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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 2000.
SECURITIES ACT FILE NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
___________________
FORM N-14
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933 [X]
PRE-EFFECTIVE AMENDMENT NO. [ ]
POST-EFFECTIVE AMENDMENT NO. [ ]
SMITH BARNEY INVESTMENT SERIES
(formerly, Concert Investment Series)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
388 GREENWICH STREET, NEW YORK, NY 10013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(800) 451-2010
(REGISTRANT'S AREA CODE AND TELEPHONE NUMBER)
HEATH B. MCLENDON
SSB CITI FUND MANAGEMENT LLC
388 GREENWICH STREET
NEW YORK, NY 10013
(NAME AND ADDRESS OF AGENT FOR SERVICE)
WITH COPIES TO:
BURTON M. LEIBERT, ESQ. CHRISTINA T. SYDOR, ESQ.
WILLKIE FARR & GALLAGHER SSB CITI FUND MANAGEMENT LLC
787 SEVENTH AVENUE 388 GREENWICH STREET
NEW YORK, NY 10019-6099 NEW YORK, NY 10013
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: Registrant proposes that the
Registration Statement become effective on October 18, 2000 pursuant to Rule
488 under the Securities Act of 1933, as amended.
TITLE OF SECURITIES BEING REGISTERED:
Shares of Beneficial Interest ($0.01 par value) of the Registrant
___________________
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933, as amended, pursuant to Section 24(f) under the
Investment Company Act of 1940, as amended; accordingly, no fee is payable
herewith because of reliance upon Section 24(f).
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PART A
INFORMATION REQUIRED IN THE PROSPECTUS/PROXY STATEMENT
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SMITH BARNEY WORLD FUNDS, INC.
Pacific Portfolio
388 Greenwich Street
New York, New York 10013
October [18], 2000
Dear Shareholders:
You are being asked to vote on an Agreement and Plan of Reorganization
whereby all of the assets of the Pacific Portfolio (the "Fund"), a series of
Smith Barney World Funds, Inc. ("World Funds"), would be transferred in a tax-
free reorganization to the Smith Barney International Aggressive Growth Fund
(the "Acquiring Fund"), a series of Smith Barney Investment Series ("Investment
Series") (formerly Concert Investment Series), in exchange for shares of the
corresponding class of shares of beneficial interest of the Acquiring Fund. If
the Agreement and Plan of Reorganization is approved and consummated, you would
no longer be a shareholder of the Fund, but would become a shareholder of the
corresponding class of shares of beneficial interest of the Acquiring Fund,
which has similar investment objectives and policies to your Fund, except that
it is not substantially limited in its investing to securities of companies in
the Asia Pacific region as described in the Prospectus/Proxy Statement.
AFTER CAREFUL REVIEW, THE MEMBERS OF YOUR FUND'S BOARD HAVE APPROVED THE
PROPOSED REORGANIZATION. THE BOARD MEMBERS OF YOUR FUND BELIEVE THAT THE
PROPOSAL SET FORTH IN THE NOTICE OF MEETING FOR YOUR FUND IS IMPORTANT AND
RECOMMEND THAT YOU READ THE ENCLOSED MATERIALS CAREFULLY AND THEN VOTE FOR THE
PROPOSAL.
Your vote is important. PLEASE TAKE A MOMENT TO SIGN AND RETURN YOUR PROXY
CARD(S) IN THE ENCLOSED POSTAGE-PAID RETURN ENVELOPE. For more information,
please call 1-800-451-2010. If you prefer, you can fax the signed proxy card
(both front and back sides) to (888) 796-9932; vote by telephone by calling
(800) 597-7836 using the 14-digit control number located on your proxy card; or
vote through the internet by going to www.[website].com using the 14-digit
control number located on your proxy card. The Fund may also solicit proxies
from shareholders by letter, telephone and/or telegraph. Voting by fax,
telephone or through the internet will reduce the time and costs associated with
the proxy solicitation. When the Fund records proxies by telephone or through
the internet, it will use procedures designed to (i) authenticate shareholders'
identities, (ii) allow shareholders to authorize the voting of their shares in
accordance with their instructions and (iii) confirm that their instructions
have been properly recorded.
Whichever voting method you choose, please read the full text of the
accompanying Prospectus/Proxy Statement before you vote.
Respectfully,
/s/ Heath B. McLendon
Heath B. McLendon
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Chairman of the Board, President and Chief Executive Officer
Smith Barney World Funds, Inc.
WE URGE YOU TO SIGN AND RETURN YOUR PROXY CARD(S) IN THE ENCLOSED POSTAGE-PAID
ENVELOPE TO ENSURE A QUORUM AT THE MEETING. YOUR VOTE IS IMPORTANT REGARDLESS
OF THE NUMBER OF SHARES YOU OWN.
2
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SMITH BARNEY WORLD FUNDS, INC.
Pacific Portfolio
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
Please take notice that a Special Meeting of Shareholders (the "Special
Meeting") of Smith Barney World Funds, Inc. ("World Funds"), on behalf of its
series, the Pacific Portfolio (the "Fund"), will be held at the offices of SSB
Citi Fund Management LLC, 7 World Trade Center, New York, New York 10048, on
November 22, 2000, at __:00 a.m./p.m., Eastern time, for the following purposes:
PROPOSAL 1: To approve an Agreement and Plan of Reorganization for the
Fund;
PROPOSAL 2: To transact such other business as may properly come before
the meeting or any adjournment(s) thereof.
The appointed proxies will vote in their discretion on any other business
as may properly come before the Special Meeting or any adjournments thereof.
Holders of record of shares of the Fund at the close of business on October
13, 2000 are entitled to vote at the Special Meeting and at any adjournments
thereof.
If the necessary quorum to transact business or the vote required to
approve a Proposal is not obtained at the Special Meeting, the persons named as
proxies may propose one or more adjournments of the Special Meeting in
accordance with applicable law to permit further solicitation of proxies. Any
such adjournment as to a matter will require the affirmative vote of the holders
of a majority of the Fund's outstanding shares present in person or by proxy at
the Special Meeting. The persons named as proxies will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
Proposal and will vote against any such adjournment those proxies to be voted
against the Proposal. For more information, please call 1-800-451-2010.
By Order of the Board of Directors
/s/ Christina T. Sydor
Christina T. Sydor
Secretary
October [18], 2000
IMPORTANT -- WE URGE YOU TO SIGN AND DATE THE ENCLOSED PROXY CARD(S) AND RETURN
THE CARD(S) IN THE ENCLOSED ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE AND IS
INTENDED FOR YOUR CONVENIENCE. YOUR PROMPT RETURN OF THE ENCLOSED PROXY CARD(S)
MAY SAVE THE NECESSITY AND EXPENSE OF FURTHER SOLICITATIONS TO ENSURE A QUORUM
AT THE SPECIAL MEETING. IF YOU CAN ATTEND THE SPECIAL MEETING AND WISH TO VOTE
YOUR SHARES IN PERSON AT THAT TIME, YOU WILL BE ABLE TO DO SO.
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TABLE OF CONTENTS
GENERAL............................................................... 1
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION........... 4
SYNOPSIS.............................................................. 4
INVESTMENT OBJECTIVE AND POLICIES OF THE ACQUIRING FUND AND THE FUND.. 7
INVESTMENT MANAGEMENT FEES AND EXPENSES............................... 10
DISTRIBUTION OF SHARES AND OTHER SERVICES............................. 14
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION......................... 14
DIVIDENDS AND OTHER DISTRIBUTIONS..................................... 15
TAX CONSEQUENCES...................................................... 15
PRINCIPAL INVESTMENTS AND RISK FACTORS................................ 15
THE PROPOSED TRANSACTION.............................................. 21
REASONS FOR THE PROPOSED TRANSACTION.................................. 22
DESCRIPTION OF THE SECURITIES TO BE ISSUED............................ 24
FEDERAL INCOME TAX CONSEQUENCES....................................... 26
LIQUIDATION AND TERMINATION OF SERIES................................. 27
PORTFOLIO SECURITIES.................................................. 27
PORTFOLIO TURNOVER.................................................... 27
CAPITALIZATION AND PERFORMANCE........................................ 27
ADDITIONAL INFORMATION ABOUT THE FUNDS................................ 29
ADDITIONAL INFORMATION................................................ 29
i
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ADDITIONAL MATERIALS
The following additional materials, which have been incorporated by
reference into the Statement of Additional Information dated October [18], 2000
relating to this Prospectus/Proxy Statement and the Reorganization, will be sent
to all shareholders of the Fund requesting a copy of such Statement of
Additional Information.
1. The Statement of Additional Information for the Acquiring Fund, dated
February 28, 2000, as amended September 11, 2000.
2. The Statement of Additional Information for the Fund, dated February 28,
2000.
3. Annual Report of the Acquiring Fund for the year ended October 31, 1999
and the Semi-Annual Report of the Acquiring Fund for the six months
ended April 30, 2000.
4. Annual Report of the Fund for the year ended October 31, 1999 and the
Semi-Annual Report of the Fund for the six months ended April 30, 2000.
ii
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Merger Q&A
Pacific Portfolio into Smith Barney International Aggressive Growth Fund
The enclosed materials include a combined Prospectus/Proxy Statement containing
information you need to make a more informed decision. However, we thought it
would also be helpful for you to have, at the start, answers to some of the
important questions you might have about the proposed reorganization.
We hope you find these explanations useful as you review your materials before
voting. For more detailed information about the proposed reorganization, please
refer to the combined enclosed Prospectus/Proxy Statement.
What will happen to my shares if the proposed reorganization is approved?
You will become a shareholder of the Smith Barney International Aggressive
Growth Fund on or about December 1, 2000 (the "Closing Date") and will no longer
be a shareholder of the Pacific Portfolio, which will be terminated pursuant to
the proposed reorganization. You will receive shares of the Smith Barney
International Aggressive Growth Fund with a total net asset value equal to the
total net asset value of your investment in the Pacific Portfolio at the time of
the closing on the reorganization.
If the reorganization is approved and you do not wish to become a shareholder of
the Smith Barney International Aggressive Growth Fund, you may redeem your
shares prior to the Closing Date. Please note that any redemption will be
subject to all applicable sales charges and redemption fees and will result in a
taxable event for federal income tax purposes.
What is the key reason for this fund reorganization?
The Pacific Portfolio has been unable to attract a substantial asset base since
its inception. The Pacific Portfolio's small size has hindered the portfolio
management flexibility of its adviser and resulted in higher total annual
operating expenses for its shareholders. The proposed reorganization will
create one single larger sized fund and is expected to provide shareholders of
the Pacific Portfolio with a fund that has lower total annual operating expenses
and a wider geographical mandate for investment. The Funds' manager, SSB Citi
Fund Management LLC ("SSB Citi"), believes that a larger asset base could
provide portfolio management benefits such as greater diversification and the
ability to command more attention from brokers and underwriters. The proposed
reorganization is also part of a broader initiative by SSB Citi to restructure
more efficiently its mutual fund product offerings.
As a shareholder of the Smith Barney International Aggressive Growth Fund, you
will be able to exchange into the same class of other Smith Barney mutual funds,
provided that the other Smith Barney Fund offers the relevant class of shares.
Do the funds have similar investment objectives?
Yes. The principal investment objective of the Pacific Portfolio is to seek
long-term capital appreciation through a portfolio invested primarily in the
equity securities of companies in the
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Asia Pacific region, while the investment objective of the Smith Barney
International Aggressive Growth Fund is to seek total return on its assets from
growth of capital and income through a diversified portfolio of equity
securities of established non-U.S. issuers. Although each Fund is managed by SSB
Citi, the Funds do not have the same portfolio manager(s). Jeffrey Russell and
James Conheady, the portfolio managers of the Smith Barney International
Aggressive Growth Fund, have over 50 combined years of securities business
experience. They have been the managers of the Smith Barney International
Aggressive Growth Fund since 1997.
Because each of the Pacific Portfolio and the Smith Barney International
Aggressive Growth Fund are "diversified" funds, SSB Citi seeks to diversify the
risk of each Fund's investments by holding securities issued by a reasonable
number of companies. Smith Barney International Aggressive Growth Fund also
seeks the benefits of diversification across regions and countries. The
investment practices and limitation of each Fund (and related risk
characteristics), therefore, are not identical. For additional information
regarding the differences between the two Funds, please refer to the enclosed
proxy statement.
