25 .75 .75
Other expenses** .66 .67 .63
- -------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.71% 2.22% 2.18%
- -------------------------------------------------------------------------------------
<FN>
* Upon conversion, Class B shares will no longer be subject to a distribution
fee. Class D shares do not have a conversion feature and, therefore, are
subject to an ongoing distribution fee.
** All expenses are based on data for the Fund's fiscal year ended July 31,
1993 and with the exception of Class B shares, are annualized.
</TABLE>
The sales charge and CDSC set forth in the above table are the maximum charges
imposed on purchases or redemptions of Fund shares and investors may pay actual
charges of less than 4.50%, depending on the amount purchased and, in the case
of Class B shares, the length of time the shares are held and whether the shares
are held through the 401(k) Program. See "Purchase of Shares" and "Redemption of
Shares." Management fees paid by the Fund include investment advisory fees paid
to Global Asset Management at the annual rate of .60% of the value of the Fund's
average daily net assets and administration fees paid to Boston Advisors at the
annual rate of .20% of the value of the Fund's average daily net assets. The
nature of the services for which the Fund pays management fees is described
under "Management of the Trust and the Fund." Smith Barney Shearson receives an
annual 12b-1 service fee of .25% of the value of average daily net assets of
Class A shares. Smith Barney Shearson also receives, with respect to Class
7
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PROSPECTUS SUMMARY (CONTINUED)
B and Class D shares, an annual 12b-1 fee of .75% of the value of average daily
net assets of Class B and Class D shares, consisting of a .50% distribution fee
and a .25% service fee. "Other expenses" in the above table include fees for
shareholder services, custodial fees, legal and accounting fees, printing costs
and registration fees.
EXAMPLE
The following example demonstrates the projected dollar amount of total
cumulative expenses that would be incurred over various periods with respect to
a hypothetical $1,000 investment in the Fund assuming a 5% total return. THE
EXAMPLE ASSUMES PAYMENT BY THE FUND OF OPERATING EXPENSES AT THE LEVELS SET
FORTH IN THE ABOVE TABLE. THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS*
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------
Class A shares** $62 $97 $134 $238
Class B shares:
Assumes complete redemption at end
of each time
period*** 68 99 129 243
Assumes no redemption 23 69 119 243
Class D shares: 22 68 117 251
-------------------------------------------------------------------------------------
<FN>
* Ten-year figures assume conversion of Class B shares to Class A shares at
the end of the eighth year following the date of purchase.
** Assumes deduction at the time of purchase of the maximum 4.50% sales
charge.
*** Assumes deduction at the time of redemption of the maximum CDSC applicable
for that time period.
</TABLE>
8
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- --------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
THE FOLLOWING INFORMATION HAS BEEN AUDITED BY COOPERS & LYBRAND, INDEPENDENT
ACCOUNTANTS, WHOSE REPORT THEREON APPEARS IN THE FUND'S ANNUAL REPORT DATED JULY
31, 1993. THE INFORMATION SET OUT BELOW SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES THAT ALSO APPEAR IN THE FUND'S ANNUAL
REPORT DATED JULY 31, 1993, WHICH IS INCORPORATED BY REFERENCE INTO THE
STATEMENT OF ADDITIONAL INFORMATION.
FOR A CLASS A SHARE OUTSTANDING THROUGHOUT THE PERIOD:
<TABLE>
<CAPTION>
PERIOD
ENDED
7/31/93*++
<S> <C>
Net asset value, beginning of period $16.32
---------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.61
Net realized and unrealized gain on investments 0.60
---------------------------------------------------------------------------------
Total from investment operations 1.21
Distributions to shareholders:
Distributions from net investment income: (0.88)
Distributions in excess of net investment income (0.12)
---------------------------------------------------------------------------------
Total distributions (1.00)
---------------------------------------------------------------------------------
Net asset value, end of period $16.53
---------------------------------------------------------------------------------
Total return+ 7.70%
---------------------------------------------------------------------------------
Ratios to average net assets/ supplemental data:
Net assets, end of period (in 000's) $2,389
Ratio of operating expenses to average net assets 1.71%**
Ratio of net investment income to average net assets 5.37%**
Portfolio turnover rate 216%
---------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class A shares on November 6, 1992.
** Annualized.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable sales charges.
++ Per share amounts have been calculated using the average share method,
which more appropriately presents the per share data for the period since
the use of the undistributed method does not accord with results of
operations.
</TABLE>
9
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS B SHARE OUTSTANDING THROUGHOUT EACH YEAR:
<TABLE>
<CAPTION>
YEAR YEAR YEAR YEAR YEAR YEAR PERIOD
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
7/31/93+++ 7/31/92 7/31/91 7/31/90 7/31/89 7/31/88 7/31/87*
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of year $ 16.32 $ 15.24 $ 16.79 $ 16.60 $ 16.70 $ 16.35 $ 15.00
-------------------------------------------------------------------------------------------------
Income from investment
operations:
Net investment income 0.79 0.94 1.12 1.04 1.05 0.94 0.24#
Net realized and unrealized
gain/(loss) on investments 0.57 1.43 (0.17) 0.29 0.02 0.73 1.35
-------------------------------------------------------------------------------------------------
Total from investment
operations 1.36 2.37 0.95 1.33 1.07 1.67 1.59
Distributions to shareholders:
Distributions from net
investment income (1.01) (0.94) (1.39) (1.14) (0.94) (0.85) (0.24)
Distributions in excess of
net investment income (0.14) -- -- -- -- -- --
Distributions from net
realized capital gains -- (0.26) -- -- (0.23) (0.47) --
Distributions from capital -- (0.09) (1.11) -- -- -- --
-------------------------------------------------------------------------------------------------
Total distributions (1.15) (1.29) (2.50) (1.14) (1.17) (1.32) (0.24)
-------------------------------------------------------------------------------------------------
Net asset value, end of year $ 16.53 $ 16.32 $ 15.24 $ 16.79 $ 16.60 $ 16.70 $ 16.35
-------------------------------------------------------------------------------------------------
Total return+ 8.67% 16.11% 6.02% 8.43% 6.66% 10.53% 10.57%
-------------------------------------------------------------------------------------------------
Ratios to average net
assets/supplemental data:
Net assets, end of year
(in 000's) $ 66,418 $51,627 $48,951 $61,732 $101,273 $154,362 $162,757
Ratio of operating expenses
to average net assets 2.22% 2.02% 1.99% 2.04% 1.96% 2.00% 1.84%**++
Ratio of net investment
income to average net assets 4.85% 5.87% 6.65% 5.95% 5.82% 5.55% 4.61%**
Portfolio turnover rate 216% 230% 397% 309% 374% 241% 112%
-------------------------------------------------------------------------------------------------
<FN>
* The Fund commenced operations on October 27, 1986. Those shares in
existence prior to November 6, 1992 were designated as Class B shares.
** Annualized.
+ Total return represents aggregate total return for the period indicated and
does not reflect any applicable CDSC.
++ Annualized expense ratio before waiver of fees by investment adviser,
sub-investment adviser and administrator and distributor was 2.00%.
+++ Per share amounts have been calculated using the average share method,
which more appropriately presents the per share data for the period since
the use of the undistributed method does not accord with results of
operations.
# Net investment income before waiver of fees by investment adviser,
sub-investment adviser and administrator and distributor was $0.23.
</TABLE>
10
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
FOR A CLASS D SHARE OUTSTANDING THROUGHOUT THE PERIOD.
<TABLE>
<CAPTION>
PERIOD
ENDED
7/31/93*++
<S> <C>
Net asset value, beginning of period $15.98
--------------------------------------------------------------------------------
Income from investment operations:
Net investment income 0.38
Net realized and unrealized gain on investments 0.61
--------------------------------------------------------------------------------
Total from investment operations 0.99
Distributions to shareholders:
Distributions from net investment income (0.39)
Distributions in excess of net investment income (0.05)
--------------------------------------------------------------------------------
Total distributions (0.44)
--------------------------------------------------------------------------------
Net asset value, end of period $16.53
--------------------------------------------------------------------------------
Total return+ 6.19%
--------------------------------------------------------------------------------
Ratios to average net assets/supplemental data:
Net assets, end of period (in 000's) $ 23
Ratio of operating expenses to average net assets 2.18%**
Ratio of net investment income to average net assets 4.89%**
Portfolio turnover rate 216%
--------------------------------------------------------------------------------
<FN>
* The Fund commenced selling Class D shares on February 4, 1993.
** Annualized.
+ Total return represents aggregate total return for the period indicated.
++ Per share amounts have been calculated using the average share method,
which more appropriately presents the per share data for the period since
the use of the undistributed method does not accord with results of
operations.
</TABLE>
11
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- --------------------------------------------------------------------
VARIABLE PRICING SYSTEM
The Fund offers individual investors two methods of purchasing shares, thus
enabling investors to choose the Class that best suits their needs, given the
amount of purchase and intended length of investment. A third class -- Class D
- -- is offered only to Participating Plans.
CLASS A SHARES. Class A shares are sold at net asset value per share plus a
maximum initial sales charge of 4.50% imposed at the time of purchase. The
initial sales charge may be reduced or waived for certain purchases. Class A
shares are subject to an annual service fee of .25% of the value of the Fund's
average daily net assets attributable to the Class. The annual service fee is
used by Smith Barney Shearson to compensate its Financial Consultants for
ongoing services provided to shareholders. The sales charge is used to
compensate Smith Barney Shearson for expenses incurred in selling Class A
shares. See "Purchase of Shares."
CLASS B SHARES. Class B shares are sold at net asset value per share subject
to a maximum 4.50% CDSC, which is assessed only if the shareholder redeems
shares within the first five years of investment. This results in 100% of the
investor's assets being used to acquire shares of the Fund. After the first year
after the purchase of shares, the CDSC declines to 4%. For each year of
investment thereafter within this five-year time frame, the applicable CDSC
declines by 1%; in year six, the applicable CDSC is reduced to 0%. See "Purchase
of Shares" and "Redemption of Shares."
Class B shares are subject to an annual service fee of .25% and an annual
distribution fee of .50% of the value of the Fund's average daily net assets
attributable to the Class. Like the service fee applicable to Class A shares,
the Class B service fee is used to compensate Smith Barney Shearson Financial
Consultants for ongoing services provided to shareholders. Additionally, the
distribution fee paid with respect to Class B shares compensates Smith Barney
Shearson for expenses incurred in selling those shares, including expenses such
as sales commissions, Smith Barney Shearson's branch office overhead expenses
and marketing costs associated with Class B shares, such as preparation of sales
literature, advertising and printing and distributing prospectuses, statements
of additional information and other materials to prospective investors in Class
B shares. A Financial Consultant may receive different levels of compensation
for selling different Classes.
12
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
VARIABLE PRICING SYSTEM (CONTINUED)
Class B shares are subject to a distribution fee and higher transfer agency fees
than Class A shares which, in turn, will cause Class B shares to have a higher
expense ratio and pay lower dividends than Class A shares.