How do Smith Barney International Aggressive Growth Fund's portfolio managers
identify international opportunities?*
Jeffrey Russell and James Conheady emphasize individual security selection while
diversifying the Smith Barney International Aggressive Growth Fund's investments
across regions and countries, which can help to reduce risk. While the managers
select investments primarily for their capital appreciation potential, some
investments have an income component as well. In selecting individual companies
for investment, the managers look for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition or stable or improving credit quality
* Like the Pacific Portfolio, many foreign countries in which the Smith Barney
International Aggressive Growth Fund invests have markets that are less liquid
and more volatile than markets in the U.S.
What are the tax consequences of this proposed reorganization?
Subject to shareholder approval, the proposed fund reorganization will not be a
taxable event. Shareholders will not realize any capital gain or loss as a
direct result of the proposed reorganization.
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Will I enjoy the same privileges as a shareholder of the Smith Barney
International Aggressive Growth Fund that I currently have as a shareholder of
the Pacific Portfolio?
Yes. You will continue to enjoy substantially the same shareholder privileges
such as systematic investment, automatic cash withdrawal and dividend
reinvestment as well as access to professional service representatives.
How does the Board of Directors recommend I vote?
The Directors recommend that you vote FOR the reorganization. The Directors
believe the reorganization is in the best interest of the Pacific Portfolio and
its shareholders.
Why is my vote important?
Shareholders have a responsibility to vote on important matters affecting their
Fund investments. No matter how many shares you own, your vote --- and its
timeliness--are also important. Please complete, sign and return the enclosed
proxy card today!
Please note if you sign and date your proxy card, but do not provide voting
instructions, your shares will be voted FOR the proposal. Thank you in advance
for your vote.
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO PERSON
HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER
THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT AND IN THE
MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS.
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2000
PROSPECTUS/PROXY STATEMENT
388 Greenwich Street
New York, New York 10013
(800) 451-2010
October [18], 2000
RELATING TO THE ACQUISITION BY THE SMITH BARNEY
INTERNATIONAL AGGRESSIVE GROWTH FUND (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT SERIES ("INVESTMENT SERIES")
OF THE ASSETS OF THE PACIFIC PORTFOLIO (THE "FUND"),
A SERIES OF SMITH BARNEY WORLD FUNDS, INC. ("WORLD FUNDS").
GENERAL
This Prospectus/Proxy Statement is furnished to shareholders of the Fund in
connection with a proposed reorganization in which all of the assets of the Fund
would be acquired by Investment Series, on behalf of the Acquiring Fund, in
exchange solely for voting shares of the corresponding class of shares of
beneficial interest of the Acquiring Fund and the assumption by the Acquiring
Fund of all of the stated liabilities of the Fund (collectively, the
"Reorganization"). Shares of the Acquiring Fund thereby received would then be
distributed to the shareholders of the Fund in complete liquidation of the Fund,
and the Fund would be terminated as a series of World Funds. As a result of the
Reorganization, each shareholder of the Fund would receive that number of full
and fractional shares of the corresponding class of the Acquiring Fund having an
aggregate net asset value equal to the aggregate net asset value of such
shareholder's shares of the Fund held as of the close of business on the Closing
Date (as defined herein) of the Reorganization. Shareholders of the Fund are
being asked to vote on an Agreement and Plan of Reorganization pursuant to which
such transactions, as described more fully below, would be consummated.
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely the information about the Acquiring Fund that a
prospective investor should know before investing. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of the
Acquiring Fund, see the prospectus for the Acquiring Fund, dated February 28,
2000, as amended September 11, 2000, as supplemented from time to time, which is
included herewith and incorporated herein by reference. This Prospectus/Proxy
Statement is also accompanied by the Acquiring Fund's annual report to
shareholders for the fiscal year ended October 31, 1999 and semi-annual report
to shareholders for the six months ended April 30, 2000, each of which is
included herewith and incorporated herein by reference. For a more detailed
discussion of the investment objectives, policies, restrictions and risks of the
Fund, see
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the prospectus for the Fund, dated February 28, 2000, the annual report to
shareholders for the year ended October 31, 1999 and the semi-annual report to
shareholders for the six months ended April 30, 2000, each of which is
incorporated herein by reference and a copy of which may be obtained without
charge by writing to Smith Barney Mutual Funds, 388 Greenwich Street, New York,
New York 10013, or by calling toll-free (800) 451-2010. A Statement of
Additional Information of the Fund and the Acquiring Fund dated October [18],
2000 containing additional information about the Reorganization and the parties
thereto has been filed with the Securities and Exchange Commission (the "SEC" or
the "Commission") and is incorporated by reference into this Prospectus/Proxy
Statement. A copy of the Statement of Additional Information is available upon
request and without charge by writing to or calling Smith Barney Mutual Funds at
the address or phone number listed above. Shareholder inquiries regarding the
Fund or the Acquiring Fund may also be made by calling the phone number listed
above. The information contained herein concerning the Fund has been provided
by, and is included herein in reliance upon, World Funds. The information
contained herein concerning the Acquiring Fund has been provided by, and is
included herein in reliance upon, Investment Series.
The Acquiring Fund is a diversified series of Investment Series, an open-
end management investment company organized as a Massachusetts business trust.
The Fund is a diversified series of World Funds, an open-end management
investment company organized as a Maryland corporation. The investment
objective of the Acquiring Fund is total return on its assets from growth of
capital and income, and the investment objective of the Fund is to seek long-
term capital appreciation on its assets. The Acquiring Fund seeks to achieve
its objective by investing primarily in a diversified portfolio of equity
securities of established non-U.S. issuers. The Fund seeks to achieve its
objective by investing primarily in a diversified portfolio of equity securities
of companies in the Asia Pacific region. The Acquiring Fund emphasizes
individual security selection while diversifying its investments across regions
and countries, which can help to reduce risk. The Fund also employs an
investment style which seeks to spread the Fund's investments across many
companies in the Asia Pacific region.
_______________________
In the description of the Proposal below, the word "fund" is sometimes used
to mean investment companies or series thereof in general, and not the Fund
whose proxy statement this is. The Fund and the Acquiring Fund may each be
referred to as a "Fund" and may also be referred to collectively as the "Funds.
" In addition, in this Prospectus/Proxy Statement, for simplicity, actions are
described as being taken by a Fund, although all actions are actually taken by
Investment Series, on behalf of the Acquiring Fund, and by World Funds, on
behalf of the Fund.
This Prospectus/Proxy Statement, the Notice of Special Meeting and the
proxy card(s) are first being mailed to shareholders on or about October 23,
2000 or as soon as practicable thereafter. Any shareholder of the Fund giving a
proxy has the power to revoke it by mail (addressed to the Secretary at the
principal executive office of World Funds at the address shown at the beginning
of this Prospectus/Proxy Statement) or in person at the Special Meeting by
executing a superseding proxy or by submitting a notice of revocation to the
Fund. All properly executed proxies received in time for the Special Meeting
will be voted as specified in the proxy
2
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or, if no specification is made, in favor of the Proposals referred to in the
Prospectus/Proxy Statement.
The presence at any shareholders' meeting, in person or by proxy, of the
holders of shares of the Fund holding one-third of the outstanding shares of the
Fund entitled to vote shall be necessary and sufficient to constitute a quorum
for the transaction of business. If the necessary quorum to transact business
or the vote required to approve any Proposal is not obtained at the Special
Meeting, the persons named as proxies may propose one or more adjournments of
the Special Meeting in accordance with applicable law to permit further
solicitation of proxies with respect to the Proposal that did not receive the
vote necessary for its passage or to obtain a quorum. Any such adjournment as
to a matter will require the affirmative vote of the holders of a majority of
the Fund's outstanding shares present in person or by proxy at the Special
Meeting. The persons named as proxies will vote in favor of such adjournment
those proxies which they are entitled to vote in favor of that Proposal and will
vote against any such adjournment those proxies to be voted against that
Proposal. For purposes of determining the presence of a quorum for transacting
business at the Special Meeting, abstentions and broker "non-votes" will be
treated as shares that are present but which have not been voted. Broker non-
votes are proxies received by the Fund from brokers or nominees when the broker
or nominee has neither received instructions from the beneficial owner or other
persons entitled to vote nor has discretionary power to vote on a particular
matter. Accordingly, shareholders are urged to forward their voting
instructions promptly.
The Proposal requires the affirmative vote of the holders of a majority of
the aggregate number of the Fund's outstanding shares of common stock entitled
to vote thereon. Abstentions and broker non-votes will have the effect of a "no"
vote on the Proposal.
Holders of record of the shares of the Fund at the close of business on
October 13, 2000 (the "Record Date"), as to any matter on which they are
entitled to vote, will be entitled to one vote per share on all business of the
Special Meeting. As of October 13, 2000, there were ___________ shares of the
Fund outstanding.
To the best knowledge of Investment Series as of October 13, 2000, [except
as set forth on Annex A, no person owned beneficially more than 5% of any class
of the Acquiring Fund's outstanding shares]. To the best knowledge of World
Funds, as of October 13, 2000, [except as set forth on Annex A, no person owned
beneficially more than 5% of any class of the Fund's outstanding shares].
[As of October 13, 2000, less than 1% of the outstanding shares of each of
the Fund and the Acquiring Fund were owned directly or beneficially by the
Directors of World Funds or the Trustees of Investment Series, respectively.]
Each of the Fund and the Acquiring Fund provides periodic reports to all of
its shareholders which highlight relevant information, including investment
results and a review of portfolio changes. You may receive an additional copy
of the most recent annual report for the Fund and a copy of any more recent
semi-annual report for each of the Fund and the Acquiring
3
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Fund, without charge, by calling 800-451-2010 or writing to the Fund or the
Acquiring Fund at the address shown at the beginning of this Prospectus/Proxy
Statement.
PROPOSAL: APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION
The Board of Directors of World Funds, on behalf of the Fund, and the Board
of Trustees of Investment Series, on behalf of the Acquiring Fund, including all
of the Directors/Trustees who are not "interested persons" of such Funds (as
defined in the Investment Company Act of 1940, as amended (the "1940 Act")) (the
"Non-Interested Directors" or "Non-Interested Board Members"), approved on
September 7, 2000, an Agreement and Plan of Reorganization (the "Plan").
Subject to its approval by the shareholders of the Fund, the Plan provides for
(a) the transfer of all of the assets of the Fund to the Acquiring Fund, in
exchange for shares of the corresponding class of shares of beneficial interest
of the Acquiring Fund and assumption by the Acquiring Fund of all of the Fund's
stated liabilities; (b) the distribution of such Acquiring Fund shares to the
shareholders of the Fund in complete liquidation of the Fund and the
cancellation of the Fund's outstanding shares; and (c) the termination of the
Fund as a series of World Funds (collectively, the "Reorganization"). As a
result of the Reorganization, each shareholder of the Fund will become a
shareholder of the corresponding class of the Acquiring Fund and will hold,
immediately after the closing of the Reorganization (the "Closing"), that number
of full and fractional shares of the corresponding class of the Acquiring Fund
having an aggregate net asset value equal to the aggregate net asset value of
such shareholder's shares held in the Fund as of the close of business on the
Closing Date (as defined below). The Closing is expected to occur on December
1, 2000, or on such later date as the parties may agree in writing (the "Closing
Date").
SYNOPSIS
The following is a summary of certain information contained in this
Prospectus/Proxy Statement. This summary is qualified by reference to the more
complete information contained elsewhere in this Prospectus/Proxy Statement, the
Prospectus of the Acquiring Fund, the Prospectus of the Fund and the Plan, the
form of which is attached to this Prospectus/Proxy Statement as Exhibit A.
Shareholders of the Fund should read this entire Prospectus/Proxy Statement
carefully.
Introduction. Like your Fund, the Acquiring Fund is managed by SSB Citi
Fund Management LLC ("SSB Citi"), an affiliate of Salomon Smith Barney Inc.
("Salomon Smith Barney"). Whereas your Fund is managed by David S. Ishibashi,
the Acquiring Fund is managed by Jeffrey Russell and James Conheady. Whereas
your Fund has long-term capital appreciation as its investment objective, the
Acquiring Fund has total return as its investment objective. The distributor,
transfer agent and a sub-transfer agent of each of the Fund and the Acquiring
Fund are identical (although the Acquiring Fund has further retained PFS
Shareholder Services, Inc. as an additional sub-transfer agent). Whereas the
Fund has retained The Chase Manhattan Bank as custodian, the Acquiring Fund has
retained PNC Bank, N.A. as custodian. The Fund has retained KPMG LLP as its
independent auditors, while the Acquiring Fund has retained Ernst & Young LLP as
its independent auditors. However, KPMG LLP will serve as the independent
auditors of the Acquiring Fund for the fiscal year 2001.