Eight years after the date of purchase, Class B shares will convert
automatically to Class A shares, based on the relative net asset values of
shares of each Class, and will no longer be subject to a distribution fee. In
addition, a certain portion of Class B shares that have been acquired through
the reinvestment of dividends and distributions ("Class B Dividend Shares") will
be converted at that time. That portion will be a percentage of the total number
of outstanding Class B Dividend Shares, which percentage will be determined by
the ratio of the total number of Class B shares converting at the time to the
total number of outstanding Class B shares (other than Class B Dividend Shares).
The first of these conversions will commence on or about September 30, 1994. The
conversion of Class B shares into Class A shares is subject to the continuing
availability of an opinion of counsel to the effect that such conversions will
not constitute taxable events for Federal tax purposes.
CLASS D SHARES. Class D shares of the Fund are sold to Participating Plans at
net asset value per share and are not subject to an initial sales charge or
CDSC. This Class of shares is subject to an annual service fee of .25% and an
annual distribution fee of .50% of the value of the Fund's average daily net
assets attributable to Class D shares. The distribution fee is used by Smith
Barney Shearson for expenses incurred in selling Class D shares, and the service
fee is used to compensate Smith Barney Shearson Financial Consultants for
ongoing services provided to Class D shareholders. Class D shares are subject to
a distribution fee which will cause Class D shareholders to have a higher
expense ratio and to pay lower dividends than Class A shares.
- --------------------------------------------------------------------
THE FUND'S PERFORMANCE
YIELD
From time to time, the Fund may advertise the 30-day "yield" of each Class of
shares. The yield refers to the income generated in these shares over the 30-day
period identified in the advertisement and is computed by
13
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
dividing the net investment income per share earned by the Class during the
period by the maximum offering price per share on the last day of the period.
This income is "annualized" by assuming that the amount of income is generated
each month over a one-year period and is compounded semi-annually. The
annualized income is then shown as a percentage of the net asset value.
TOTAL RETURN
From time to time, the Fund may advertise the "average annual total return"
over various periods of time for each Class. Total return figures show the
average percentage change in value of an investment in the Class from the
beginning date of the measuring period to the end of the measuring period. These
figures reflect changes in the price of the shares and assume that any income
dividends and/or capital gains distributions made by the Fund during the period
were reinvested in shares of the same Class. Class A total return figures
include the maximum initial 4.50% sales charge and Class B total return figures
include any applicable CDSC. These figures also take into account the service
and distribution fees, if any, payable with respect to the Classes.
Total return figures will be given for the recent one-, five-and ten-year
periods, or the life of a Class to the extent it has not been in existence for
any such periods, and may be given for other periods as well, such as on a
year-by-year basis. When considering average annual total return figures for
periods longer than one year, it is important to note that the total return for
any one year in the period might have been greater or less than the average for
the entire period. "Aggregate" total return figures may be used for various
periods, representing the cumulative change in value of an investment in a Class
for the specific period (again reflecting changes in share prices and assuming
reinvestment of dividends and distributions). Aggregate total return may be
calculated either with or without the effect of the maximum 4.50% sales charge
for the Class A shares or any applicable CDSC for Class B shares and may be
shown by means of schedules, charts, or graphs, and may indicate subtotals of
the various components of total return (i.e., change in the value of initial
investment, income dividends, and capital gains distributions). Because of the
differences in sales charges and distribution fees, the performance of each of
the Classes will differ.
14
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
THE FUND'S PERFORMANCE (CONTINUED)
In reports or other communications to shareholders or in advertising material,
performance of the Classes may be compared with that of other mutual funds or
classes of shares of other funds, as listed in the rankings prepared by Lipper
Analytical Services, Inc. or similar independent services that monitor the
performance of mutual funds, or other industry or financial publications, such
as BARRON'S, BUSINESS WEEK, CHANGING TIMES, FORBES, FORTUNE, INSTITUTIONAL
INVESTOR, MONEY, MORNINGSTAR MUTUAL FUND VALUES, THE NEW YORK TIMES, USA TODAY
and THE WALL STREET JOURNAL. Performance figures are based on historical
earnings and are not intended to indicate future performance. To the extent any
advertisement or sales literature of the Fund describes the expenses or
performance of a Class, it will also disclose such information for the other
Classes. The Statement of Additional Information further contains a description
of the methods used to determine performance. Performance figures may be
obtained from your Smith Barney Shearson Financial Consultant.
- --------------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Fund rests with
the Trust's Board of Trustees. The Trustees approve all significant agreements
between the Trust and companies that furnish services to the Trust and the Fund,
including agreements with its distributor, investment adviser, administrator,
custodian and transfer agent. The day-to-day operations of the Fund are
delegated to Global Asset Management and Boston Advisors. The Statement of
Additional Information contains background information regarding the Trustees
and executive officers of the Trust.
INVESTMENT ADVISER--GLOBAL ASSET MANAGEMENT
Global Asset Management, located at Two Broadgate, London EC2M 7HA, United
Kingdom, serves as the Fund's investment adviser. Global Asset Management
renders investment advice to institutional clients and investment companies with
total assets under management, as of October 31, 1993, in excess of $7.1
billion.
15
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
MANAGEMENT OF THE TRUST AND THE FUND (CONTINUED)
Subject to the supervision and direction of the Trust's Board of Trustees,
Global Asset Management manages the Fund in accordance with its 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.
PORTFOLIO MANAGEMENT
Pauline A.M. Barrett, Vice President and Investment Officer of the Fund, is
primarily responsible for management of the Fund's assets. Ms. Barrett has
served the Fund in these capacities since October 27, 1986, and manages the
day-to-day operations of the Fund, including making all investment decisions.
Ms. Barrett's management discussion and analysis, and additional performance
information regarding the Fund during the fiscal year ended July 31, 1993 is
included in its Annual Report dated July 31, 1993. A copy of the Annual Report
may be obtained upon request without charge from your Smith Barney Shearson
Financial Consultant or by writing or calling the Fund at the address or phone
number listed on page one of this Prospectus.
ADMINISTRATOR--BOSTON ADVISORS
Boston Advisors is located at One Boston Place, Boston, Massachusetts 02108
and serves as the Fund's administrator. Boston Advisors provides investment
management, investment advisory and/or administrative services to investment
companies which had aggregate assets under management, as of October 31, 1993,
in excess of $90 billion. Boston Advisors calculates the net asset value of the
Fund's shares and generally assists in all aspects of the Fund's administration
and operation.
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES
The Fund's investment objective is current income and capital appreciation.
The Fund's investment objective may be changed only with the approval of a
majority of the Fund's outstanding shares. The Fund will seek
16
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
to achieve this objective by investing at least 65% of its assets in bonds,
debentures and notes of United States and foreign issuers. The Fund's assets may
include obligations issued, or guaranteed by, the United States government, its
agencies or instrumentalities ("U.S. government securities") and obligations of
foreign governments or their political subdivisions, agencies or
instrumentalities, and obligations of international banking institutions and
related government agencies, such as the European Investment Bank, the Asian
Development Bank, the Inter-American Development Bank and the International Bank
for Reconstruction and Development. These institutions generally were created to
promote international trade and economic growth in developing countries, and
their obligations are supported by the credit of the institutions themselves. At
least 85% of the obligations of companies in which the Fund invests will have an
outstanding debt issue rated no lower than Aa by Moody's or AA by S&P or, if
unrated, will be determined to be of comparable quality by Global Asset
Management, although up to 15% of these obligations may be of companies rated as
low as A by Moody's or S&P or deemed to be of comparable quality. Up to 20% of
the Fund's assets may be invested in money market instruments. The Fund's
investment objective may be changed only with the approval of the holders of a
majority of the Fund's outstanding shares. There can be no assurance that the
Fund will achieve its investment objective.
In pursuit of its investment objective, the Fund invests in a diversified
portfolio of issuers located throughout the world. The Fund intends to diversify
broadly among countries and, under normal circumstances, to invest at least 65%
of its assets in the securities of issuers collectively having their principal
business activities in no fewer than three countries other than the United
States. The Fund's assets will consist predominantly of securities denominated
in the following currencies: the British pound, the Canadian dollar, the U.S.
dollar, the German mark, the French franc, the Swiss franc, the Japanese yen,
the Dutch guilder and the European Currency Unit. (The European Currency Unit is
a weighted composite of the currencies of member states of the European Monetary
System.) The Fund may invest up to 5% of its assets in the securities of
companies in or governments of developing countries. In order to mitigate the
effects of uncertainty in future exchange rates, the Fund may engage in currency
exchange transactions, purchase options on foreign currencies and enter into
currency futures contracts and related options. When the Fund's investment
adviser determines it to be appropriate to assume a temporary defensive posture,
the
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
Fund may restrict the securities markets in which its assets will be invested,
and may increase the proportion of its assets invested in obligations of
companies incorporated in and having their principal activities in the United
States. The Fund also may lend portfolio securities, purchase or sell securities
on a when-issued or delayed-delivery basis, write put and call options on
securities and, for hedging purposes, purchase put options on securities and
currencies and enter into interest rate and currency futures contracts and
related options and forward currency contracts. Special considerations
associated with the Fund's investments are described under "Risk Factors and
Special Considerations."
CERTAIN INVESTMENT STRATEGIES
In attempting to achieve its investment objective, the Fund may employ, among
others, one or more of the strategies set forth below. More detailed information
concerning these strategies and their related risks is contained in the
Statement of Additional Information.
WHEN-ISSUED SECURITIES AND DELAYED-DELIVERY TRANSACTIONS. In order to secure
yields or prices deemed advantageous at the time, the Fund may purchase or sell
any portfolio securities on a when-issued or delayed-delivery basis. The Fund
will enter into a when-issued transaction for the purpose of acquiring portfolio
securities and not for the purpose of leverage. In such transactions delivery of
the securities occurs beyond the normal settlement periods, but no payment or
delivery is made by the Fund prior to the actual delivery or payment by the
other party to the transaction. Due to fluctuations in the value of securities
purchased or sold on a when-issued or delayed-delivery basis, the yields
obtained on such securities may be higher or lower than the yields available in
the market on the dates when the investments are actually delivered to the
buyers. The Fund will establish a segregated account consisting of cash, U.S.
government securities or other high-grade debt obligations in an amount equal to
the amount of its when-issued and delayed-delivery commitments. Placing
securities rather than cash in the segregated account may have a leveraging
effect on the Fund's net assets. The Fund will not accrue income with respect to
a when-issued security prior to its stated delivery date.
LENDING OF PORTFOLIO SECURITIES. The Fund has the ability to lend portfolio
securities to brokers, dealers and other financial organizations. These loans,
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
if and when made, may not exceed 20% of the Fund's assets taken at value. Loans
of portfolio securities will be collateralized by cash, letters of credit or
U.S. government securities that are maintained at all times in an amount at
least equal to 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.
COVERED OPTION WRITING. The Fund may write put and call options on securities.
The Fund realizes fees (referred to as "premiums") for granting the rights
evidenced by the options. A put option embodies the right of its purchaser to
compel the writer of the option to purchase from the option holder an underlying
security at a specified price at any time during the option period. In contrast,
a call option embodies the right of its purchaser to compel the writer of the
option to sell to the option holder an underlying security at a specified price
at any time during the option period. Thus, the purchaser of a put option
written by the Fund has the right to compel the Fund to purchase from it the
underlying security at the agreed-upon price for a specified time period, while
the purchaser of a call option written by the Fund has the right to purchase
from the Fund the underlying security owned by the Fund at the agreed-upon price
for a specified time period.
Upon the exercise of a put option written by the Fund, the Fund may suffer a
loss equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option.
The Fund will write only covered options. Accordingly, whenever the Fund
writes a call option, it will continue to own or have the present right to
acquire the underlying security for as long as it remains obligated as the
writer of the option. To support its obligation to purchase the underlying
security if a put option is exercised, the Fund will either (a) deposit with
Boston Safe Deposit and Trust Company ("Boston Safe") in a segregated account
cash, U.S. government securities or other high-grade debt obligations having a
value at least equal to the exercise price of the underlying securities or (b)
continue to own an equivalent number of puts of the same "series" (that is, puts
on the same underlying security having the same exercise prices and expiration
dates as those written by the Fund), or an equivalent number of puts of the same
"class" (that is, puts on the same underlying security) with exercise prices
greater than those that it has
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
written (or, if the exercise prices of the puts that it holds are less than the
exercise prices of those that it has written, it will deposit the difference
with Boston Safe in a segregated account).
The Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desires to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated by a closing purchase transaction, but the Fund would not be
deemed to own an option as the result of the transaction. There can be no
assurance that the Fund will be able to effect closing purchase transactions at
a time when it wishes to do so. To facilitate closing purchase transactions,
however, the Fund ordinarily will write options only if a secondary market for
the options exists on a domestic securities exchange or in the over-the-counter
market.
PURCHASING PUT AND CALL OPTIONS ON SECURITIES. The Fund may purchase and sell
put, call and other types of option securities that are traded on domestic or
foreign exchanges or the over-the-counter market including, but not limited to,
"spread" options, "knock-out" options, "knock-in" options and "average rate" or
"look-back" options. The Fund may utilize up to 15% of its assets to purchase
options and may do so at or about the same time that it purchases the underlying
security or at a later time. In purchasing option securities, the Fund will
trade only with counterparties of high standing in terms of credit quality and
commitment to the market. Risks associated with options transactions and foreign
futures contracts are described below under "Special Considerations."
By buying a put, the Fund limits the risk of loss from a decline in the market
value of the security until the put expires. Any appreciation in the value of
the yield otherwise available from the underlying security, however, will be
partially offset by the amount of the premium paid for the put option and any
related transaction costs. Call options may be purchased by the Fund in order to
acquire the underlying securities for the Fund at a price that avoids any
additional cost that would result from a substantial increase
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
in the market value of a security. The Fund also may purchase call options to
increase its return to investors at a time when the call is expected to increase
in value due to anticipated appreciation of the underlying security.
Prior to their expirations, put and call options may be sold in closing sale
transactions (sales by the Fund, prior to the exercise of options that it has
purchased, or options of the same series), and profit or loss from the sale will
depend on whether the amount received is more or less than the premium paid for
the option plus the related transaction costs.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. To the extent permitted by
the policies of state securities authorities in states where shares of the Fund
are qualified for offer and sale, the Fund may enter into futures contracts or
related options that are traded on domestic and foreign exchanges or boards of
trade. An interest rate futures contract provides for the future sale by one
party and the purchase by the other party of a certain amount of specified debt
security at a specified price, date, time and place. The Fund may enter into
futures contracts to sell debt securities or currency when Global Asset
Management believes that the value of the Fund's debt securities will decrease.
An option on an interest rate futures contract, as contrasted with the direct
investment in a futures contract, gives the purchaser the right, in return for
the premium paid, to assume a position in an interest rate futures contract at a
specified exercise price at any time prior to the expiration date of the option.
A call option gives the purchaser of the option the right to enter into a
futures contract to buy and obliges the writer to enter into a futures contract
to sell the underlying debt securities. A put option gives the purchaser the
right to sell and obliges the writer to buy the underlying contract. A foreign
currency futures contract of the type that the Fund may invest in provides for
the future sale by one party and the purchase by the other party of a certain
amount of a specified foreign currency at a specified price, date, time and
place, and an option on a foreign currency futures contract gives the purchaser
the right, in return for the premium paid, to assume a position in a foreign
currency futures contract at a specified exercise price at any time prior to the
expiration date of the option. The Fund may enter into futures contracts to
purchase debt securities or currency when Global Asset Management anticipates
purchasing the underlying debt securities or currency and believes that prices
will rise before the purchases will be made. When the Fund enters into a futures
contract to purchase an underlying security or currency, an amount of cash,
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
U.S. government securities or other high-grade debt securities, equal to the
market value of the contract, will be deposited in a segregated account with the
Trust's custodian to collateralize the position, thereby insuring that the use
of the contract is unleveraged.
The Fund may purchase put options on futures contracts to hedge its portfolio
against the risk of rising interest rates or currency prices, and may purchase
call options on interest rate futures contracts to hedge against a decline in
interest rates or currency prices. The Fund may write put and call options on
futures contracts in entering into closing sale transactions and to increase its
ability to hedge against changes in interest rates or currency values.
CURRENCY EXCHANGE TRANSACTIONS AND OPTIONS ON FOREIGN CURRENCIES. In order to
protect against uncertainty in the level of future exchange rates, the Fund may
engage in currency exchange transactions and purchase exchange-traded put and
call options on foreign currencies. The Fund will conduct its currency exchange
transactions either on a spot (i.e., cash) basis at the rate prevailing in the
currency exchange market or through entering into forward contracts to purchase
or sell currencies. The Fund's dealings in forward currency exchange and options
on foreign currencies are limited to hedging involving either specific
transactions or portfolio positions.
A forward currency contract involves an obligation to purchase or sell a
specific currency for an agreed-upon price at an agreed-upon date which may be
any fixed number of days from the date of the contract agreed upon by the
parties. These contracts are entered into in the interbank market conducted
directly between currency traders (usually large commercial banks) and their
customers. Although these contracts are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they tend
to limit any potential gain that might result should the value of the currency
increase.
The Fund may purchase a call option on a foreign currency to hedge against an
adverse exchange rate of the currency in which a security that it anticipates
purchasing is denominated in relation to the currency in which the exercise
price is denominated. An option on a foreign currency gives the purchaser, in
return for a premium, the right to sell, in the case of a put, and buy, in the
case of a call, the underlying currency at a specified price during the term of
the option. Although the purchase of an option on a
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
foreign currency may constitute an effective hedge by the Fund against
fluctuations in the exchange rates, in the event of rate movements adverse to
the Fund's position, the Fund may forfeit the entire amount of the premium plus
related transaction costs.
Although the foreign currency forward market may not necessarily be more
volatile than the market in other commodities, the foreign currency forward
market offers less protection against defaults in the trading of currencies than
is available when trading in currencies occurs on an exchange. Because a forward
currency contract is not guaranteed by an exchange or clearinghouse, a default
on the contract would deprive the Fund of unrealized profits or force the Fund
to cover its commitments for the purchase or resale, if any, at the current
market price.
ADDITIONAL INVESTMENTS
MONEY MARKET INSTRUMENTS. When Global Asset Management believes that market
conditions warrant, the Fund may adopt a temporary defensive posture and may
invest in short-term instruments without limitation. Short-term instruments in
which the Fund may invest include United States government securities; certain
bank obligations (including certificates of deposit, time deposits and bankers'
acceptances of domestic or foreign banks, domestic savings and loan associations
and similar institutions); commercial paper rated no lower than A-2 by S&P or
Prime-2 by Moody's or the equivalent from another major rating service or, if
unrated, of an issuer having an outstanding, unsecured debt issue then rated
within the three highest rating categories; and repurchase agreements as
described below.
UNITED STATES GOVERNMENT SECURITIES. The U.S. government securities in which
the Fund may invest include: direct obligations of the United States Treasury
(such as Treasury Bills, Treasury Notes and Treasury Bonds), and obligations
issued by U.S. government agencies and instrumentalities, including securities
that are supported by the full faith and credit of the United States (such as
GNMA certificates); securities that are supported by the right of the issuer to
borrow from the United States Treasury (such as securities of Federal Home Loan
Banks); and securities that are supported by the credit of the instrumentality
(such as FNMA and FHLMC bonds). Treasury Bills have maturities of less than 1
year, Treasury Notes have
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
maturities of 1 to 10 years and Treasury Bonds generally have maturities of
greater than 10 years at the date of issuance. Certain U.S. government
securities, such as those issued or guaranteed by Government National Mortgage
Association ("GNMA"), Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), are mortgage-related
securities. U.S. government securities generally do not involve the credit risks
associated with other types of interest-bearing securities, although, as a
result, the yields available from U.S. government securities are generally lower
than the yields available from interest-bearing corporate securities.
REPURCHASE AGREEMENTS. The Fund may engage in repurchase agreement
transactions with certain member banks of the Federal Reserve System and with
certain dealers on the Federal Reserve Bank of New York's list of reporting
dealers. Under the terms of a typical repurchase agreement, the Fund would
acquire an underlying debt obligation for a relatively short period (usually not
more than one week) subject to an obligation of the seller to repurchase, and
the Fund to resell, the obligation at an agreed-upon price and time, thereby
determining the yield during the Fund's holding period. This arrangement results
in a fixed rate of return that is not subject to market fluctuations during the
Fund's holding period. The value of the underlying securities will be at least
equal at all times to the total amount of the repurchase obligation, including
interest. Repurchase agreements could involve certain risks in the event of
default or insolvency of the other party, including possible delays or
restrictions upon the Fund's ability to dispose of the underlying securities,
the risk of a possible decline in the value of the underlying securities during
the period in which the Fund seeks to assert its rights to them, the risk of
incurring expenses associated with asserting those rights and the risk of losing
all or part of the income from the agreement. Global Asset Management or Boston
Advisors, acting under the supervision of the Trust's Board of Trustees, reviews
on an ongoing basis the value of the collateral and the creditworthiness of
those banks and dealers with which the Fund may enter into repurchase agreements
to evaluate potential risks.
CERTAIN INVESTMENT GUIDELINES
Up to 15% of the assets of the Fund may be invested in securities with
contractual or other restrictions on resale and other instruments that are not
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GLOBAL BOND FUND
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
readily marketable. Notwithstanding the foregoing, the Fund shall not invest
more than 10% of its net assets in securities (excluding those subject to Rule
144A under the Securities Act of 1933, as amended) that are restricted. In
addition, the Fund may invest up to 5% of its assets in the securities of
issuers which have been in continuous operation for less than three years. The
Fund also may borrow from banks for temporary or emergency purposes, but not for
investment purposes, in an amount up to 10% of its total assets, and may pledge
its assets to the same extent in connection with such borrowings. Whenever these
borrowings exceed 5% of the value of the Fund's total assets, the Fund will not
make any additional investments. Except for the limitations on borrowing, the
investment guidelines set forth in this paragraph may be changed at any time
without shareholder consent by vote of the Trust's Board of Trustees. A complete
list of investment restrictions that identifies additional restrictions that
cannot be changed without the approval of the majority of the Fund's outstanding
shares is contained in the Statement of Additional Information.