4
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If the Plan is consummated, shareholders of the Fund will become
shareholders of the corresponding class of the Acquiring Fund. The
Reorganization has been proposed because the Pacific Portfolio has been unable
to attract a substantial asset base since its inception. The Pacific
Portfolio's small size has hindered the portfolio management flexibility of SSB
Citi and resulted in higher total annual operating expenses for its
shareholders. The proposed reorganization will create one single larger sized
fund and is expected to provide shareholders of the Pacific Portfolio with a
fund that has lower total annual operating expenses, notwithstanding that the
advisory fee paid by the Acquiring Fund is higher than that paid by the Fund.
The Reorganization is also part of a broader initiative by SSB Citi to eliminate
duplication and possible confusion in its mutual fund product offerings.
Specifically, this Reorganization has been proposed as the Funds have
substantially similar investment objectives and policies and the Acquiring Fund
is subject to a lower total annual expense ratio.
Shareholders of the Fund will continue to enjoy the same shareholder
privileges, such as systematic investment, automatic cash withdrawal, automatic
dividend reinvestment, and access to professional service representatives, upon
becoming shareholders of the Acquiring Fund. Further, like the Fund,
shareholders of the Acquiring Fund may exchange into the same class of any Smith
Barney Fund (provided that the Smith Barney Fund offers the relevant class of
shares). Each of the Fund and the Acquiring Fund declares dividends from net
investment income and pays distributions of net realized capital gains, if any,
annually (typically in December). See "Dividends and Other Distributions." It
is a condition of the Reorganization that each Fund receive an opinion of
independent legal counsel that the Reorganization will be tax-free. This means
that shareholders will not realize any capital gain or loss as a direct result
of the Reorganization.
Proposed Transaction. The aggregate net asset value of each class of
voting shares of the Acquiring Fund (the "Shares") issued in exchange for the
assets and stated liabilities of the corresponding class of the Fund will be
equal to the net asset value of that class of the Fund as of close of regular
trading on the Closing Date. Immediately following the transfer of Shares to
the Fund, the Shares received by the Fund will be distributed pro rata to the
shareholders of record of the Fund on the Closing Date and the shares of the
Fund will be cancelled.
For the reasons described below under "The Proposed Transaction-Reasons for
the Proposed Transaction," the Board of Directors of World Funds, on behalf of
the Fund, including the Non-Interested Directors, has concluded the following:
- the Reorganization is in the best interests of the Fund and its
shareholders; and
- the interests of the existing shareholders of the Fund will not be
diluted as a result of the Reorganization.
Accordingly, the Directors recommend approval of the Plan. If the Plan is
not approved, the Fund will continue in existence unless other action is taken
by the Directors; such other action may include resubmitting the Plan for
shareholder approval and termination and liquidation of the Fund.
5
<PAGE>
Comparison of Investment Objectives and Policies. The investment objective
of the Acquiring Fund is total return on its assets from growth of capital and
income. The investment objective of the Fund is long-term capital appreciation.
The Acquiring Fund seeks to achieve its objective by investing primarily in a
diversified portfolio of equity securities of established non-U.S. issuers. The
Fund seeks to achieve its objective by investing primarily in the equity
securities of companies in the Asia Pacific region. The Acquiring Fund and the
Fund may each invest in foreign securities (directly or in the form of
depositary receipts representing an interest in those securities), including
issuers in emerging market countries. Each Fund employs a style of stock
selection which emphasizes diversifying each Fund's investments. The Acquiring
Fund compares its performance against the Morgan Stanley EAFE Index, while the
Fund compares its performance against the MSCI All Country Asia Pacific Index.
Although the Acquiring Fund's investment policies and restrictions are
substantially similar to those of the Fund, except as described in this
Prospectus/Proxy Statement, the Acquiring Fund is subject to lower overall risk
characteristics as it does not intend to invest primarily in Asia Pacific
countries and issuers.
Each Fund has adopted substantially similar fundamental investment
restrictions with respect to its "diversified" status; issuing senior
securities; engaging in leverage; underwriting securities; industry
concentration; and purchasing or selling real estate, real estate mortgages,
commodities or commodity contracts. However, whereas the Acquiring Fund's
investment objective is non-fundamental, the Fund's investment objective is
fundamental. Additionally, as fundamental policies, the Acquiring Fund may lend
its portfolio securities with respect to 15% of its total assets (while the Fund
may do so to the fullest extent permitted by applicable law). Each Fund's
fundamental investment restrictions may not be changed without the approval of
the applicable Fund's shareholders.
Each Fund has also adopted substantially similar non-fundamental investment
policies with respect to investments in illiquid and restricted securities or in
oil or other mineral leases, purchasing securities on margin, and investing in
any company for the purpose of exercising control of management. The Acquiring
Fund has adopted certain additional non-fundamental restrictions with respect
to, among other things, making short sales or investing in warrants. Each Fund
may use derivative contracts, such as futures and options on securities,
securities indices and currencies; options on these futures; forward currency
contracts; and interest rate and currency swaps, (i) to hedge against the
economic impact of adverse changes in the market value of portfolio securities,
(ii) as a substitute for buying or selling securities and (iii) to enhance
return. Whereas the Acquiring Fund may invest up to 35% of its assets in debt
securities, the Fund may only do so with respect to 20% of its total assets.
Each Fund may also invest in preferred stock and convertible securities,
warrants and rights relating to equity securities, REITs, commercial bank
obligations, short-term instruments and commercial paper, and repurchase and
reverse repurchase agreements, each in accordance with the 1940 Act or other
applicable limitations. Investors should refer to the respective prospectuses
and statements of additional information of the Fund and the Acquiring Fund for
a fuller description of each Fund's investment policies and restrictions.
6
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
OF THE ACQUIRING FUND AND THE FUND
The Acquiring Fund
Investment objective. The Acquiring Fund seeks total return on its assets
from growth of capital and income.
Key investments. The Acquiring Fund invests primarily in equity securities
of established non-U.S. issuers.
Selection process. By spreading the Acquiring Fund's investments across
many international markets, the manager seeks to reduce volatility compared to
investing in a single region. Unlike global mutual funds which may allocate a
substantial portion of assets to the U.S. markets, the Fund invests
substantially all of its assets in countries outside of the U.S.
The manager emphasizes individual security selection while diversifying the
Acquiring Fund's investments across regions and countries, which can help to
reduce risk. While the manager selects investments primarily for their capital
appreciation potential, some investments have an income component as well.
Companies in which the Fund invests may have large, mid-size or small market
capitalizations and may operate in any market sector. In selecting individual
companies for investment, the manager looks for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Effective research, product development and marketing
. Competitive advantages
. Strong financial condition or stable or improving credit quality
Depending on the manager's assessment of overseas potential for long-term
growth, the Acquiring Fund's emphasis among foreign markets (including emerging
markets) and types of issuers may vary. In allocating assets among countries
and regions, the manager evaluates:
. Economic stability and favorable prospects for economic growth
. Low or decelerating inflation, creating a favorable environment for
securities markets
. Stable governments with policies that encourage economic growth,
equity investment and development of securities markets
. Currency stability
. The range of individual investment opportunities
Principal risks of investing in the Acquiring Fund. Many foreign countries
in which the Fund invests have markets that are less liquid and more volatile
than markets in the U.S.
Investors could lose money on their investment in the Acquiring Fund, or
the Fund may not perform as well as other investments, if any of the following
occurs:
7
<PAGE>
. Foreign securities prices decline
. Adverse governmental action or political, economic or market
instability affects a foreign country or region
. The currency in which a security is priced declines in value relative
to the U.S. dollar
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular security proves to be incorrect
In some foreign countries, there is also less information available about
foreign issuers and markets because of less rigorous accounting and regulatory
standards than in the U.S. Currency fluctuations could erase investment gains
or add to investment losses. The risk of investing in foreign securities is
greater for emerging markets. In Europe, Economic and Monetary Union (EMU) and
the introduction of a single currency began in 1999. There are significant
political and economic risks associated with EMU, which may increase the
volatility of the Acquiring Fund's European securities and present valuation
problems.
Who may want to invest. The Acquiring Fund may be an appropriate
investment if you:
. Are seeking to participate in the long term total return potential of
international markets
. Currently have exposure to U.S. stock markets and wish to diversify
your investment portfolio by adding non-U.S. stocks that may not move
in tandem with U.S. stocks
. Are willing to accept the risks of investing in the stock market and
the special risks of investing in foreign securities, including
emerging market securities
The Fund
Investment objective. The Fund seeks long-term capital appreciation.
Key investments. The Fund invests primarily in equity securities of
companies in the Asia Pacific region. Equity securities include exchange traded
and over-the-counter common stocks, preferred shares, debt securities
convertible into equity securities, depository receipts and warrants and rights
relating to equity securities.
Selection Process. The manager emphasizes individual security selection
while allocating the Fund's investments among companies in the Asia Pacific
region. Companies in which the Fund invests may have large, mid or small size
market capitalizations and may operate in any market sector. Depending on the
manager's assessment of long-term growth potential, the Fund's emphasis among
Asia Pacific region markets and issuers may vary.
In selecting individual companies for investment, the manager looks for:
. Above average earnings growth
. High relative return on invested capital
. Experienced and effective management
. Competitive advantages, such as high market share or special licenses
and patents
. Strong financial condition
8
<PAGE>
The economic and political factors the manager evaluates include:
. Inflationary trends which create a favorable environment for
securities markets
. Governmental policies toward business affecting economic growth and
securities markets
. Currency movements
. Monetary and fiscal trends
Principal risks of investing in the Fund. Investing in Asia Pacific region
securities can bring added benefits but it also involves risks. Investors could
lose money on their investment in the Fund, or the Fund may not perform as well
as other investments, if:
. Stock prices of securities in the Asia Pacific region decline
. Economic, political or social instabilities significantly disrupt the
principal financial markets in the Asia Pacific region
. Factors creating volatility in one Asia Pacific region country
negatively impact values or trading in other countries in the region
. Currency fluctuations negatively impact the Fund's portfolio
. The government of one or more countries in the region imposes
restrictions on currency conversion or trading
. The economies in the Asia Pacific region grow at a slow rate or
experience a downturn or recession
. In changing markets the Fund is not able to sell desired amounts of
securities at reasonable prices
. The manager's judgment about the attractiveness, value or potential
appreciation of a particular stock proves to be incorrect
Many Asia Pacific region countries in which the Fund invests have markets that
are less liquid and more volatile than markets in the U.S. In some Asia Pacific
countries, less information is available about issuers and markets because of
less rigorous accounting and regulatory standards than in the U.S. These risks
are considered greater in the case of those Asia Pacific countries that are
emerging markets. To the extent the Fund concentrates its investments in one or
more countries due to their large market capitalization in the Asia Pacific
region, such as Japan, the Fund will be subject to greater risks than if its
assets were not so concentrated.
Who may want to invest. The Fund may be an appropriate investment if you:
. Are an aggressive investor seeking to participate in the long-term
growth potential of the Asia Pacific markets
. Currently have exposure to U.S. or other foreign stock markets and
wish to broaden your investment portfolio by adding Asia Pacific
region stocks that may not move in tandem with U.S. or other stocks
. Are comfortable with the risks of the foreign stock markets and the
special risks of concentrating investments in Asia Pacific region
securities and investing in emerging market securities
9
<PAGE>
INVESTMENT MANAGEMENT FEES AND EXPENSES
World Funds, on behalf of the Fund, and Investment Series, on behalf of the
Acquiring Fund, each retain SSB Citi, pursuant to separate contracts, to manage
the daily investment and business affairs of the Fund and the Acquiring Fund,
respectively, subject to the policies established by their respective governing
boards. All expenses of the Funds, including the investment advisory fees, are
paid by each Fund. Shareholders pay no direct charges or fees for investment
services.
The Acquiring Fund. The Acquiring Fund's investment manager is SSB Citi.
SSB Citi's address is 388 Greenwich Street, New York, New York 10013. SSB Citi
has been in the investment counseling business since 1968 and renders investment
management and administration services to a wide variety of individual,
institutional and investment company clients having aggregate assets under
management as of June 30, 2000 in excess of $388 billion. SSB Citi and Salomon
Smith Barney are subsidiaries of Citigroup Inc. Citigroup businesses provide a
broad range of financial services--asset management, banking and consumer
finance, credit and charge cards, insurance, investments, investment banking and
trading--and use diverse channels to make them available to consumer and
corporate customers around the world.
SSB Citi selects the Acquiring Fund's investments and oversees its
operations. Under an investment advisory agreement, the Acquiring Fund pays SSB
Citi a fee computed daily and paid monthly at the annual rate of 1.00% of the
Acquiring Fund's average daily net assets. The total investment management fees
paid by the Acquiring Fund for the fiscal year ended October 31, 1999 was
$545,582 and for the six-months ended April 30, 2000 was $805,717.