RISK FACTORS AND SPECIAL CONSIDERATIONS
OPTIONS. Option writing for the Fund may be limited by position and exercise
limits established by the national securities exchanges and the National
Association of Securities Dealers, Inc. (the "NASD") and by requirements in the
Code for qualification as a regulated investment company (see "Dividends,
Distributions and Taxes"). The Fund may write covered put and call options to
generate current income. In addition, the Fund may enter into options
transactions as hedges to reduce investment risk, generally by making an
investment expected to move in the opposite direction of a portfolio position. A
hedge is designed to offset a loss on a portfolio position with a gain on the
hedge position; at the same time, however, a properly correlated hedge will
result in a gain on the portfolio position being offset by a loss on the hedge
position. The Fund bears the risk that the prices of the securities being hedged
will not move in the same amount as the hedge. The Fund will engage in hedging
transactions only when deemed advisable by Global Asset Management. Successful
use by the Fund of options will depend on Global Asset Management's ability to
correctly predict movements in the direction of the stock or currency underlying
the option used as a hedge. Losses incurred in hedging transactions and the
costs of these transactions will affect the Fund's performance.
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
The ability of the Fund to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While the Fund
generally will purchase or write stock options or options on currencies only if
there appears to be a liquid secondary market for the options purchased or sold,
for some options no such secondary market may exist or the market may cease to
exist.
Because option premiums paid or received by the Fund are small in relation to
the market value of the investments underlying the options, buying and selling
options can result in large amounts of leverage. The leverage offered by trading
in options may cause the Fund's net asset value to be subject to more frequent
and wider fluctuation than would be the case if the Fund did not invest in
options.
The Fund may write put and covered call options on securities. The Fund could
realize fees (referred to as "premiums") for granting the rights evidenced by
the options. A put option embodies the right of its purchaser to compel the
writer of the option to purchase from the option holder an underlying security
at a specified price at any time during the option period. In contrast, a call
option embodies the right of its purchaser to compel the writer of the option to
sell the option holder an underlying security at a specified price at any time
during the option period.
Upon the exercise of a put option written by the Fund, the Fund may suffer a
loss equal to the difference between the price at which the Fund is required to
purchase the underlying security and its market value at the time of the option
exercise, less the premium received for writing the option. Upon the exercise of
a call option written by the Fund, the Fund may suffer a loss equal to the
excess of the security's market value at the time of the option exercise over
the exercise price of the option less the premium received for writing the
option.
Whenever the Fund writes a call option it will continue to own or have the
present right to acquire the underlying security for as long as it remains
obligated as the writer of the option. To support its obligation to purchase the
underlying security if a put option is exercised, the Fund will either (a)
deposit with the Fund's custodian in a segregated account, cash, U.S. government
securities or other high-grade debt obligations having a value at least equal to
the exercise price of the underlying securities or (b) continue to own an
equivalent number of puts of the same "series" (that is, puts on the underlying
security having the same exercise prices and
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
expiration dates as those written by the Fund), or an equivalent number of puts
of the same "Class" (that is, puts on the same underlying security with exercise
prices greater than those that it has written (or, if the exercise prices of the
puts it holds are less than the exercise prices of those it has written, it will
deposit the difference with the Fund's custodian in a segregated account.)
The Fund may engage in a closing purchase transaction to realize a profit, to
prevent an underlying security from being called or put or, in the case of a
call option, to unfreeze an underlying security (thereby permitting its sale or
the writing of a new option on the security prior to the outstanding option's
expiration). To effect a closing purchase transaction, the Fund would purchase,
prior to the holder's exercise of an option that the Fund has written, an option
of the same series as that on which the Fund desired to terminate its
obligation. The obligation of the Fund under an option that it has written would
be terminated but a closing purchase transaction, by the Fund would not be
deemed to own an option as a result of the transaction. No assurance can be
given that the Fund will be able to effect closing transactions at a time when
it wishes to do so. If the Fund cannot enter into a closing transaction, the
Fund may be required to hold a security that it might otherwise have sold, in
which case it would continue to be at market risk on the security and could face
higher transaction costs, including brokerage commissions.
The ability of the Fund to engage in closing transactions with respect to
options depends on the existence of a liquid secondary market. While the Fund
generally will purchase or write options or financial futures only if there
appears to be a liquid secondary market for the options or futures sold or
purchased, for some options or futures no such secondary market may exist or the
market may cease to exist.
FUTURES AND OPTIONS ON FUTURES. When deemed advisable by its investment
adviser, the Fund may enter into futures contracts or related options that are
traded on domestic and foreign exchanges or boards of trade as well as the
over-the-counter market with respect to options on such futures contracts. Such
investments, if any, by the Fund will be made primarily for the purpose of
hedging against the effects of changes in the value of its portfolio securities
due to anticipated changes in interest rates or currency values and when the
transactions are economically appropriate to the reduction of risks inherent in
the management of the Fund. The Fund may
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
enter into futures contracts and options on futures contracts (a) without limit
for bona fide hedging purposes and (b) for other purposes provided the aggregate
initial margin deposits and premium paid for unexpired options do not exceed 5%
of the fair market value of the Fund's assets, after taking into account
unrealized profits and unrealized losses on futures contracts into which it has
entered. With respect to each long position in a futures contract or option
thereon, the underlying commodity value of such contract always will be covered
by cash and cash equivalents set aside plus accrued profits held at the futures
commission merchant.
The use of futures contracts and options on futures contracts as a hedging
device involves several risks. There can be no assurance that there will be a
correlation between price movements in the underlying securities or currency, on
the one hand, and price movements in the securities which are the subject of the
hedge, on the other hand. Positions in futures contracts and options on futures
contracts may be closed out only on the exchange or board of trade on which they
were entered into, and there can be no assurance that an active market will
exist for a particular contract or option at any particular time. Losses
incurred in hedging transactions and the costs of these transactions will affect
the Fund's performance.
FOREIGN COMMODITY EXCHANGES. Unlike trading on domestic commodity exchanges,
trading on foreign commodity exchanges is not regulated by the CFTC and may be
subject to greater risks than trading on domestic exchanges. For example, some
foreign exchanges may be principal markets so that no common clearing facility
exists and a trader may look only to the broker for performance of the contract.
In addition, unless the Fund hedges against fluctuations in the exchange rate
between the U.S. dollar and the currencies in which trading is done on foreign
exchanges, any profits that the Fund might realize in trading could be
eliminated by adverse changes in the exchange rate, or the Fund could incur
losses as a result of those changes.
SECURITIES OF UNSEASONED ISSUERS. Securities in which the Fund may invest may
have limited marketability and, therefore, may be subject to wide fluctuations
in market value. In addition, certain securities may lack a significant
operating history and be dependent on products or services without an
established market share.
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
FOREIGN SECURITIES. There are certain risks involved in investing in
securities of companies and governments of foreign nations which are in addition
to the usual risks inherent in domestic investments. These risks include those
resulting from revaluation of currencies, future adverse political and economic
developments and the possible imposition of currency exchange blockages or other
foreign governmental laws or restrictions, reduced availability of public
information concerning issuers and the lack of uniform accounting, auditing and
financial reporting standards or of other regulatory practices and requirements
comparable to those applicable to domestic companies. The yield of the Fund may
be adversely affected by fluctuations in value of one or more foreign currencies
relative to the U.S. dollar. Moreover, securities of many foreign companies and
their markets may be less liquid and their prices more volatile than those of
securities of comparable domestic companies. In addition, with respect to
certain foreign countries, there is the possibility of expropriation,
nationalization, confiscatory taxation and limitations on the use or removal of
funds or other assets of the Fund, including the withholding of dividends.
Foreign securities may be subject to foreign government taxes that could reduce
the yield on such securities. Because the Fund will invest in securities
denominated or quoted in currencies other than the U.S. dollar, changes in
foreign currency exchange rates may adversely affect the value of portfolio
securities and the appreciation or depreciation of investments. Investment in
foreign securities also may result in higher expenses due to the cost of
converting foreign currency to U.S. dollars, the payment of fixed brokerage
commissions on foreign exchanges, which generally are higher than commissions on
domestic exchanges, and the expense of maintaining securities with foreign
custodians, and the imposition of transfer taxes or transaction charges
associated with foreign exchanges.
Corporate securities in which the Fund may invest include corporate
fixed-income securities of both domestic and foreign issuers, such as bonds,
debentures, notes, equipment lease certificates, equipment trust certificates,
and preferred stock.
Certain of the corporate fixed-income securities in which the Fund may invest
may involve equity characteristics. The Fund may, for example, invest in
warrants for the acquisition of stock of the same or of a different issuer or in
corporate fixed-income securities that have conversion or exchange rights
permitting their holder to convert or exchange the securities at a
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INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
stated price within a specified period of time into a specified number of shares
of common stock. In addition, the Fund may invest in participations that are
based on revenues, sales or profits of an issuer or in common stock offered as a
unit with corporate fixed-income securities.
FOREIGN CURRENCY. Although the foreign currency market may not necessarily be
more volatile than the market in other commodities, the foreign currency market
offers less protection against defaults in the forward trading of currencies
than is available when trading in currencies occurs on an exchange. Because a
forward currency contract is not guaranteed by an exchange or clearing house, a
default on the contract would deprive the Fund of unrealized profits or force
the Fund to cover its commitments for purchase or resale, if any, at the current
market price.
SECURITIES OF DEVELOPING COUNTRIES. A developing country generally is
considered to be a country that is in the initial stages of its
industrialization cycle. Investing in the equity and fixed-income markets of
developing countries involves exposure to economic structures that are generally
less diverse and mature, and to political systems that can be expected to have
less stability, than those of developed countries. Historical experience
indicates that the markets of developing countries have been more volatile than
the markets of the more mature economies of developed countries; however, such
markets often have provided higher rates of return to investors.
NON-PUBLICLY TRADED AND ILLIQUID SECURITIES. The sale of securities that are
not publicly traded is typically restricted under the Federal securities laws.
As a result, the Fund may be forced to sell these securities at less than fair
market value or may not be able to sell them when Global Asset Management
believes it desirable to do so. The Fund's investments in illiquid securities
are subject to the risk that should the Fund desire to sell any of these
securities when a ready buyer is not available at a price that the Fund deems
representative of their value, the value of the Fund's net assets could be
adversely affected.
PORTFOLIO TRANSACTIONS AND TURNOVER
All orders for transactions in securities and options on behalf of the Fund
are placed by Global Asset Management with broker-dealers that Global Asset
Management selects, including Smith Barney Shearson and other
30
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- --------------------------------------------------------------------
INVESTMENT OBJECTIVE AND MANAGEMENT POLICIES (CONTINUED)
affiliated brokers. The Fund may utilize Smith Barney Shearson or a Smith Barney
Shearson-affiliated-broker in connection with a purchase or sale of securities
when Global Asset Management believes that the broker's charge for the
transactions does not exceed usual and customary levels. The same standard
applies to the use of Smith Barney Shearson as a commodities broker in
connection with entering into options and futures contracts.