The Acquiring Fund's total expense ratio (total annual operating expenses
as a percentage of average net assets) for each class of its shares for the
fiscal year ending October 31, 1999 is set forth below under "Annual Fund
Operating Expenses." SSB Citi projects that if the proposed Reorganization is
effected, the expense ratio for each class of the Acquiring Fund will be
unchanged for the year ending October 31, 2001. The actual expense ratio for
the Acquiring Fund for the year ending October 31, 2001 may be higher or lower
than as set forth below, depending upon the Acquiring Fund's performance,
general stock market and economic conditions, sales and redemptions of the
Acquiring Fund's shares (including redemptions by former shareholders of the
Fund), and other factors.
Jeffrey Russell and James Conheady, investment officers of the manager and
managing directors of Salomon Smith Barney, have been responsible for the day-to
day management of the Acquiring Fund's portfolio since 1997. Messrs. Russell
and Conheady have more than 15 and 35 years of securities business experience,
respectively. Messrs. Russell and Conheady's management discussion and analysis
of the Acquiring Fund's performance during the fiscal ended October 31, 1999 is
included in the Acquiring Fund's Annual Report to Shareholders for the fiscal
year ended October 31, 1999.
The Fund. The Fund's investment manager is also SSB Citi. The manager
selects the Fund's investments and oversees its operations. Under an investment
advisory agreement, the Fund pays SSB Citi a fee computed daily and paid monthly
at an aggregate annual rate of 0.85% of the value of its average daily net
assets. The total investment management fee incurred by the
10
<PAGE>
Fund and waived by SSB Citi for the year ended October 31, 1999 was $58,938
(exclusive of $49,424 in expense reimbursements by SSB Citi) and for the six
months ended April 30, 2000 was $30,751.
David S. Ishibashi, investment officer of the manager and vice president of
Salomon Smith Barney, has been responsible for day-to-day management of the Fund
since October 1996. Maurits E. Edersheim, head of Salomon Smith Barney's
international equity team, has general responsibility for Salomon Smith Barney's
international equity investment operations.
The actual expenses of the Acquiring Fund and of the Fund for the fiscal
year ended October 31, 1999, and pro forma expenses following the proposed
restructuring are outlined below. As a result of the Reorganization,
shareholders of the Fund will be investing in the corresponding class of the
Acquiring Fund with expenses that are currently between 0.04% and 0.30% lower
than those of the relevant class of the Fund even after taking into account the
fee waivers and expense reimbursements by SSB Citi, which may be terminated or
modified by SSB Citi at any time.
ANNUAL FUND OPERATING EXPENSES
<TABLE>
<CAPTION>
International Aggressive Growth Fund* Class A Class B Class L* Class Y*
----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge (load) imposed on purchases
<S> <C> <C>
(as a percentage of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None** 5.00% 1.00% None
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees 1.00% 1.00% 1.00% 1.00%
Distribution and service (12b-1 fees) 0.25% 1.00% 1.00% None
Other expenses 0.37% 0.34% 0.34% 0.24%
----- ----- ----- -----
----------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 1.62% 2.34% 2.34% 1.24%
======================================================================================================================
Pacific Portfolio Class A Class B Class L Class Y*
----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None** 5.00% 1.00% None
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees 0.85% 0.85% 0.85% 0.85%
Distribution and service (12b-1 fees) 0.25% 1.00% 1.00% None
Other expenses 2.29% 2.46% 2.19% 2.29%
----- ----- ----- -----
----------------------------------------------------------------------------------------------------------------------
TOTAL ANNUAL FUND OPERATING EXPENSES 3.39% 4.31% 4.04% 3.14%
======================================================================================================================
Management Fee Waiver and Expense Reimbursement*** (1.67)% (1.67)% (1.66)% (1.67)%
======================================================================================================================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Pacific Portfolio Class A Class B Class L Class Y*
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ANNUAL OPERATING EXPENSES 1.72% 2.64% 2.38% 1.47%
======================================================================================================================
Pro Forma Pro Forma Pro Forma Pro Forma
International Aggressive Growth Fund (Pro Forma) Class A Class B Class L* Class Y*
----------------------------------------------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum sales charge (load) imposed on purchases
(as a percentage of offering price) 5.00% None 1.00% None
Maximum deferred sales charge (load)
(as a percentage of the lower of net asset value at
purchase or redemption) None** 5.00% 1.00% None
Annual Fund Operating Expenses
(expenses deducted from fund assets)
Management fees 1.00% 1.00% 1.00% 1.00%
Distribution and service (12b-1 fees) 0.25% 1.00% 1.00% None
Other expenses 0.37% 0.34% 0.34% 0.24%
----- ----- ----- -----
----------------------------------------------------------------------------------------------------------------------
TOTAL FUND OPERATING EXPENSES 1.62% 2.34% 2.34% 1.24%
======================================================================================================================
</TABLE>
* Class L and Class Y Shares of the Acquiring Fund commenced operations as of
September 11, 2000. The amounts shown are amounts estimated to be charged
for the fiscal year ending October 31, 2001. (The Acquiring Fund also
offers Class 1 Shares which are not involved in the Reorganization.) The
pro forma expenses for the Acquiring Fund show you what the sales charges
and expenses are estimated to be assuming the Reorganization takes place
and are based on what estimated combined expenses of the Acquiring Fund
would have been for the 12 months ended October 31, 2000.
** You may buy Class A Shares in amounts of $1,000,000 or more at net asset
value (without an initial sales charge) but if you redeem those shares
within 12 months of their purchase, you will pay a deferred sales charge of
1.00%.
*** SSB Citi has agreed to waive all of its management fee and reimburse a
portion of the expenses for all classes of the Fund. SSB Citi may
discontinue or modify this management fee waiver and expense reimbursement
policy without the approval of the Fund's directors.
Example. This Example is intended to help you compare the cost of
investing in each of the Funds and for the Acquiring Fund pro forma, assuming
the Reorganization takes place, and are for illustration only. The Example
assumes you invest $10,000 in each Fund for the time periods indicated and that
you reinvest all dividends and distributions. The Example also assumes your
investment has a 5% return each year and that each Fund's annual operating
expenses remain the same. Although actual fund expenses can vary from year to
year end and your actual costs maybe higher or lower, based on these assumptions
your costs would be:
12
<PAGE>
<TABLE>
<CAPTION>
International Aggressive Growth Fund 1 year 3 years 5 years 10 years*
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An Investor would pay the following expenses on a
$10,000 investment, assuming (1) 5.00% annual return
and (2) redemption at the end of each time period:
Class A................................................. $657 $ 986 $1,337 $2,326
Class B................................................. $737 $1,030 $1,350 $2,497
Class L................................................. $435 $ 823 $1,338 $2,749
Class Y................................................. $126 $ 393 $ 681 $1,500
An investor would pay the following expenses on the same
investment, assuming the same annual return and no
redemption:
Class A................................................. $657 $ 986 $1,337 $2,326
Class B................................................. $237 $ 730 $1,250 $2,497
Class L................................................. $335 $ 823 $1,338 $2,749
Class Y................................................. $126 $ 393 $ 681 $1,500
---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Pacific Portfolio 1 year 3 years 5 years 10 years*
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An Investor would pay the following expenses on a
$10,000 investment, assuming (1) 5.00% annual return
and (2) redemption at the end of each time period:
Class A................................................. $825 $1,490 $2,176 $3,992
Class B................................................. $932 $1,606 $2,292 $4,288
Class L................................................. $601 $1,317 $2,148 $4,297
Class Y................................................. $317 $ 969 $1,645 $3,448
An investor would pay the following expenses on the same
investment, assuming the same annual return and no
redemption:
Class A................................................. $825 $1,490 $2,176 $3,992
Class B................................................. $432 $1,306 $2,192 $4,288
Class L................................................. $502 $1,317 $2,148 $4,297
Class Y................................................. $317 $ 969 $1,645 $3,448
</TABLE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma Pro Forma Pro Forma
International Aggressive Growth Fund (Pro Forma) 1 year 3 years 5 years 10 years*
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
An Investor would pay the following expenses on a
$10,000 investment, assuming (1) 5.00% annual return
and (2) redemption at the end of each time period:
Class A................................................. $657 $ 986 $1,337 $2,326
Class B................................................. $737 $1,030 $1,350 $2,497
Class L................................................. $435 $ 823 $1,338 $2,749
Class Y................................................. $126 $ 393 $ 681 $1,500
An investor would pay the following expenses on the same
investment, assuming the same annual return and no
redemption:
Class A................................................. $657 $ 986 $1,337 $2,326
Class B................................................. $237 $ 730 $1,250 $2,497
Class L................................................. $335 $ 823 $1,338 $2,749
Class Y................................................. $126 $ 393 $ 681 $1,500
---------------------------------------------------------------------------------------------------------------------
</TABLE>
* Ten-year figures for Class B shares assume conversion of Class B shares to
Class A shares at the end of the eighth year following the date of
purchase.
13
<PAGE>
Examples should not be considered representations of past or future expenses.
Please refer to each Fund's prospectus and statement of additional information
for a more detailed discussion of the fees and expenses applicable to each class
of shares of a Fund.
DISTRIBUTION OF SHARES AND OTHER SERVICES
As of June 5, 2000, Salomon Smith Barney and PFS Distributors Inc. ("PFS
Distributors") distribute shares of the Acquiring Fund, and Salomon Smith Barney
distributes shares of the Fund as principal underwriter and, as such, conduct a
continuous offering pursuant to a "best efforts" arrangement requiring Salomon
Smith Barney and PFS Distributors, as applicable, to take and pay for only such
securities as may be sold to the public. Prior to that time, CFBDS, Inc.,
located at 21 Milk Street, Boston, Massachusetts 02109-5408, acted as
distributor of each Fund's shares. With respect to the Acquiring Fund, Salomon
Smith Barney has entered into a selling agreement with PFS Distributors (on
behalf of PFS Investments, Inc.) and with one or more other service agents
giving the service agents the rights to sell shares of the Acquiring Fund. Each
Fund has adopted plans of distribution under Rule 12b-1 under the 1940 Act (a
"Plan").
With respect to each Fund, Salomon Smith Barney or PFS Distributors, as
applicable, is paid a service fee for Class A, Class B and Class L shares at the
annual rate of 0.25% of the average daily net assets of the respective Class
under the Plan. Salomon Smith Barney or PFS Distributors, as applicable, is
also paid a distribution fee with respect to Class B and Class L shares of each
Fund at the annual rate of 0.75% of the average daily net assets attributable to
that Class. The fees are used by Salomon Smith Barney or PFS Distributors, as
applicable, to pay its respective financial consultants for servicing
shareholder accounts and, in the case of Class B and Class L shares, to cover
expenses primarily intended to result in the sale of those shares.
Class Y shares of the Funds are not subject to any distribution or service
fees. Class B shares of each Fund that automatically convert to Class A shares
eight years after the date of original purchase will no longer be subject to a
distribution fee. Class 1 shares of the Acquiring Fund, which are not involved
in the Reorganization, are also not subject to any distribution fees.
Payments under the above Plans are not tied exclusively to the distribution
and shareholder service expenses actually incurred by Salomon Smith Barney or
PFS Distributors and the payments may exceed those expenses actually incurred by
the Funds.
PURCHASE, REDEMPTION AND EXCHANGE INFORMATION
The purchase, redemption and exchange procedures and privileges with
respect to the Fund are substantially similar to those of the Acquiring Fund.
However, while the Acquiring Fund does not require signature guarantees for
redemptions of $50,000 or less, the Fund limits such amounts to $10,000 or less.
Please refer to each Fund's prospectus and statement of additional information
for a more detailed discussion of the purchase, redemption and exchange
procedures and privileges applicable to each class of a Fund.
14
<PAGE>
DIVIDENDS AND OTHER DISTRIBUTIONS
Each Fund declares dividends from net investment income and pays
distributions of net realized capital gains, if any, annually (typically in
December). Each Fund intends to distribute any net realized capital gains after
utilization of capital loss carryforwards, if any, in November or December to
prevent application of a federal excise tax. An additional distribution may be
made if necessary. Any dividends or capital gains distributions declared in
October, November or December with a record date in such month and paid during
the following January will be treated by shareholders for federal income tax
purposes as if received on December 31 of the calendar year in which it is
declared. Dividends and distributions of each Fund will be invested in
additional shares of the applicable Fund at net asset value and credited to the
shareholder's account on the payment date or, at the shareholder's election,
paid in cash.