Under certain market conditions, the Fund may experience high portfolio
turnover as a result of its investment strategies. For example, the exercise of
a substantial number of the options written by the Fund and the purchase or sale
of securities by the Fund in anticipation of a rise or decline in interest rates
could result in high portfolio turnover. Short-term gains realized from
portfolio transactions are taxable to shareholders as ordinary income. In
addition, higher portfolio turnover rates can result in corresponding increases
in brokerage commissions for the Fund. The Fund will not consider portfolio
turnover rate a limiting factor in making investment decisions consistent with
its objective and policies.
- --------------------------------------------------------------------
PURCHASE OF SHARES
Purchases of Fund shares must be made through a brokerage account maintained
with Smith Barney Shearson or with an Introducing Broker, except that investors
purchasing shares of the Fund through a qualified retirement plan may do so
directly through the Trust's transfer agent. When purchasing shares of the Fund,
investors must specify whether the purchase is for Class A or Class B shares or,
in the case of Participating Plans, Class D shares. No maintenance fee will be
charged in connection with a brokerage account through which an investor
purchases or holds shares. Purchases are effected at the public offering price
next determined after a purchase order is received by Smith Barney Shearson or
an Introducing Broker (the "trade date"). Payment is generally due to Smith
Barney Shearson or the Introducing Broker on the fifth business day (the
"settlement date") after the trade date. Investors who make payment prior to the
settlement date may permit the payment to be held in their brokerage accounts or
may designate a temporary investment (such as a money market
31
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
fund in the Smith Barney Shearson Group of Funds) for the payment until the
settlement date. The Trust reserves the right to reject any purchase order for
shares and to suspend the offering of shares for any period of time.
Purchase orders received by Smith Barney Shearson or an Introducing Broker
prior to the close of regular trading on the NYSE, currently 4:00 p.m., New York
time, on any day the Fund's net asset value is calculated are priced according
to the net asset value determined on that day. Purchase orders received after
the close of regular trading on the NYSE are priced as of the time the net asset
value per share is next determined. See "Valuation of Shares" below.
SYSTEMATIC INVESTMENT PLAN. The Trust offers shareholders a Systematic
Investment Plan under which shareholders may authorize Smith Barney Shearson or
an Introducing Broker to place a purchase order each month or quarter for Fund
shares in an amount not less than $100. The purchase price is paid automatically
from cash held in the shareholder's Smith Barney Shearson brokerage account or
through the automatic redemption of the shareholder's shares of a Smith Barney
Shearson money market fund. For further information regarding the Systematic
Investment Plan, shareholders should contact their Smith Barney Shearson
Financial Consultants.
MINIMUM INVESTMENTS. The minimum initial investment in the Fund is $1,000 and
the minimum subsequent investment is $200, except that for purchases through (a)
IRAs and Self-Employed Retirement Plans, the minimum initial and subsequent
investments are both $250 and $100, respectively, (b) retirement plans qualified
under Sections 401(a) and 403(b)(7) of the Code, the minimum initial and
subsequent investment is $25 and (c) the Systematic Investment Plan, the minimum
initial and subsequent investment are both $100. There are no minimum investment
requirements for employees of Primerica Corporation ("Primerica") and its
subsidiaries, including Smith Barney Shearson. The Trust reserves the right at
any time to vary the initial and subsequent investment minimums. Certificates
for Fund shares are issued upon request to the Trust's transfer agent.
32
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
CLASS A SHARES
The public offering price for Class A shares is the per share net asset value
of that Class plus a sales charge, which is imposed in accordance with the
following schedule:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT* OF OFFERING PRICE OF NET ASSET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Less than $25,000 4.50% 4.71%
$25,000 but under $50,000 4.00% 4.17%
$50,000 but under $100,000 3.50% 3.63%
$100,000 but under $250,000 3.00% 3.09%
$250,000 but under $500,000 2.50% 2.56%
$500,000 but under $1,000,000 1.50% 1.52%
$1,000,000 or more** .00% .00%
- -------------------------------------------------------------------------------------
<FN>
* Smith Barney Shearson has adopted guidelines directing its Financial
Consultants and Introducing Brokers that single investments of $250,000 or
more should be made in Class A shares.
** No sales charge is imposed on purchases of $1 million or more; however, a
CDSC of .75% is imposed for the first year after purchase. The CDSC on
Class A shares is payable to Smith Barney Shearson, which, with Boston
Advisors, compensates Smith Barney Shearson Financial Consultants upon the
sale of these shares. The CDSC is waived in the same circumstances in which
the CDSC applicable to Class B shares is waived. See "Redemption of
Shares--Contingent Deferred Sales Charge--Class B Shares--Waivers of CDSC."
</TABLE>
REDUCED SALES CHARGES--CLASS A SHARES
Reduced sales charges are available to investors who are eligible to combine
their purchases of Class A shares to receive volume discounts. Investors
eligible to receive volume discounts include individuals and their immediate
families, tax-qualified employee benefit plans and a trustee or other
professional fiduciary (including a bank, or an investment adviser registered
with the SEC under the Investment Advisers Act of 1940, as amended) purchasing
shares for one or more trust estates or fiduciary accounts even though more than
one beneficiary is involved. The initial sales charge is also reduced to 1% for
Smith Barney Shearson Personal Living Trust program participants for whom Smith
Barney Shearson acts as trustee. Reduced sales charges on Class A shares are
also available under a combined right of accumulation, under which an investor
may combine the
33
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
value of Class A shares already held in the Fund and in any of the funds in the
Smith Barney Shearson Group of Funds listed below (except those sold without a
sales charge), along with the value of the Class A shares being purchased, to
qualify for a reduced sales charge. For example, if an investor owns Class A
shares of the Fund and other funds in the Smith Barney Shearson Group of Funds
that have an aggregate value of $22,000, and makes an additional investment in
Class A shares of the Fund of $4,000, the sales charge applicable to the
additional investment would be 4.0%, rather than the 4.50% normally charged on a
$4,000 purchase. Investors interested in further information regarding reduced
sales charges should contact their Smith Barney Shearson Financial Consultants.
Class A shares may be offered without any applicable sales charges to: (a)
employees of Primerica and its subsidiaries, including Smith Barney Shearson,
employee benefit plans for such employees and the spouses and minor children of
such employees when orders on their behalf are placed by such employees; (b)
accounts managed by registered investment advisory subsidiaries of Primerica;
(c) directors, trustees or general partners of any investment company for which
Smith Barney Shearson serves as distributor; (d) any other investment company in
connection with the combination of such company with the Fund by merger,
acquisition of assets or otherwise; (e) shareholders who have redeemed Class A
shares in the Fund (or Class A shares of another fund in the Smith Barney
Shearson Group of Funds that are sold with a maximum 4.50% sales charge) and who
wish to reinvest their redemption proceeds in the Fund, provided the
reinvestment is made within 30 days of the redemption; (f) any client of a
newly-employed Smith Barney Shearson Financial Consultant (for a period up to 90
days from the commencement of the Financial Consultant's employment with Smith
Barney Shearson), on the condition that the purchase is made with the proceeds
of the redemption of shares of a mutual fund that (i) was sponsored by the
Financial Consultant's prior employer, (ii) was sold to a client by the
Financial Consultant, and (iii) when purchased, such shares were sold with a
sales charge.
CLASS B SHARES
The public offering price for Class B shares is the per share net asset value
of that Class. No initial sales charge is imposed at the time of
34
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
purchase. A CDSC is imposed, however, on certain redemptions of Class B shares.
See "Redemption of Shares" which describes the CDSC in greater detail.
Smith Barney Shearson has adopted guidelines, in view of the relative sales
charges and distribution fees applicable to the Classes, directing Smith Barney
Shearson Financial Consultants and Introducing Brokers that all purchases of
shares of $250,000 or more should be for Class A rather than Class B. Smith
Barney Shearson reserves the right to vary these guidelines at any time.
SMITH BARNEY SHEARSON 401(K) PROGRAM
Shareholders investing in the Fund may be eligible to participate in the
401(k) Program, which is generally designed to assist employers or plan sponsors
in the creation and operation of retirement plans under Section 401(a) of the
Code. To the extent applicable, the same terms and conditions are offered to all
Participating Plans in the 401(k) Program, which include both 401(k) plans and
other types of participant directed, tax-qualified employee benefit plans. For
further information regarding the 401(k) Program, investors should contact their
Smith Barney Shearson Financial Consultants.
The Fund offers to Participating Plans three classes of shares, Class A, Class
B and a third class, Class D shares, as investment alternatives under the 401(k)
Program. Class A shares are available to all Participating Plans, and are the
only investment alternative for Participating Plans that are eligible to
purchase Class A shares at net asset value without a sales charge. In addition,
Class B shares are offered only to Participating Plans satisfying certain
criteria with respect to the amount of the initial investment and number of
employees eligible to participate in the Plan at that time. Alternatively, Class
D shares are offered only to Participating Plans that meet other criteria
relating to the amount of initial investment and number of employees eligible to
participate in the Plan at that time, as described below.
The Class A and Class B shares acquired through the 401(k) Program are subject
to the same service and/or distribution fees as, but different sales charge and
CDSC schedules than, the Class A and Class B shares acquired by other investors.
Class D shares acquired by Participating Plans are offered
35
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
at net asset value per share without any sales charges or CDSC. The Fund pays
annual service and distribution fees based on the value of the average daily net
assets attributable to this Class.
Once a Participating Plan has made an initial investment in the Fund, all of
its subsequent investments in the Fund must be in the same Class of shares,
except as otherwise described below.
CLASS A SHARES. The sales charges for Class A shares acquired by Participating
Plans are as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS % SALES CHARGE AS %
AMOUNT OF INVESTMENT OF OFFERING PRICE OF NET ASSET VALUE
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Less than $25,000 4.50% 4.71%
$25,000 up to $50,000 4.00% 4.17%
$50,000 up to $100,000 3.50% 3.63%
$100,000 up to $250,000 3.00% 3.09%
$250,000 up to $500,000 2.50% 2.56%
$500,000 up to $750,000 1.50% 1.52%
$750,000 and over .00% .00%
<CAPTION>
- -------------------------------------------------------------------------------------
</TABLE>
A Participating Plan will have a combined right of accumulation under which,
to qualify for a reduced sales charge, it may combine the value of Class A
shares being purchased with the value of Class A shares already held in the Fund
and in any of the funds listed below under "Exchange Privilege" that are sold
with a sales charge.
Class A shares of the Fund may be offered without any sales charge to any
Participating Plan that: (a) purchases $750,000 or more of Class A shares of one
or more funds in the Smith Barney Shearson Group of Funds under the combined
right of accumulation described above; (b) has 250 or more employees eligible to
participate in the Participating Plan at the time of initial investment in the
fund; or (c) currently holds Class A shares in the Fund that were received as a
result of an exchange of Class B or Class D shares of the fund as described
below.
Class A shares acquired through the 401(k) Program will not be subject to a
CDSC.