If the Plan is approved by the Fund's shareholders, then as soon as
practicable before the Closing Date, the Fund will pay or have paid its
shareholders a cash distribution of substantially all undistributed net
investment income and undistributed realized net capital gains, if any, for the
current taxable year through the closing date.
TAX CONSEQUENCES
The Fund and the Acquiring Fund will have received an opinion of Willkie
Farr & Gallagher in connection with the Reorganization, to the effect that,
based upon certain facts, assumptions and representations, the Reorganization
will constitute a tax-free reorganization within the meaning of section
368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). If the
Reorganization constitutes a tax-free reorganization, no gain or loss will be
recognized by the Fund or its shareholders as a direct result of the
Reorganization. See "The Proposed Transaction -- Federal Income Tax
Consequences."
PRINCIPAL INVESTMENTS AND RISK FACTORS
General. As described above, the Fund and the Acquiring Fund have
substantially similar investment objectives and policies and pursue their
respective objectives in a similar manner. Accordingly, the Funds engage in
investment practices and techniques that are substantially similar. A more
complete description of the investment practices and limitations of the
Acquiring Fund is contained in the prospectus and statement of additional
information of the Acquiring Fund, dated February 28, 2000, as amended September
11, 2000, as supplemented from time to time, a copy of which is included
herewith, and in the Statement of Additional Information of the Fund and the
Acquiring Fund dated October [18], 2000 (relating to the proposed
Reorganization) which is incorporated herein by reference. Please refer to each
Fund's prospectus and statement of additional information for a more detailed
discussion of the specific investment practices and risks of the applicable
Fund.
Because of their substantially similar investment policies, the Funds are
exposed to similar risks. The following summarizes those principal investment
policies and related risk factors:
Common Stocks. Each Fund may purchase common stocks. Common stocks are
shares of a corporation or other entity that entitle the holder to a pro rata
share of the profits of the
15
<PAGE>
corporation, if any, without preference over any other shareholder or class of
shareholders, including holders of the entity's preferred stock and other senior
equity. Common stock usually carries with it the right to vote and frequently an
exclusive right to do so.
Foreign Securities. Each Fund may invest in securities of foreign issuers,
including issuers in emerging market countries. These investments involve
certain risks not ordinarily associated with investments in securities of
domestic issuers. These risks include differences in accounting, auditing and
financial reporting standards, generally higher commission rates on foreign
portfolio transactions, the possibility of expropriation or confiscatory
taxation, adverse changes in investment or exchange control regulations,
political instability which could affect U.S. investments in foreign countries
and potential restrictions on the flow of international capital. Additionally,
dividends or interest payable on foreign securities, and in some cases capital
gains, may be subject to foreign withholding or other foreign taxes. Foreign
securities often trade with less frequency and volume than domestic securities
and therefore may exhibit greater price volatility. Changes in foreign exchange
rates will affect the value of those securities which are denominated or quoted
in currencies other than U.S. dollars. Certain of the foreign securities held
by a Fund may not be registered with, nor will the issuers thereof be subject to
the reporting requirements of, the SEC. Accordingly, there may be less publicly
available information about the securities and the foreign company or government
issuing them than is available about a domestic company or government entity.
Moreover, individual foreign economies may differ favorably or unfavorably from
the U.S. economy in such respects as growth of gross national product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of
payment positions.
ADRs. Each Fund may purchase ADRs or other securities representing
underlying shares of foreign companies. ADRs are publicly traded on exchanges
or over-the-counter in the United States and are issued through "sponsored" or
"unsponsored" arrangements. In a sponsored ADR arrangement, the foreign issuer
assumes the obligation to pay some or all of the depository's transaction fees,
whereas under an unsponsored arrangement, the foreign issuer assumes no
obligation and the depository's transaction fees are paid by the ADR holders.
In addition, less information is available in the United States about an
unsponsored ADR than about a sponsored ADR, and the financial information about
a company may not be as reliable for an unsponsored ADR as it is for a sponsored
ADR. A Fund may invest in ADRs through both sponsored and unsponsored
arrangements.
Preferred Stocks and Convertible Securities. Each Fund may invest in
convertible debt and preferred stocks. Convertible debt securities and
preferred stock entitle the holder to acquire the issuer's stock by exchange or
purchase for a predetermined rate. Convertible securities are subject both to
the credit and interest rate risks associated with fixed income securities and
to the stock market risk associated with equity securities.
Warrants. Each Fund may purchase warrants. Warrants acquired by a Fund
entitle it to buy common stock from the issuer at a specified price and time.
Warrants are subject to the same market risks as stocks, but may be more
volatile in price. A Fund's investment in warrants will not entitle it to
receive dividends or exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before the expiration dates.
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REITs. Each Fund may invest in shares of real estate investment trusts
(REITs), which are pooled investment vehicles that invest in real estate or real
estate loans or interests. Investing in REITs involves risks similar to those
associated with investing in equity securities of small capitalization
companies. REITs are dependent upon management skills, are not diversified, and
are subject to risks of project financing, default by borrowers, self-
liquidation, and the possibility of failing to qualify for the exemption from
taxation on distributed amounts under the Code.
Corporate Debt Obligations. Each Fund may invest in corporate debt
obligations and zero coupon securities issued by financial institutions and
corporations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity. Zero coupon securities are securities sold at a discount to
par value and on which interest payments are not made during the life of the
security.
U.S. Government Securities. The U.S. Government securities in which the
Funds may invest include: bills, certificates of indebtedness, and notes and
bonds issued by the U.S. Treasury or by agencies or instrumentalities of the
U.S. Government. Some U.S. Government securities, such as U.S. Treasury bills
and bonds, are supported by the full faith and credit of the U.S. Treasury;
others are supported by the right of the issuer to borrow from the U.S.
Treasury; others are supported by the discretionary authority of the U.S.
Government to purchase the agency's obligations; still others are supported only
by the credit of the instrumentality.
Short-Term Investments. In certain circumstances the Funds may invest
without limitation in all types of short-term money market instruments,
including U.S. Government securities; certificates of deposit, time deposits and
bankers' acceptances issued by domestic banks (including their branches located
outside the United States and subsidiaries located in Canada), domestic branches
of foreign banks, savings and loan associations and similar institutions; high
grade commercial paper; and repurchase agreements. To the extent a Fund is
investing in short-term investments as a temporary defensive posture, the
applicable Fund's investment objective may not be achieved.
Commercial Paper. Commercial paper consists of short-term (usually 1 to
270 days) unsecured promissory notes issued by corporations in order to finance
their current operations. A variable amount master demand note (which is a type
of commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender, such as one of the Funds
pursuant to which the lender may determine to invest varying amounts. Transfer
of such notes is usually restricted by the issuer, and there is no secondary
trading market for such notes. Each Fund therefore, may not invest in a master
demand note, if as a result more than 15% of the value of the Fund's total
assets would be invested in such notes and other illiquid securities.
Commercial Bank Obligations. For the purposes of each Fund's investment
policies with respect to bank obligations, obligations of foreign branches of
U.S. banks and of foreign banks may be general obligations of the parent bank in
addition to the issuing bank, or may be limited by the terms of a specific
obligation and by government regulation. As with investment in foreign
securities in general, investments in the obligations of foreign branches of
U.S. banks
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and of foreign banks may subject a Fund to investment risks that are different
in some respects from those of investments in obligations of domestic issuers.
Although the Fund will typically acquire obligations issued and supported by the
credit of U.S. or foreign banks having total assets at the time of purchase in
excess of U.S. $1 billion (or the equivalent thereof), this U.S. $1 billion
figure is not a fundamental investment policy or restriction of the Acquiring
Fund. For calculation purposes with respect to the U.S. $1 billion figure, the
assets of a bank will be deemed to include the assets of its U.S. and non-U.S.
branches.
Repurchase Agreements. Each Fund may enter into repurchase agreements with
broker-dealers or domestic banks. A repurchase agreement is a short-term
investment in which the purchaser (i.e., the Fund) acquires ownership of a debt
security and the seller agrees to repurchase the obligation at a future time and
set price, usually not more than seven days from the date of purchase, thereby
determining the yield during the purchaser's holding period. Repurchase
agreements are collateralized by the underlying debt securities and may be
considered to be loans under the 1940 Act. The Fund will make payment for such
securities only upon physical delivery or evidence of book entry transfer to the
account of a custodian or bank acting as agent. The seller under a repurchase
agreement is required to maintain the value of the underlying securities marked
to market daily at not less than the repurchase price. The underlying
securities (normally securities of the U.S. Government, or its agencies and
instrumentalities), may have maturity dates exceeding one year. The Fund does
not bear the risk of a decline in value of the underlying security unless the
seller defaults under its repurchase obligation. In the event of a bankruptcy
or other default of a seller of a repurchase agreement, the Fund could
experience both delays in liquidating the underlying securities and loss
including: (a) possible decline in the value of the underlying security during
the period while the Fund seeks to enforce its rights thereto, (b) possible lack
of access to income on the underlying security during this period, and (c)
expenses of enforcing its rights.
For the purpose of investing in repurchase agreements, the manager may
aggregate the cash that certain funds advised or subadvised by the manager or
its affiliates would otherwise invest separately into a joint account. The cash
in the joint account is then invested in repurchase agreements and the funds
that contributed to the joint account share pro rata in the net revenue
generated. The manager believes that the joint account produces efficiencies
and economies of scale that may contribute to reduced transaction costs, higher
returns, higher quality investments and greater diversity of investments for a
Fund than would be available to a Fund investing separately. The manner in
which the joint account is managed is subject to conditions set forth in an SEC
exemptive order authorizing this practice, which conditions are designed to
ensure the fair administration of the joint account and to protect the amounts
in that account.
Reverse Repurchase Agreements. Each Fund may invest in reverse repurchase
agreements, but does not currently intend to commit more than 5% of its net
assets to reverse repurchase agreements. The Funds may enter into reverse
repurchase agreements with broker/dealers and other financial institutions.
Such agreements involve the sale of portfolio securities with an agreement to
repurchase the securities at an agreed-upon price, date and interest payment and
are considered to be borrowings by the Fund and are subject to the borrowing
limitations set forth under "Investment Restrictions." Since the proceeds of
reverse repurchase agreements are invested, this would introduce the speculative
factor known as "leverage." The securities purchased with the funds obtained
from the agreement and securities
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collateralizing the agreement will have maturity dates no later than the
repayment date. Generally, the effect of such a transaction is that the Fund can
recover all or most of the cash invested in the portfolio securities involved
during the term of the reverse repurchase agreement, while in many cases it will
be able to keep some of the interest income associated with those securities.
Such transactions are only advantageous if the Fund has an opportunity to earn a
greater rate of interest on the cash derived from the transaction than the
interest cost of obtaining that cash. Opportunities to realize earnings from the
use of the proceeds equal to or greater than the interest required to be paid
may not always be available, and the Fund intends to use the reverse repurchase
technique only when the manager believes it will be advantageous to the Fund.
The use of reverse repurchase agreements may exaggerate any interim increase or
decrease in the value of the Fund's assets. The Fund's custodian bank will
maintain a separate account for the Fund with securities having a value equal to
or greater than such commitments.
Short Sales against the Box. Each Fund may from time to time make short
sales of securities it owns or has the right to acquire through conversion or
exchange of other securities it owns. A short sale is ``against the box'' to
the extent that the Fund contemporaneously owns or has the right to obtain at no
added cost securities identical to those sold short. In a short sale, the Fund
does not immediately deliver the securities sold and does not receive the
proceeds from the sale. The Fund is said to have a short position in the
securities sold until it delivers the securities sold, at which time it receives
the proceeds of the sale. The Acquiring Fund may not make short sales or
maintain a short position if to do so would cause more than 25% of its total
assets, taken at market value, to be held as collateral for such sales.
To secure its obligation to deliver the securities sold short, each Fund
will deposit in escrow in a separate account with its custodian an equal amount
of the securities sold short or securities convertible into or exchangeable for
such securities. The Fund may close out a short position by purchasing and
delivering an equal amount of the securities sold short, rather than by
delivering securities already held by the Fund, because the Fund may want to
continue to receive interest and dividend payments on securities in its
portfolio that are convertible into the securities sold short.
Derivative contracts. Each Fund may, but need not, use derivative
contracts, such as futures and options on securities, securities indices or
currencies; options on these futures; forward currency contracts; and interest
rate and currency swaps for any of the following purposes:
. To hedge against the economic impact of adverse changes in the market
value of portfolio securities, because of changes in stock market
prices
. As a substitute for buying or selling securities
. In the case of the Acquiring Fund, to enhance total return
A derivative contract will obligate or entitle a Fund to deliver or receive an
asset or cash payment based on the change in value of one or more securities or
indices. Even a small investment in derivative contracts can have a big impact
on a Fund's stock exposure. Therefore, using derivatives can disproportionately
increase losses and reduce opportunities for gains. A Fund may not fully
benefit from or may lose money on derivatives if changes in their value do not
correspond accurately to changes in the value of the Fund's holdings. The other
parties to
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certain derivative contracts present the same types of default risk as issuers
of fixed income securities. Derivatives can also make a Fund less liquid and
harder to value, especially in declining markets.
Special Risks of Using Futures Contracts. The prices of futures contracts
are volatile and are influenced by, among other things, actual and anticipated
changes in interest rates, which in turn are affected by fiscal and monetary
policies and national and international political and economic events.
At best, the correlation between changes in prices of futures contracts and
of the securities or currencies being hedged can be only approximate. The
degree of imperfection of correlation depends upon circumstances such as:
variations in speculative market demand for futures and for debt securities or
currencies, including technical influences in futures trading; and differences
between the financial instruments being hedged and the instruments underlying
the standard futures contracts available for trading, with respect to interest
rate levels, maturities, and creditworthiness of issuers. A decision of
whether, when, and how to hedge involves skill and judgment, and even a well-
conceived hedge may be unsuccessful to some degree because of unexpected market
behavior or interest rate trends.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. A purchase or sale of a futures contract may
result in losses in excess of the amount invested in the futures contract. Where
a Fund enters into futures transactions for non-hedging purposes, it will be
subject to greater risks and could sustain losses which are not offset by gains
on other Fund assets.
Most U.S. futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit
establishes the maximum amount that the price of a futures contract may vary
either up or down from the previous day's settlement price at the end of a
trading session. Once the daily limit has been reached in a particular type of
futures contract, no trades may be made on that day at a price beyond that
limit. The daily limit governs only price movement during a particular trading
day and therefore does not limit potential losses, because the limit may prevent
the liquidation of unfavorable positions. Futures contract prices have
occasionally moved to the daily limit for several consecutive trading days with
little or no trading, thereby preventing prompt liquidation of futures positions
and subjecting some futures traders to substantial losses.
Defensive investing. Each Fund may depart from their principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If a Fund takes a temporary defensive position, it may be
unable to achieve its investment goal. A Fund may engage in active and frequent
trading, resulting in high portfolio turnover. This may lead to the realization
and distribution to shareholders of higher capital gains, increasing their tax
liability. Frequent trading also increases transaction costs, which could
detract from a Fund's performance.
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Asia Pacific Region. Unlike the Acquiring Fund, the Fund invests primarily
in the Asia Pacific region. The Asia Pacific region currently includes
Australia, Hong Kong, India, Indonesia, Japan, Malaysia, New Zealand, Pakistan,
Papua New Guinea, the People's Republic of China, the Philippines, Singapore,
South Korea, Sri Lanka, Taiwan and Thailand. The manager considers a company to
be in the Asia Pacific region if its securities trade on exchanges in the Asia
Pacific region, it generates at least half of its revenue from the Asia Pacific
region or it is organized under the laws of an Asia Pacific region country.
Impact of high portfolio turnover. Unlike the Acquiring Fund, the Fund may
engage in active and frequent trading to achieve its principal investment
strategies. This may lead to the realization and distribution to shareholders
of higher capital gains, which would increase their tax liability. Frequent
trading also increases transaction costs, which could detract from the Fund's
performance.
Investment goal. Unlike the Fund, the Acquiring Fund's investment goal is
not fundamental and may be changed without shareholder approval by the Acquiring
Fund's Board of Trustees.
THE PROPOSED TRANSACTION
Description of the Plan. As stated above, the Plan provides for the
transfer of all of the assets of the Fund to the Acquiring Fund in exchange for
that number of full and fractional shares of the corresponding class of the
Acquiring Fund having an aggregate net asset value equal to the aggregate net
asset value of the shareholder's shares held in the Fund as of the close of
regular trading on the New York Stock Exchange, Inc. on the Closing Date. The
Acquiring Fund will assume all of the stated liabilities of the Fund. In
connection with the Closing, the Fund will distribute the shares of the
corresponding class of shares of beneficial interests of the Acquiring Fund
received in the exchange to the shareholders of the Fund in complete liquidation
of the Fund. The Fund will be terminated as a series of World Funds.
Upon completion of the Reorganization, each shareholder of the Fund will
own that number of full and fractional shares of the corresponding class of the
Acquiring Fund having an aggregate net asset value equal to the aggregate net
asset value of such shareholder's shares held in the Fund as of the close of
regular trading on the Closing Date. Each Fund shareholder's account with the
Acquiring Fund will be substantially similar in all material respects to the
accounts currently maintained by the Fund's sub-transfer agent for such
shareholder. Some of the outstanding shares of common stock of the Fund are
represented by physical certificates; however, in the interest of economy and
convenience, shares of the Fund generally are not represented by physical
certificates, and shares of the Acquiring Fund issued to Fund shareholders
similarly will be in uncertificated form.
Until the Closing, shareholders of the Fund will, of course, continue to be
able to redeem their shares at the net asset value next determined after receipt
by the Fund's sub-transfer agent of a redemption request in proper form.
Redemption requests received by the sub-transfer agent thereafter will be
treated as requests received for the redemption of shares of the Acquiring Fund
received by the shareholder in connection with the Reorganization.
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The obligations of World Funds, on behalf of the Fund, and Investment
Series, on behalf of the Acquiring Fund, under the Plan are subject to various
conditions, as stated therein. Among other things, the Plan requires that all
filings be made with, and all authority be received from, the SEC and the State
of Maryland and The Commonwealth of Massachusetts, as applicable, as may be
necessary in the opinion of counsel to permit the parties to carry out the
transactions contemplated by the Plan. The Fund and the Acquiring Fund are in
the process of making the necessary filings. To provide against unforeseen
events, the Plan may be terminated or amended at any time prior to the Closing
(in accordance with the Plan), notwithstanding the approval of the Plan by the
shareholders of the Fund. However, no amendment may be made after the Special
Meeting that materially adversely affects the interests of the shareholders of
the Fund without obtaining the approval of the Fund's shareholders. The Fund
and the Acquiring Fund may at any time waive compliance with certain of the
covenants and conditions contained in the Plan.
The Plan provides that the obligations of Investment Series are not
personally binding upon any of its Trustees, shareholders, nominees, officers,
agents, or employees, but binds only the property of the Acquiring Fund as
provided in the Declaration of Trust of Investment Series. Moreover, no series
of Investment Series is responsible for the obligations of Investment Series
under the Plan, and all persons must look only to the assets of the Acquiring
Fund to satisfy the obligations of Investment Series under the Plan. The
execution and the delivery of the Plan have been authorized by the Board of
Trustees of Investment Series, on behalf of the Acquiring Fund, and the Plan has
been signed by authorized officers of Investment Series 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. For a complete description
of the terms and conditions of the Reorganization, see the Plan at Exhibit A.
SSB Citi will assume and pay all of the expenses that are solely and
directly related to the Reorganization, which expenses are estimated to be
approximately $_______. Shareholders have no rights of appraisal.
REASONS FOR THE PROPOSED TRANSACTION
Prior to a telephonic meeting of World Funds' Board of Directors held on
September 7, 2000, the Directors, including all of the Non-Interested Directors,
were presented with materials discussing the benefits which would accrue to the
shareholders of the Fund if the Fund were to reorganize with and into the
Acquiring Fund. These materials were discussed at the meeting to the
satisfaction of the Directors, who were advised by independent counsel. For the
reasons discussed below, the Board of Directors of World Funds, including all of
the Non-Interested Directors, has determined that the proposed Reorganization is
in the best interests of the Fund and its shareholders and that the interests of
the shareholders of the Fund will not be diluted as a result of the proposed
Reorganization.
The proposed combination of the Fund and the Acquiring Fund will allow the
shareholders of the Fund to continue to participate in a portfolio governed by
similar investment objectives and policies that is professionally managed by SSB
Citi. The Board of Directors of
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World Funds believes that shareholders of the Fund will benefit from the
proposed Reorganization because the Acquiring Fund offers the following
benefits:
Enhanced Flexibility with Respect to Portfolio Investments. As stated
previously, the Fund has been unable to attract a substantial asset base since
its inception. The Fund's small size has hindered the portfolio management
flexibility of SSB Citi and resulted in higher total annual operating expenses
for its shareholders. The Reorganization is also being proposed as part of a
broader initiative by SSB Citi to eliminate duplication and possible confusion
in its mutual fund product offerings. SSB Citi believes that the combination of
the Funds which have substantially similar investment objectives and policies
into a single larger fund may increase economic and other efficiencies for
investors and SSB Citi, and may ultimately result in a lower total annual
expense ratio for investors. SSB Citi also believes that a larger asset base
could provide portfolio management benefits such as greater diversification and
the ability to command more attention from brokers and underwriters. While past
performance is not necessarily indicative of future results, the Acquiring Fund
has generally outperformed the Fund. See "Capitalization and Performance". As
discussed in detail herein, the total operating expenses of the Acquiring Fund
are also currently (and are projected to be following the Closing of the
Reorganization) lower than the corresponding expenses incurred by the Fund.
Lower Fees and Expenses. If the proposed transaction is approved,
shareholders of the Fund may benefit from lower total fund expenses. See
"Investment Management Fees and Expenses" and "Annual Fund Operating Expenses".
As set forth above, as of their most recent fiscal year end, each class of
shares of the Fund has higher total annual operating expenses than the
corresponding class of the Acquiring Fund. As a result of the Reorganization,
shareholders of the Fund will be investing in the corresponding class of the
Acquiring Fund with expenses that are currently between [0.04%] and [0.30%]
lower than those of the relevant class of the Fund even after taking into
account the fee waivers and expense reimbursements by SSB Citi, which may be
terminated or modified by SSB Citi at any time. [If the Reorganization is
consummated, the Acquiring Fund's net expense ratio for each class of its shares
is estimated to remain unchanged for the year ending October 31, 2001.] Going
forward, shareholders should benefit from economies of scale through lower
expense ratios and higher net income distributions over time since some of the
fixed expenses currently paid by the Acquiring Fund, such as accounting, legal
and printing costs, would also be spread over a larger asset base.
Due to a combination of factors, including the relatively small size of the
Fund, past and prospective sales of the Fund and current market conditions, the
Directors and management of World Funds believe the Fund and its shareholders
would benefit from a tax-free reorganization with a larger fund with
substantially similar investment objectives and policies and with a lower total
annual expense ratio. Accordingly, it is recommended that the shareholders of
the Fund approve the Reorganization with the Acquiring Fund.
The Board of Directors of World Funds, in recommending the proposed
transaction, considered a number of factors, including the following:
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(1) the Reorganization will result in a single larger fund, which may increase
economic and other efficiencies (e.g., eliminating one of the two sets of
prospectuses, annual reports and other documents required for two Funds),
and may, in the future, result in a lower expense ratio;
(2) a larger asset base could provide portfolio management benefits, such as
greater diversification and the ability to command more attention from
brokers and underwriters;
(3) the compatibility of the Acquiring Fund's investment objectives, policies
and restrictions with those of the Fund;
(4) the tax-free nature of the Reorganization;
(5) the potential opportunity for higher income levels and higher annual
return;
(6) the lower total annual expense ratio of the Acquiring Fund, although the
Board recognized that the advisory fee payable by the Acquiring Fund is
higher than that payable by the Fund;
(7) the terms and conditions of the Reorganization and that it should not
result in a dilution of Fund shareholder interests; and
(8) the level of costs and expenses to the Fund of the proposed Reorganization.
DESCRIPTION OF THE SECURITIES TO BE ISSUED
General. The Acquiring Fund is a diversified series of Investment Series,
a business trust organized under the laws of The Commonwealth of Massachusetts
on January 29, 1987, and is registered with the SEC as an open-end management
investment company. The Fund is a non-diversified series of World Funds, a
corporation incorporated under the laws of the State of Maryland on March 22,
1991, and is registered with the SEC as an open-end management investment
company. The Acquiring Fund currently offers shares of beneficial interests
classified into five Classes: A, B, L, Y and 1. The Fund currently offers
shares of common stock classified into four Classes: A, B, L and Y. Each Class
of shares represents an identical pro rata interest in the relevant Fund's
investment portfolio. As a result, the Classes of each Fund have the same
rights, privileges and preferences, except with respect to: (a) the designation
of each Class; (b) the amount of the respective sales charges, if any, for each
Class; (c) the distribution and/or service fees borne by each Class; (d) the
expenses allocable exclusively to each Class; (e) voting rights on matters
exclusively affecting a single Class; (f) the exchange privilege of each Class;
and (g) the conversion feature of the Class B Shares.