36
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
CLASS B SHARES. Under the 401(k) Program, Class B shares are offered to
Participating Plans that: (a) purchase less that $250,000 of Class B shares of
one or more funds in the Smith Barney Shearson Group of Funds that are sold
subject to a CDSC; and (b) that have less than 100 employees eligible to
participate in the Participating Plan at the time of initial investment in the
Fund. Class B shares acquired by such Plans will be subject to a CDSC of 3% of
redemption proceeds, if redeemed within eight years of the date the
Participating Plan first purchases Class B shares. No CDSC is imposed to the
extent that the net asset value of the Class B shares redeemed does not exceed
(a) the current net asset value of Class B shares purchased through reinvestment
of dividends or capital gains distributions, plus (b) the current net asset
value of Class B shares purchased more than eight years prior to the redemption,
plus (c) increases in the net asset value of the shareholder's Class B shares
above the purchase payments made during the preceding eight years. The CDSC
applicable to a Participating Plan depends on the number of years since the
Participating Plan first became a holder of Class B shares, unlike the CDSC
applicable to other Class B shareholders, which depends on the number of years
since those shareholders made the purchase payment from which the amount is
being redeemed.
The CDSC 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
of 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 Class B shares in connection with a loan made the by
Participating Plan to an employee.
Eight years after the date a Participating Plan acquired its first Class B
share, it will be offered the opportunity to exchange all of its Class B shares
for Class A shares of the Fund. Such Plans will be notified of the pending
exchange in writing approximately 60 days before the eighth anniversary of the
purchase 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 of the Fund but instead may acquire Class A shares of the Fund.
If the Participating Plan elects not to exchange all of its
37
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
PURCHASE OF SHARES (CONTINUED)
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 "Variable Pricing System -- Class B Shares."
CLASS D SHARES. Class D shares are offered to Participating Plans that: (a)
purchase less than $750,000 but more than $250,000 of Class D shares of one or
more funds in the Smith Barney Shearson Group of Funds that offer one or more
Classes of shares subject to a sales charge and/or CDSC; or (b) have at least
100 but no more than 250 employees eligible to participate in the Participating
Plan at the time of initial investment in the Fund.
Class D shares acquired by Participating Plans are offered at net asset value
per share without any sales charge or CDSC. The Fund pays annual service and
distribution fees based on the value of the average daily net assets
attributable to this Class. Class D shares are not subject to an automatic
conversion feature as are the Class B shares. Participating Plans which hold
Class D shares valued at $750,000 or more in any fund or funds in the Smith
Barney Shearson Group of Funds that offer one or more Classes of shares subject
to a sales charge and/or CDSC will be offered the opportunity to exchange all of
their Class D shares for Class A shares. Such Plans will be notified of the
pending exchange 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 March in the following
calendar year. Once the exchange has occurred, a Participating Plan will not be
eligible to acquire Class D shares of the Fund but instead may acquire Class A
shares of the Fund. Any Class D shares not converted will continue to be subject
to the distribution fee.
Participating Plans wishing to acquire shares of the Fund through the 401(k)
Program must purchase shares directly from the transfer agent. For further
information regarding the 401(k) Program, investors should contact their Smith
Barney Shearson Financial Consultants.
38
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- --------------------------------------------------------------------
REDEMPTION OF SHARES
Shareholders may redeem their shares on any day the Fund's net asset value is
calculated. See "Valuation of Shares." Redemption requests received in proper
form prior to the close of regular trading on the NYSE are priced at the net
asset value per share determined on that day. Redemption requests received after
the close of regular trading on the NYSE are priced at the net asset value next
determined. 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 Trust's transfer
agent receives further instructions from Smith Barney Shearson, or if the
shareholder's account is not with Smith Barney Shearson, from the shareholder
directly.
The Fund normally transmits redemption proceeds for credit to the
shareholder's account at Smith Barney Shearson or the Introducing Broker at no
charge (other than any applicable CDSC) within seven days after receipt of a
redemption request. Generally, these funds will not be invested for the
shareholder's benefit without specific instruction, and Smith Barney Shearson
will benefit from the use of temporarily uninvested funds. A shareholder who
pays for Fund shares by personal check will be credited with the proceeds of a
redemption of those shares only after the purchase check has been collected,
which may take up to 10 days or more. A shareholder who anticipates the need for
more immediate access to his or her investment should purchase shares with
Federal funds, by bank wire or by certified or cashier's check.
A Fund account that is reduced by a shareholder to a value of $500 or less may
be subject to redemption by the Fund but only after the shareholder has been
given at least 30 days in which to increase the account balance to more than
$500.
Fund shares may be redeemed in either of the following two ways:
REDEMPTION THROUGH SMITH BARNEY SHEARSON
Redemption requests may be made through Smith Barney Shearson or an
Introducing Broker. A shareholder desiring to redeem shares represented by share
certificates must present the certificates to Smith Barney Shearson or the
Introducing Broker endorsed for transfer (or accompanied by an endorsed stock
power), signed exactly as the shares are registered.
39
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
Redemption requests involving shares represented by certificates will not be
deemed received until the certificates are received by the Trust's transfer
agent in proper form.
REDEMPTION BY MAIL
Shares held by Smith Barney Shearson as custodian must be redeemed by
submitting a written request to your Smith Barney Shearson Financial Consultant.
All other shares may be redeemed by submitting a written request for redemption
to:
Smith Barney Shearson Global Bond Fund
Class A, B or D (please specify)
c/o The Shareholder Services Group, Inc.
P.O. Box 9134
Boston, Massachusetts 02205-9134
A written redemption request to TSSG or a Smith Barney Shearson Financial
Consultant must (a) state the Class and number or dollar amount of shares to be
redeemed, (b) identify the shareholder's account number and (c) be signed by
each registered owner exactly as the shares are registered. If the shares to be
redeemed were issued in certificate form, the certificates must be endorsed for
transfer (or accompanied by an endorsed stock power) and must be submitted to
TSSG together with the redemption request. Any signature appearing on a
redemption request, share certificate or stock power must be guaranteed by 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.
TSSG 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 TSSG receives all required
documents in proper form.
AUTOMATIC CASH WITHDRAWAL PLAN
The Fund offers shareholders an automatic cash withdrawal plan, under which
shareholders who own shares of the Fund with a value of at least $10,000 may
elect to receive periodic cash payments of at least $50 monthly. Retirement plan
accounts are eligible for automatic cash withdrawal plans only where the
shareholder is eligible to receive qualified
40
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
distributions and has an account value of at least $5,000. Any applicable CDSC
will not be waived on amounts withdrawn by a shareholder that exceeds 2% per
month of the value of a shareholder's shares subject to the CDSC at the time the
withdrawal plan commences. For further information regarding the automatic cash
withdrawal plan, shareholders should contact their Smith Barney Shearson
Financial Consultants.
CONTINGENT DEFERRED SALES CHARGE--CLASS B SHARES
A CDSC payable to Smith Barney Shearson is imposed on any redemption of Class
B shares, however effected, that caused the current value of a shareholder's
account to fall below the dollar amount of all payments by the shareholder for
the purchase of Class B shares ("purchase payments") during the preceding five
years, except in the case of purchases by Participating Plans, as described
above. See "Purchase of Shares -- Smith Barney Shearson 401(k) Program." No
charge is imposed to the extent that the net asset value of the Class B shares
redeemed does not exceed (a) the current net asset value of Class B shares
purchased through reinvestment of dividends or capital gains distributions, plus
(b) the current net asset value of Class B shares purchased more than five years
prior to the redemption, plus (c) increases in the net asset value of the
shareholder's Class B shares above the purchase payments made during the
preceding five years.
In circumstances in which the CDSC is imposed, 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, except in the case of purchases through
Participating Plans which are subject to a different CDSC. See "Purchase of
Shares -- Smith Barney Shearson 401(k) Program." Solely for purposes of
determining the number of years since a purchase payment, all purchase payments
during a month will be aggregated and deemed to have been made on the last day
of the preceding Smith Barney Shearson statement month. The following table sets
forth the rates of the charges for redemptions of Class B shares by investors
other than Participating Plans in the 401(k) Program:
41
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
<TABLE>
<CAPTION>
YEAR SINCE PURCHASE PAYMENT WAS MADE CDSC
<S> <C>
----------------------------------------------------------------------------------
First 4.50%
Second 4.00%
Third 3.00%
Fourth 2.00%
Fifth 1.00%
Sixth 0.00%
Seventh 0.00%
Eighth 0.00%
<CAPTION>
----------------------------------------------------------------------------------
</TABLE>
Class B shares will automatically convert to Class A shares eight years after
the date on which they were purchased and thereafter will no longer be subject
to any distribution fee. The first of these conversions will commence on or
about September 30, 1994. See "Variable Pricing System--Class B Shares."
The purchase payment from which a redemption of Class B shares is made is
assumed to be the earliest purchase payment from which a full redemption has not
already been effected. In the case of redemptions of Class B shares of other
funds in the Smith Barney Shearson Group of Funds issued in exchange for Class B
shares of the Fund, the term "purchase payments" refers to the purchase payments
for the shares given in exchange. In the event of an exchange of Class B shares
of funds with differing CDSC schedules, the shares will be, in all cases,
subject to the higher CDSC schedule. See "Exchange Privilege."
WAIVERS OF CDSC. The CDSC will be waived on: (a) exchanges (see "Exchange
Privilege"); (b) automatic cash withdrawals in amounts equal to or less than 2%
per month of the value of the shareholder's Class B shares at the time the
withdrawal plan commences (see above); (c) redemptions of shares following the
death or disability of the shareholder; (d) redemption of shares in connection
with certain post-retirement distributions and withdrawals from retirement plans
or IRAs; (e) involuntary redemptions; (f) redemption proceeds from other funds
in the Smith Barney Shearson Group of Funds that are reinvested within 30 days
of the redemption; (g) redemptions of shares in connection with a combination of
any investment company with the Fund by merger, acquisition of assets or
42
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
REDEMPTION OF SHARES (CONTINUED)
otherwise; and (h) certain redemptions of shares of the Fund in connection with
lump-sum or other distributions made by a Participating Plan. See "Purchase of
Shares -- Smith Barney Shearson 401(k) Program."
- --------------------------------------------------------------------
VALUATION OF SHARES
Each Class' net asset value per share is calculated on each day, Monday
through Friday, except on days on which the NYSE is closed. The NYSE currently
is scheduled to be closed on New Year's 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.
The net asset value per share of a given Class is determined as of the close
of regular trading on the NYSE, and is computed by dividing the value of the
Fund's net assets attributable to that Class by the total number of shares of
that Class outstanding. Generally, the Fund's investments are valued at market
value or, in the absence of a market value with respect to any securities, at
fair value as determined by or under the direction of the Trust's Board of
Trustees. A security that is traded primarily on an exchange is valued at the
last sale price of that exchange or, if there were no sales during the day, at
the current quoted bid price. Over-the-counter securities are valued on the
basis of the bid price at the close of business on each day. Investments in U.S.
government securities (other than short-term securities) are valued at the
average of the quoted bid and asked prices in the over-the-counter market.
Short-term investments that mature in 60 days or less are valued at amortized
cost whenever the Trustees determine that amortized cost reflects fair value of
those investments. An option generally is valued at the last sale price or, in
the absence of the last sale price, the last offer price. Further information
regarding the Fund's valuation policies is contained in the Statement of
Additional Information.