Each share of each Class of a Fund represents an interest in that Class of
the Fund that is equal to and proportionate with each other share of that Class
of the Fund. Shareholders are entitled to one vote per share (and a
proportionate fractional vote per each fractional share) held on matters on
which they are entitled to vote.
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Voting Rights. Neither Fund is required to hold shareholder meetings
annually, although shareholder meetings may be called for purposes such as
electing or removing Directors or Trustees, as applicable, changing fundamental
policies or approving an investment management contract. In the event that
shareholders of a Fund wish to communicate with other shareholders concerning
the removal of any Director or Trustee, as applicable, such shareholders shall
be assisted in communicating with other shareholders for the purpose of
obtaining signatures to request a meeting of shareholders, all in the manner
provided in Section 16(c) of the 1940 Act as if Section 16(c) were applicable.
Board. The By-Laws of World Funds and of Investment Series provide that
the term of office of each Director/Trustee shall be from the time of his or her
election and qualification until the next annual meeting of shareholders and
until his or her successor shall have been elected and shall have qualified.
Any Director/Trustee of World Funds or Investment Series may be removed by the
vote of at least a majority of the outstanding shares then entitled to be cast
for the election of Directors/Trustees. Vacancies on the Boards of World Funds
or Investment Series may be filled by the Directors/Trustees remaining in
office. A meeting of shareholders will be required for the purpose of electing
additional Directors/Trustees whenever fewer than a majority of the
Directors/Trustees then in office were elected by shareholders and to fill
vacancies if less than two-thirds of the Directors/Trustees then holding office
have been elected by the shareholders.
Liquidation or Termination. In the event of the liquidation or termination
of the Fund or the Acquiring Fund, the shareholders of each Fund are entitled to
receive, when and as declared by the Directors/Trustees, the excess of the
assets over the liabilities belonging to the relevant Fund. In either case, the
assets so distributed to shareholders will be distributed among the shareholders
in proportion to the number of shares of the class held by them and recorded on
the books of the relevant Fund. The net asset value of the classes of shares
would differ due to differences in expense ratios.
Liability of Directors/Trustees. The Articles of Incorporation of World
Funds and the Declaration of Trust of Investment Series provide that the
Directors/Trustees and officers shall not be liable for monetary damages for
breach of fiduciary duty as a Director/Trustee or officer, except to the extent
such exemption is not permitted by law.
Rights of Inspection. Maryland law permits any shareholder of the Fund or
any agent of such shareholders to inspect and copy, during usual business hours,
the By-Laws, minutes of shareholder proceedings, annual statements of the
affairs and voting trust agreements (if any) of the Fund on file at its
principal office. The Declaration of Trust of Investment Series permits any
shareholder of the Acquiring Fund or his agent to inspect and copy during normal
business hours the By-Laws, minutes of the proceedings of shareholders and
annual financial statements of the Acquiring Fund (including a balance sheet and
financial statements of operations) on file, at its principal offices.
Shareholder Liability. Under Maryland law, shareholders of the Fund do not
have personal liability for corporate acts and obligations. Under Massachusetts
law, shareholders of a Massachusetts business trust could, under certain
circumstances, be held personally liable for obligations of a fund. The
Declaration of Trust for Investment Series, however, disclaims
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<PAGE>
shareholder liability for acts or obligations of the Acquiring Fund and requires
that notice of such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by that Fund or its Trustees. Moreover, the
Declaration of Trust provides for indemnification out of the Acquiring Fund's
property for all losses and expenses of any shareholder held personally liable
for the obligations of the Acquiring Fund and the Acquiring Fund will be covered
by insurance which the Trustees consider adequate to cover foreseeable tort
claims. Thus, the risk of a shareholder of the Acquiring Fund incurring
financial loss on account of shareholder liability is considered by SSB Citi to
be remote and not material, since it is limited to circumstances in which a
disclaimer is inoperative and the Acquiring Fund itself is unable to meet its
obligations.
Shares of beneficial interest of the Acquiring Fund issued to the holders
of shares of common stock in the Fund pursuant to the Reorganization will be
fully paid and nonassessable when issued, transferable without restrictions and
will have no preemptive rights.
The foregoing is only a summary of certain characteristics of the
operations of World Funds and Investment Series. The foregoing is not a
complete description of the documents cited. Shareholders should refer to the
provisions of trust documents and state laws governing each Fund for a more
thorough description.
FEDERAL INCOME TAX CONSEQUENCES
The Reorganization is conditioned upon the receipt by World Funds, on
behalf of the Fund, and by Investment Series, on behalf of the Acquiring Fund,
of an opinion from Willkie Farr & Gallagher, substantially to the effect that,
based upon certain facts, assumptions and representations of the parties, for
federal income tax purposes: (i) the transfer to the Acquiring Fund of all of
the assets of the Fund in exchange solely for Shares and the assumption by the
Acquiring Fund of all of the stated liabilities of the Fund, followed by the
distribution of such Shares to Fund shareholders in exchange for their shares of
the Fund in complete liquidation of the Fund, will constitute a "reorganization"
within the meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and
the Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the Fund
upon the transfer of the Fund's assets to the Acquiring Fund in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of liabilities of
the Fund or upon the distribution (whether actual or constructive) of the
Acquiring Fund Shares to the Fund's shareholders in exchange for their shares of
the Fund; (iii) the basis of the assets of the Fund in the hands of the
Acquiring Fund will be the same as the basis of such assets of the Fund
immediately prior to the transfer; (iv) the holding period of the assets of the
Fund in the hands of the Acquiring Fund will include the period during which
such assets were held by the Fund; (v) no gain or loss will be recognized by the
Acquiring Fund upon the receipt of the assets of the Fund in exchange for Shares
and the assumption by the Acquiring Fund of all of the stated liabilities of the
Fund; (vi) no gain or loss will be recognized by the shareholders of the Fund
upon the receipt of Shares solely in exchange for their shares of the Fund as
part of the transaction; (vii) the basis of Shares received by the shareholders
of the Fund will be the same as the basis of the shares of the Fund exchanged
therefor; and (viii) the holding period of Shares received by the shareholders
of the Fund will include the holding period during which the shares of the Fund
exchanged therefor were held, provided that at the time of the exchange the
shares of the Fund were held as capital assets in the hands of the shareholders
of the Fund.
26
<PAGE>
While neither World Funds nor Investment Series is aware of any adverse
state or local tax consequences of the proposed Reorganization, they have not
requested any ruling or opinion with respect to such consequences and
shareholders may wish to consult their own tax adviser with respect to such
matters.
LIQUIDATION AND TERMINATION OF SERIES
If the Reorganization is effected, the Fund will be liquidated and
terminated as a series of World Funds, and the Fund's outstanding shares will be
cancelled.
PORTFOLIO SECURITIES
If the Reorganization is effected, SSB Citi will analyze and evaluate the
portfolio securities of the Fund being transferred to the Acquiring Fund.
Consistent with the Acquiring Fund's investment objective and policies, any
restrictions imposed by the Code and the best interests of the Acquiring Fund's
shareholders (including former shareholders of the Fund), SSB Citi will
determine the extent and duration to which the Fund's portfolio securities will
be maintained by the Acquiring Fund. [It is possible that there may be a
significant rebalancing of the Fund's portfolio securities in connection with
the Reorganization.] Subject to market conditions at the time of any such
rebalancing, the disposition of the Fund's portfolio securities may result in a
capital gain or loss. The actual tax consequences of any disposition of
portfolio securities will vary depending upon the specific security(ies) being
sold.
PORTFOLIO TURNOVER
The portfolio turnover rate for the Acquiring Fund (i.e., the ratio of the
lesser of annual sales or purchases to the monthly average value of the
portfolio (excluding from both the numerator and the denominator securities with
maturities at the time of acquisition of one year or less)), for the fiscal year
ended October 31, 1999 was 50%. The portfolio turnover rate for the Fund for
the fiscal year ended October 31, 1999 was 128%.
CAPITALIZATION AND PERFORMANCE
Pro Forma Capitalization (Unaudited). The following table sets forth the
unaudited capitalization of each class of each of the Acquiring Fund and the
Fund as of August 31, 2000 as adjusted giving effect to the Reorganization
discussed herein:/1/
<TABLE>
<CAPTION>
ACQUIRING THE EMERGING MARKETS PRO FORMA PRO FORMA
FUND FUND PORTFOLIO /4/ ADJUSTMENTS COMBINED
--------- -------- ----------------- ------------- ----------
(Actual) (Actual) (Actual)
Class A
------------------
<S> <C> <C>
Net Assets 99,080,165 2,775,777 4,714,153 106,570,095
Net Asset Value
Per Share 49.79 9.33 10.44 49.79
Shares Outstanding 1,989,896 297,590 451,560 150,430 2,140,326
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Class B
-------
<S> <C> <C> <C> <C> <C>
Net Assets 140,885,492 2,821,778 5,628,929 149,336,199
Net Asset Value
Per Share 47.80 8.96 10.02 47.80
Shares Outstanding 2,947,253 314,935 561,700 176,793 3,124,046
Class 1 /2/
-----------
Net Assets 10,445,421 10,445,421
Net Asset Value
Per Share 50.45 50.45
Shares Outstanding 207,048 -- 207,048
Class L /3/
-----------
Net Assets 2,712,138 2,171,126 4,883,264
Net Asset Value
Per Share 49.79 8.90 10.01 49.79
Shares Outstanding 304,610 216,801 98,077 98,077
Class Y /3/
-----------
Net Assets 1,907,398 1,907,398
Net Asset Value 49.79 10.59 49.79
Per Share
Shares Outstanding 180,168 38,309 38,309
</TABLE>
__________________
/1/ Assumes the Reorganization had been consummated on August 31, 2000, and is
for information purposes only. No assurance can be given as to how many
shares of the Acquiring Fund will be received by shareholders of the Fund
on the date the Reorganization takes place, and the foregoing should not be
relied upon to reflect the number of shares of the Acquiring Fund that
actually will be received on or after such date.
/2/ Class 1 shares are offered by the Acquiring Fund, but are not involved in
the Reorganization.
/3/ Assumes subscriptions of Class L and Class Y shares in the Acquiring Fund
at the Class A NAV of the Acquiring Fund.
/4/ Assumes the closing of a reorganization pursuant to which the Acquiring
Fund would also acquire the assets and stated liabilities of the Emerging
Markets Portfolio, a series of World Funds.
Total return is a measure of the change in value of an investment in a fund
over the period covered, which assumes that any dividends or capital gains
distributions are automatically reinvested in shares of the fund rather than
paid to the investor in cash. The formula for total return used by a fund is
prescribed by the SEC and includes three steps: (1) adding to the total number
of shares of the fund that would be purchased by a hypothetical $1,000
investment in the fund all additional shares that would have been purchased if
all dividends and distributions paid or distributed during the period had been
automatically reinvested; (2) calculating the redemption value of the
hypothetical initial investment as of the end of the period by multiplying the
total number of shares owned at the end of the period by the net asset value per
share on the last trading day of the period; and (3) dividing this account value
for the hypothetical investor by the amount of the initial investment, and
annualizing the result for periods of less than one year. Total return may be
stated with or without giving effect to any expense limitations in effect for a
fund.
The following table reflects the average annual total returns of Class A
Shares of each Fund for the 1, 5 and 10 year and since inception periods, as
applicable, ending December 31, 1999:
THE FUND THE ACQUIRING FUND
-------- ------------------
Average Annual Total Return: /1/
1-year................................ 87.72% 119.27%
5-year................................ 4.04% N/A
10-year............................... N/A N/A
28
<PAGE>
THE FUND THE ACQUIRING FUND
-------- ------------------
Average Annual Total Return: /1/
Since Inception....................... 2.02% 33.45%
Inception Date........................ 02/07/94 02/21/95
_________________
/1/ The average annual total returns for other classes of each Fund's shares
would be similar to the returns of the Class A Shares of the relevant Fund,
but would differ to the extent that the other class of shares had a higher
or lower total annual expense ratio during the relevant periods.
ADDITIONAL INFORMATION ABOUT THE FUNDS
As noted above, additional information about World Funds, with respect to
the Fund, and Investment Series, with respect to the Acquiring Fund, and the
Reorganization has been filed with the SEC and may be obtained without charge by
writing to Smith Barney Mutual Funds, 388 Greenwich Street, New York, New York
10013, or by calling (800) 451-2010.
Each Fund is subject to the informational requirements of the Securities
Exchange Act of 1934 and the 1940 Act, and in accordance therewith, files
reports, proxy material and other information about the applicable Fund with the
Commission.