43
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- --------------------------------------------------------------------
EXCHANGE PRIVILEGE
Shares of each Class may be exchanged for shares of the same Class in the
following funds in the Smith Barney Shearson Group of Funds, to the extent
shares are offered for sale in the shareholder's state of residence:
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
<S> <C>
---------------------------------------------------------------------------
MUNICIPAL BOND FUNDS
A SMITH BARNEY SHEARSON LIMITED MATURITY MUNICIPALS FUND, an
intermediate-term municipal bond fund investing in
investment-grade obligations.
A, B SMITH BARNEY SHEARSON MANAGED MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund.
A, B SMITH BARNEY SHEARSON TAX-EXEMPT INCOME FUND, an intermediate-and
long-term municipal bond fund investing in medium-and lower-rated
securities.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY CALIFORNIA MUNICIPALS
FUND, an intermediate-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON ARIZONA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed for
Arizona investors.
A, B SMITH BARNEY SHEARSON CALIFORNIA MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed for
California investors.
A, B SMITH BARNEY SHEARSON FLORIDA MUNICIPALS FUND, an intermediate-
and long-term municipal bond fund designed for Florida investors.
A, B SMITH BARNEY SHEARSON MASSACHUSETTS MUNICIPALS FUND, an
intermediate-and long-term municipal bond fund designed for
Massachusetts investors.
</TABLE>
44
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A, B SMITH BARNEY SHEARSON NEW JERSEY MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed for New
Jersey investors.
A SMITH BARNEY SHEARSON INTERMEDIATE MATURITY NEW YORK MUNICIPALS
FUND, an intermediate-term municipal bond fund designed for New
York investors.
A, B SMITH BARNEY SHEARSON NEW YORK MUNICIPALS FUND INC., an
intermediate-and long-term municipal bond fund designed for New
York investors.
INCOME FUNDS
A, B, D+ SMITH BARNEY SHEARSON ADJUSTABLE RATE GOVERNMENT INCOME FUND,
seeks high current income while limiting the degree of
fluctuation in net asset value resulting from movement in
interest rates.
A, B SMITH BARNEY SHEARSON WORLDWIDE PRIME ASSETS FUND, invests in a
portfolio of high quality debt securities that may be denominated
in U.S. dollars or selected foreign currencies and that have
remaining maturities of not more than one year.
A, B SMITH BARNEY SHEARSON SHORT-TERM WORLD INCOME FUND, invests in
high quality, short-term debt securities denominated in U.S.
dollars as well as a range of foreign currencies.
A SMITH BARNEY SHEARSON LIMITED MATURITY TREASURY FUND, invests
exclusively in securities issued by the United States Treasury
and other U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON DIVERSIFIED STRATEGIC INCOME FUND, seeks
high current income primarily by allocating and reallocating its
assets among various types of fixed-income securities.
</TABLE>
45
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A, B, D+ SMITH BARNEY SHEARSON MANAGED GOVERNMENTS FUND INC., invests in
obligations issued or guaranteed by the United States government
and its agencies and instrumentalities with emphasis on
mortgage-backed government securities.
A, B, D+ SMITH BARNEY SHEARSON GOVERNMENT SECURITIES FUND, seeks a high
current return by investing in U.S. government securities.
A, B, D+ SMITH BARNEY SHEARSON INVESTMENT GRADE BOND FUND, seeks maximum
current income consistent with prudent investment management and
preservation of capital by investing in corporate bonds.
A, B, D+ SMITH BARNEY SHEARSON HIGH INCOME FUND, seeks high current income
by investing in high-yielding corporate bonds, debentures and
notes.
GROWTH AND INCOME FUNDS
A*, B*, D+ SMITH BARNEY SHEARSON CONVERTIBLE FUND, seeks current income and
capital appreciation by investing in convertible securities.
A*, B*, D+ SMITH BARNEY SHEARSON UTILITIES FUND, seeks total return by
investing in equity and debt securities of utilities companies.
A*, B*, D+ SMITH BARNEY SHEARSON STRATEGIC INVESTORS FUND, seeks high total
return consisting of current income and capital appreciation by
investing in a combination of equity, fixed-income and money
market securities.
A*, B*, D+ SMITH BARNEY SHEARSON PREMIUM TOTAL RETURN FUND, seeks total
return by investing in dividend-paying common stocks.
</TABLE>
46
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A*, B*, D+ SMITH BARNEY SHEARSON GROWTH AND INCOME FUND, seeks income and
long-term capital growth by investing in income-producing equity
securities.
GROWTH FUNDS
A*, B*, D+ SMITH BARNEY SHEARSON APPRECIATION FUND INC., seeks long-term
appreciation of capital.
A*, B*, D+ SMITH BARNEY SHEARSON FUNDAMENTAL VALUE FUND INC., seeks
long-term capital growth with current income as a secondary
objective.
A*, B*, D+ SMITH BARNEY SHEARSON DIRECTIONS VALUE FUND, seeks long-term
capital appreciation by investing in equity securities believed
to be undervalued.
A*, B*, D+ SMITH BARNEY SHEARSON SECTOR ANALYSIS FUND, seeks capital
appreciation by following a sector strategy.
A*, B* SMITH BARNEY SHEARSON TELECOMMUNICATIONS GROWTH FUND, seeks
capital appreciation, with income as a secondary consideration.
A*, B*, D+ SMITH BARNEY SHEARSON AGGRESSIVE GROWTH FUND INC., seeks
above-average capital growth.
A*, B*, D+ SMITH BARNEY SHEARSON SPECIAL EQUITIES FUND, seeks long-term
capital appreciation by investing in equity securities primarily
of emerging growth companies.
A*, B*, D+ SMITH BARNEY SHEARSON GLOBAL OPPORTUNITIES FUND, seeks long-term
capital growth by investing principally in the common stock of
foreign and domestic issuers.
A*, B*, D+ SMITH BARNEY SHEARSON EUROPEAN FUND, seeks long-term capital
appreciation by investing primarily in securities of issuers
based in European countries.
</TABLE>
47
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
<TABLE>
<CAPTION>
EXCHANGEABLE
WITH SHARES
OF THE
FOLLOWING
CLASSES: FUND NAME AND INVESTMENT OBJECTIVE:
---------------------------------------------------------------------------
<S> <C>
A*, B*, D+ SMITH BARNEY SHEARSON PRECIOUS METALS AND MINERALS FUND INC.,
seeks long-term capital appreciation by investing primarily in
precious metal-and mineral-related companies and gold bullion.
MONEY MARKET FUNDS
** SMITH BARNEY SHEARSON MONEY MARKET FUND, invests in a diversified
portfolio of high quality money market instruments.
*** SMITH BARNEY SHEARSON DAILY DIVIDEND FUND INC., invests in a
diversified portfolio of high quality money market instruments.
*** SMITH BARNEY SHEARSON GOVERNMENT AND AGENCIES FUND INC., invests
in United States government and agency securities.
++ SMITH BARNEY SHEARSON MUNICIPAL MONEY MARKET FUND INC., invests
in short-term high quality municipal obligations.
++ SMITH BARNEY SHEARSON CALIFORNIA MUNICIPAL MONEY MARKET FUND,
invests in short-term, high quality California municipal
obligations.
++ SMITH BARNEY SHEARSON NEW YORK MUNICIPAL MONEY MARKET FUND,
invests in short-term, high quality New York municipal
obligations.
---------------------------------------------------------------------------
<FN>
* Shares of this fund are subject to a higher sales charge or CDSC than that
applicable to the Fund's shares.
** Shares of this money market fund may be exchanged for Class B shares of the
Fund.
*** Shares of this money market fund may be exchanged for Class A and Class D
shares of the Fund.
+ Class D shares of this fund may be acquired only by Participating Plans in
the 401(k) Program.
++ Shares of this money market fund may be exchanged for Class A shares of the
Fund.
</TABLE>
48
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
TAX EFFECT. The exchange of shares of one fund for shares of another fund is
treated for Federal income tax purposes as a sale of the shares given in
exchange by the shareholder. Therefore, an exchanging shareholder may realize a
taxable gain or loss in connection with an exchange.
CLASS A EXCHANGES. Class A shareholders of the funds in the Smith Barney
Shearson Group of Funds sold without a sales charge or with a maximum sales
charge of less than 4.50% will be subject to the appropriate "sales charge
differential" upon the exchange of their shares for Class A shares of the Fund,
or other funds sold with a higher sales charge. The "sales charge differential"
is limited to a percentage rate no greater than the excess of the sales charge
rate applicable to purchases of shares of the mutual fund being acquired in the
exchange over the sum of the rates of all sales charges previously paid on the
mutual fund shares relinquished in the exchange and on any predecessor of those
shares. For purposes of the exchange privilege, shares obtained through
automatic reinvestment of dividends, as described below, are treated as having
paid the same sales charges applicable to the shares on which the dividends were
paid. However, except in the case of the 401(k) Program, if no sales charge were
imposed upon the initial purchase of the shares, any shares obtained through
automatic reinvestment will be subject to a sales charge differential upon
exchange.
CLASS B EXCHANGES. Class B shareholders of the Fund who wish to exchange all
or a portion of their Class B shares for Class B shares of any of the funds
identified above may do so without the imposition of an exchange fee. In the
event a Class B shareholder wishes to exchange all or a portion of his or her
shares for shares in any of the funds imposing a CDSC higher than that imposed
by the Fund, the exchanged Class B shares will be subject to the higher
applicable CDSC. Upon an exchange, the new Class B shares will be deemed to have
been purchased on the same date as the Class B shares of the Fund which have
been exchanged.
CLASS D EXCHANGES. Class D shares of the Fund will be exchangeable for Class D
shares of the funds listed above. Class D shareholders who wish to exchange all
or part of their Class D shares in any of these funds may do so without charge.
Class D shares may be acquired only by Participating Plans.
ADDITIONAL INFORMATION REGARDING THE EXCHANGE PRIVILEGE. Shareholders
exercising the exchange privilege with any of the other funds in the Smith
49
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
EXCHANGE PRIVILEGE (CONTINUED)
Barney Shearson Group of Funds should review the prospectus of that fund
carefully prior to making an exchange. Smith Barney Shearson reserves the right
to reject any exchange request. The exchange privilege may be modified or
terminated at any time after written notice to shareholders. For further
information regarding the exchange privilege or to obtain the current
prospectuses for members of the Smith Barney Shearson Group of Funds, investors
should contact their Smith Barney Shearson Financial Consultants.
- --------------------------------------------------------------------
DISTRIBUTOR
Smith Barney Shearson is located at 388 Greenwich Street, New York, New York
10013 and serves as distributor of the Trust's shares. Smith Barney Shearson is
a wholly owned subsidiary of Smith Barney Shearson Holdings Inc. ("Holdings"),
which is in turn a wholly owned subsidiary of Primerica, a diversified financial
services holding company principally engaged in the business of providing
investment, consumer finance and insurance services. Smith Barney Shearson is
paid an annual service fee with respect to Class A, Class B and Class D shares
of the Fund at the rate of .25% of the value of average daily net assets of the
respective Class. Smith Barney Shearson is also paid an annual distribution fee
with respect to Class B and Class D shares at the rate of .50% of the value of
average daily net assets attributable to that Class. The fees are authorized
pursuant to a services and distribution plan (the "Plan") adopted by the Trust
pursuant to Rule 12b-1 under the Investment Company Act of 1940, as amended (the
"1940 Act"), and are used by Smith Barney Shearson to pay its Financial
Consultants for servicing shareholder accounts, and in the case of Class B and
Class D shares, also to cover expenses primarily intended to result in the sale
of those shares. These expenses include: costs of printing and distributing
prospectuses, statements of additional information and sales literature to
prospective investors; an allocation of overhead and other Smith Barney Shearson
branch office distribution-related expenses; payments to and expenses of Smith
Barney Shearson Financial Consultants and other persons who provide support
services in connection with the distribution of the shares; and accruals for
interest on the amount of the foregoing expenses that exceed distribution fees
and, in the case of Class B shares, the CDSC received by Smith Barney Shearson.
The payments to Smith Barney Shearson Financial Consultants for selling shares
of a Class include a commission paid
50
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
DISTRIBUTOR (CONTINUED)
at the time of sale and a continuing fee for servicing shareholder accounts for
as long as a shareholder remains a holder of that Class. The service fee is
credited at the rate of .25% of the value of average daily net assets of the
Class that remain invested in the Fund. Smith Barney Shearson Financial
Consultants may receive different levels of compensation for selling different
Classes.
Although it is anticipated that some promotional activities will be conducted
on a Trust-wide basis, payments made by a fund of the Trust under the Plan
generally will be used to finance the distribution of shares of that fund.
Expenses incurred in connection with Trust-wide activities may be allocated
pro-rata among all funds of the Trust on the basis of their relative net assets.
Payments under the Plan are not tied exclusively to the distribution and
shareholder service expenses actually incurred by Smith Barney Shearson, and the
payments may exceed distribution and shareholder service expenses actually
incurred. The Board of Trustees evaluates the appropriateness of the Plan and
its payment terms on a continuing basis and in doing so considers all relevant
factors, including expenses borne by Smith Barney Shearson and amounts received
under the Plan and the proceeds of the CDSC. During the period from the Trust's
commencement of operations (September 16, 1985) through July 31, 1993, Shearson
Lehman Brothers Inc. ("Shearson Lehman Brothers"), the Trust's distributor prior
to Smith Barney Shearson, incurred, with respect to Class B shares, total
distribution expenses of approximately $432,117,000, while receiving
approximately $220,353,000 pursuant to the Plan and approximately $104,390,000
from CDSC. The excess of such distribution expenses incurred by Shearson Lehman
Brothers over such distribution fees and CDSC, or approximately $107,374,000,
was equivalent to approximately 1.27% of the Trust's aggregate net assets on
July 31, 1993.
51
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- --------------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES
DIVIDENDS AND DISTRIBUTIONS
The Fund will be treated separately from the Trust's other funds in
determining the amounts of dividends from investment income and distributions of
capital gains payable to shareholders. Dividends and distributions will be
reinvested automatically for each shareholder's account at net asset value in
additional shares of the relevant Class of the Fund unless the shareholder
instructs the Fund to pay all dividends and distributions in cash and to credit
the amounts to his or her Smith Barney Shearson brokerage account. Dividends
from the net investment income, if any, of the Fund will be declared monthly and
paid after the close of the fiscal quarter in which they are earned.
Distributions of any net long-term capital gains earned by the Fund will be paid
annually after the close of the fiscal year in which they are earned.
Distributions of any net short-term capital gains from the Fund generally will
be made annually after the close of the fiscal year in which they are earned,
although they may be made more frequently at the discretion of the Trust's Board
of Trustees. The Fund is subject to a 4% nondeductible excise tax measured with
respect to certain undistributed amounts of net investment income and capital
gains. The Fund expects to make any additional distributions as may be necessary
to avoid the application of this tax.
TAXES
The Fund will be treated as a separate taxpayer with the result that, for
Federal income tax purposes, the amount of investment income and capital gains
earned by the Fund will be determined without regard to the earnings of the
other funds of the Trust. The Fund has qualified and intends to continue to
qualify each year as a "regulated investment company" under the Code. To meet
those requirements, the Fund may need to restrict the degree to which it engages
in short-term trading and transactions in options. If the Fund qualifies as a
regulated investment company and meets certain distribution requirements, the
Fund will not be subject to Federal income tax on its net investment income and
net capital gains that it distributes to its shareholders.
Dividends paid by the Fund from investment income and distributions of
short-term capital gain will be taxable to shareholders as ordinary income for
Federal income tax purposes, whether received in cash or reinvested in
52
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
additional shares. The per share dividends and distributions on Class A shares
will be higher than those on Class B and Class D shares as a result of lower
distribution and transfer agency fees applicable to the Class A shares.
Furthermore, as a general rule, distributions of long-term capital gain will be
taxable to shareholders as long-term capital gain, whether paid in cash or
reinvested in additional shares, and regardless of the length of time that the
investor has held his or her shares of the Fund.
Distributions of capital gains or dividends received from foreign corporations
will not qualify for the Federal dividends-received deduction for corporate
shareholders (the "Corporate Deduction"). The Fund anticipates that most of its
dividends will not qualify for the Corporate Deduction. Each shareholder will
receive a statement annually from the Trust, which will set forth separately the
aggregate dollar amount of dividends and capital gains distributed to the
shareholder by the Fund with respect to the prior calendar year.
Dividends and interest received by the Fund may give rise to withholding and
other taxes imposed by foreign countries. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes.
If the Fund qualifies as a regulated investment company under the Code and
more than 50% of the Fund's total assets at the close of the Fund's fiscal year
consist of stock or securities of foreign corporations, the Fund will be
eligible and intends to file an annual election with the Internal Revenue
Service pursuant to which shareholders of the Fund will be required to include
their respective pro rata portions of such foreign taxes in computing their
taxable incomes and then take an amount equal to those foreign taxes as a
deduction from their income or use them as foreign tax credits against their
federal income taxes. Shortly after the end of any year in which it makes such
an election, the Fund will report to its shareholders the amount per share of
such foreign tax that must be included in each shareholder's gross income and
will be available for the credit or deduction. No deduction for foreign taxes
may be claimed by a shareholder of the Fund who does not itemize deductions.
Depending on the shareholder's tax situation, certain limitations will be
imposed on the extent to which the credit (but not the deduction) for foreign
taxes may be claimed.
53
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
DIVIDENDS, DISTRIBUTIONS AND TAXES (CONTINUED)
Shareholders are urged to consult their tax advisors regarding the application
of Federal, state and local tax laws to their specific situation before
investing in the Fund.
- --------------------------------------------------------------------
ADDITIONAL INFORMATION
The Trust was organized on March 12, 1985, under the laws of the Commonwealth
of Massachusetts and is an entity commonly known as a "Massachusetts business
trust." The Trust commenced operations on September 16, 1985, under the name
Shearson Lehman Special Portfolios. On February 21, 1986, December 6, 1988,
August 27, 1990, November 5, 1992, and July 30, 1993 the Trust changed its name
to Shearson Lehman Special Income Portfolios, SLH Income Portfolios, Shearson
Lehman Brothers Income Portfolios, Shearson Lehman Brothers Income Funds and
Smith Barney Shearson Income Funds, respectively. On November 5, 1992, the Fund
changed its name from Global Bond Portfolio to Global Bond Fund and on July 30,
1993, the Fund changed its name to Smith Barney Shearson Global Bond Fund. The
Trust offers shares of beneficial interest of separate series having a $.001 per
share par value. When matters are submitted for shareholder vote, shareholders
of each Class of each fund will have one vote for each full share owned and a
proportionate, fractional vote for any fractional share held of that Class.
Generally, shares of the Trust vote by individual fund on all matters except (a)
matters affecting only the interest of one or more of the funds, in which case
only shares of the affected fund or funds would be entitled to vote, or (b) when
the 1940 Act requires that shares of the funds be voted in the aggregate.
Similarly, shares of the Fund will be voted generally on a Fund-wide basis
except on matters affecting the interests of one Class of shares.
The Fund offers shares of beneficial interest currently classified into three
classes -- A, B and D. Each Class of Fund shares represents identical interests
in the Fund's investment portfolio. As such, they 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 for each Class; (c) the
distribution and/or service fees borne by each Class; (d) the expenses allocable
exclusively to each Class; (e) voting rights on matters exclusively affecting a
single Class; (f) the exchange privilege of each Class; and (g) the
54
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
conversion feature of the Class B shares. The Trust's Board of Trustees does not
anticipate that there will be any conflicts among the interests of the holders
of the different Classes of shares of the Fund. The Trustees, on an ongoing
basis, will consider whether any such conflict exists and, if so, take
appropriate action.
The Trust does not hold annual shareholder meetings. Normally, no meetings of
shareholders will be held for the purpose of electing Trustees unless and until
such time as less than a majority of the Trustees holding office have been
elected by shareholders. Shareholders of record of no less than two-thirds of
the outstanding shares of the Trust may remove a Trustee through a declaration
in writing or by vote cast in person or by proxy at a meeting called for that
purpose. A meeting will be called for the purpose of voting on the removal of a
Trustee at the written request of holders of 10% of the Trust's outstanding
shares. Shareholders who satisfy certain criteria will be assisted in
communicating with other shareholders in seeking the holding of the meeting.
Boston Safe, a wholly owned subsidiary of TBC, is located at One Boston Place,
Boston, Massachusetts 02108, and services as custodian of the Fund's
investments.
TSSG is located at Exchange Place, Boston, Massachusetts 02109, and serves as
the Trust's transfer agent. The common stock of FDC is publicly traded, however,
American Express currently owns 23% of the outstanding common stock.
The Fund sends its shareholders a semi-annual report and an audited annual
report, each of which includes a list of the investment securities held by the
Fund at the end of the reporting period. In an effort to reduce the Fund's
printing and mailing costs, the Trust plans to consolidate the mailing of the
Fund's 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 Trust also plans to
consolidate the mailing of the Fund's Prospectus so that a shareholder having
multiple accounts (e.g., individual, IRA and/or Self-Employed Retirement Plan
accounts) will receive a single Prospectus annually. Any shareholder who does
not want this consolidation to apply to his or her account should contact his or
her Financial Consultant or the
55
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND FUND
- -------------------------------------------------------------
ADDITIONAL INFORMATION (CONTINUED)
Trust's transfer agent. Shareholders may seek information regarding the Trust,
including the current performance of the Fund, from their Smith Barney Shearson
Financial Consultants.
---------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, THE STATEMENT OF
ADDITIONAL INFORMATION AND/OR THE TRUST'S OFFICIAL SALES LITERATURE IN
CONNECTION WITH THE OFFERING OF THE TRUST'S SHARES, AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
STATE IN WHICH, OR TO ANY PERSON TO WHOM, SUCH AN OFFER MAY NOT LAWFULLY BE
MADE.
56
<PAGE>
SMITH BARNEY SHEARSON
GLOBAL BOND
FUND
Two World Trade Center
New York, New York 10048
Fund 30, 202, 244
FD0223 K3