Such reports, proxy material and other information can be inspected and
copied at the Public Reference Room (202-942-8090) maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such material can
also be obtained, after paying a duplicating fee, by electronic request at
[email protected] or by writing to the Public Reference Branch, Office of
Consumer Affairs and Information Services, Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or without charge, from the
Commission at http://www.sec.gov. Copies of such material can also be obtained
from Smith Barney Mutual Funds, 388 Greenwich Street, New York, New York 10013,
or by calling (800) 451-2010.
Interests of Certain Persons. SSB Citi and certain of the Acquiring Fund's
service providers have a financial interest in the Reorganization, arising from
the fact that their respective fees under their respective agreements with the
Acquiring Fund will increase as the amount of the Acquiring Fund's assets
increases; the amount of those assets will increase by virtue of the
Reorganization.
THE BOARD MEMBERS OF WORLD FUNDS RECOMMEND THAT THE SHAREHOLDERS OF THE FUND
VOTE IN FAVOR OF THIS PROPOSAL.
ADDITIONAL INFORMATION
General. The cost of preparing, printing and mailing the enclosed proxy
card(s) and Prospectus/Proxy Statement and all other costs incurred in
connection with the solicitation of proxies, including any additional
solicitation made by letter, telephone or telegraph, will be paid by SSB Citi.
In addition to solicitation by mail, certain officers and representatives of
World Funds, officers and employees of SSB Citi and certain financial services
firms and their representatives, who will receive no extra compensation for
their services, may solicit proxies by telephone, telegram or personally.
29
<PAGE>
When the Fund records proxies by telephone or through the internet, it will
use procedures designed to (i) authenticate shareholders' identities, (ii) allow
shareholders to authorize the voting of their shares in accordance with their
instructions and (iii) confirm that their instructions have been properly
recorded.
To participate in the Special Meeting, the shareholder may submit the proxy
card originally sent with the Prospectus/Proxy Statement or attend in person.
Any proxy given by a shareholder is revocable until voted at the Special
Meeting.
Proposals of Shareholders. Shareholders wishing to submit proposals for
inclusion in a proxy statement for a shareholder meeting subsequent to the
Special Meeting, if any, should send their written proposals to the Secretary of
World Funds, c/o Smith Barney Mutual Funds, 388 Greenwich Street, New York, New
York 10013, within a reasonable time before the solicitation of proxies for
such meeting. The timely submission of a proposal does not guarantee its
inclusion.
Other Matters to Come Before the Special Meeting. No Board member is aware
of any matters that will be presented for action at the Special Meeting other
than the matters set forth herein. Should any other matters requiring a vote of
shareholders arise, the proxy in the accompanying form will confer upon the
person or persons entitled to vote the shares represented by such proxy the
discretionary authority to vote the shares as to any such other matters in
accordance with their best judgment in the interest of World Funds and/or the
Fund.
PLEASE COMPLETE, SIGN AND RETURN THE ENCLOSED PROXY CARD(S) PROMPTLY. NO
POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
By order of the Board of Directors,
/s/ Christina T. Sydor
Christina T. Sydor
Secretary
30
<PAGE>
INDEX OF EXHIBITS
[Annex A: 5% Shareholders]
Exhibit A: Form of Agreement and Plan of Reorganization
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made as of this
____ day of _________, 2000, between Smith Barney World Funds, Inc. ("World
Funds"), a Maryland corporation with its principal place of business at 388
Greenwich Street, New York, New York 10013, on behalf of its series, the
Pacific Portfolio (the "Acquired Fund"), and Smith Barney Investment Series
("Investment Series") (formerly Concert Investment Series), a Massachusetts
business trust with its principal place of business at 388 Greenwich Street, New
York, New York 10013, on behalf of its series, the Smith Barney International
Aggressive Growth Fund (the "Acquiring Fund") and solely for purposes of Section
10.2 hereof, SSB Citi Fund Management, LLC ("SSB Citi").
This Agreement is intended to be and is adopted as a plan of reorganization and
liquidation within the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"). The reorganization (the "Reorganization") will
consist of the transfer of all of the assets of the Acquired Fund to the
Acquiring Fund, in exchange solely for voting shares of the corresponding class
of beneficial interests ($0.001 par value per share) of the Acquiring Fund (the
"Acquiring Fund Shares"), the assumption by the Acquiring Fund of all of the
stated liabilities of the Acquired Fund and the distribution of the Acquiring
Fund Shares to the holders of shares of common stock in the Acquired Fund in
complete liquidation of the Acquired Fund as provided herein, all upon the terms
and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants and
agreements hereinafter set forth, the parties hereto covenant and agree as
follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND TO THE ACQUIRING FUND IN EXCHANGE
FOR THE ACQUIRING FUND SHARES, THE ASSUMPTION OF ALL ACQUIRED FUND STATED
LIABILITIES AND THE LIQUIDATION OF THE ACQUIRED FUND
1.1. Subject to the terms and conditions herein set forth and on the basis
of the representations and warranties contained herein, the Acquired Fund agrees
to transfer to the Acquiring Fund all of the Acquired Fund's assets as set forth
in section 1.2, and the Acquiring Fund agrees in exchange therefor (i) to
deliver to the Acquired Fund that number of full and fractional Acquiring Fund
Shares determined by dividing the value of the Acquired Fund's assets, computed
in the manner and as of the time and date set forth in section 2.1, by the net
asset value of one Acquiring Fund Share, computed in the manner and as of the
time and date set forth in section 2.2; and (ii) to assume all of the stated
liabilities of the Acquired Fund, as set forth in section 1.2. Such transactions
shall take place at the closing provided for in section 3.1 (the "Closing").
1.2. The assets of the Acquired Fund to be acquired by the Acquiring Fund
(collectively "Assets") shall consist of all assets, including, without
limitation, all cash, cash equivalents, securities, commodities and futures
interests and dividends or interest or other receivables that are owned by the
Acquired Fund and any deferred or prepaid expenses shown on the unaudited
statement of assets and liabilities of the Acquired Fund prepared as of the
effective
A-1
<PAGE>
time of the closing (the "Effective Time Statement"), prepared in accordance
with generally accepted accounting principles ("GAAP") applied consistently with
those of the Acquired Fund's most recent audited balance sheet.
1.3. The Acquired Fund will endeavor to discharge all the Acquired Fund's
known liabilities and obligations prior to the Closing Date as defined in
section 3.1, other than those liabilities and obligations which would otherwise
be discharged at a later date in the ordinary course of business.
1.4. On or as soon as practicable prior to the Closing Date as defined in
section 3.1, the Acquired Fund will declare and pay to its shareholders of
record one or more dividends and/or other distributions so that it will have
distributed substantially all of its investment company taxable income (computed
without regard to any deduction for dividends paid) and realized net capital
gain, if any, for the current taxable year through the Closing Date.
1.5. Immediately after the transfer of assets provided for in section 1.1
(the "Liquidation Time"), World Funds will distribute to the Acquired Fund's
shareholders of record (the "Acquired Fund Shareholders"), determined as of the
Valuation Time (as defined herein), on a pro rata basis, the Acquiring Fund
Shares received by the Acquired Fund pursuant to section 1.1 and will completely
liquidate. Such distribution and liquidation will be accomplished by the
transfer of the Acquiring Fund Shares then credited to the account of the
Acquired Fund on the books of the Acquiring Fund to open accounts on the share
records of the Acquiring Fund in the names of the Acquired Fund Shareholders.
The aggregate net asset value of Acquiring Fund Shares to be so credited to
Acquired Fund Shareholders shall be equal to the aggregate net asset value of
each class of the Acquired Fund shares owned by such shareholders as of the
Valuation Time (as defined herein). All issued and outstanding shares of the
Acquired Fund will simultaneously be cancelled on the books of World Funds with
respect to the Acquired Fund, although share certificates representing interests
in shares of the Acquired Fund will represent a number of Acquiring Fund Shares
after the Closing Date as determined in accordance with section 2.3. The
Acquiring Fund will not issue certificates representing Acquiring Fund Shares in
connection with such exchange.
1.6. Ownership of Acquiring Fund Shares will be shown on the books of
Investment Series with respect to the Acquiring Fund. Shares of the Acquiring
Fund will be issued in the manner described in the Acquiring Fund's then-current
prospectus and statement of additional information.
1.7. Any reporting responsibility of the Acquired Fund including, without
limitation, the responsibility for filing of regulatory reports, tax returns, or
other documents with the Securities and Exchange Commission (the "Commission"),
any state securities commission, and any federal, state or local tax authorities
or any other relevant regulatory authority, is and shall remain the
responsibility of the Acquired Fund.
1.8. All books and records of the Acquired Fund, including all books and
records required to be maintained under the Investment Company Act of 1940, as
amended (the "1940 Act") and the rules and regulations thereunder, shall be
available to the Acquiring Fund from and
A-2
<PAGE>
after the Closing Date and shall be turned over to the Acquiring Fund as soon as
practicable following the closing date.
2. VALUATION
2.1. The value of the Assets shall be computed as of the close of regular
trading on The New York Stock Exchange, Inc. ("NYSE") on the Closing Date, as
defined in Section 3.1 (such time and date also being hereinafter called the
"Valuation Time") after the declaration and payment of any dividends and/or
other distributions on that date, using the valuation procedures set forth in
Investment Series' Agreement and Declaration of Trust, as amended, and then-
current prospectus or statement of additional information.
2.2. The net asset value of an Acquiring Fund share shall be the net asset
value per share of each class computed as of the Valuation Time using the
valuation procedures referred to in section 2.1.
2.3. The number of the Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets with respect to shares of each class of the
Acquired Fund determined in accordance with section 2.1 by the net asset value
by class of an Acquiring Fund Share determined in accordance with section 2.2.
2.4. All computations of value hereunder shall be made by or under the
direction of each Fund's respective accounting agent, if applicable, in
accordance with its regular practice and the requirements of the 1940 Act and
shall be subject to confirmation by each Fund's respective independent
accountants.
3. CLOSING AND CLOSING DATE
3.1. The Closing of the transactions contemplated by this Agreement shall
be December 1, 2000, or such later date as the parties may agree in writing (the
"Closing Date"). All acts taking place at the Closing shall be deemed to take
place simultaneously as of 4:00 P.M., Eastern time, on the Closing Date, unless
otherwise agreed to by the parties. The Closing shall be held at the offices of
SSB Citi or at such other place and time as the parties may agree.
3.2. World Funds, on behalf of the Acquired Fund, shall deliver to
Investment Series, on behalf of the Acquiring Fund, on the Closing Date a
schedule of assets.
3.3. The Chase Manhattan Bank, as custodian for the World Funds, shall
deliver at the Closing a certificate of an authorized officer stating that (a)
the Assets shall have been delivered in proper form to PNC Bank, National
Association, custodian for the Acquiring Fund, prior to or on the Closing Date
and (b) all necessary taxes in connection with the delivery of the Assets,
including all applicable federal and state stock transfer stamps, if any, have
been paid or provision for payment has been made. The Acquired Fund's portfolio
securities represented by a certificate or other written instrument shall be
presented by Custodian for Acquired Fund to the Custodian for Acquiring Fund for
examination no later than five business days preceding the Closing Date and
transferred and delivered by the Acquired Fund as of the Closing Date for the
account of Acquiring Fund duly endorsed in proper form for transfer in such
condition as to
A-3
<PAGE>
constitute good delivery thereof. The Acquired Fund's portfolio securities and
instruments deposited with a securities depository, as defined in Rule 17f-4
under the 1940 Act, shall be delivered as of the Closing Date by book entry in
accordance with the customary practices of such depositories and Custodian for
Acquiring Fund. The cash to be transferred by the Acquired Fund shall be
delivered by wire transfer of federal funds on the Closing Date.
3.4. Citi Fiduciary Trust Company (the "Transfer Agent"), on behalf of the
Acquired Fund, shall deliver at the Closing a certificate of an authorized
officer stating that its records contain the names and addresses of the Acquired
Fund Shareholders and the number and percentage ownership (to three decimal
places) of outstanding Acquired Fund Shares owned by each such shareholder
immediately prior to the Closing. Investment Series, on behalf of the Acquiring
Fund, shall issue and deliver a confirmation evidencing the Acquiring Fund
Shares to be credited on the Closing Date to the Acquired Fund or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, share certificates, if any, receipts or other documents as
such other party or its counsel may reasonably request to effect the
transactions contemplated by this Agreement.
3.5. In the event that immediately prior to the Valuation Time (a) the NYSE
or another primary trading market for portfolio securities of the Acquiring Fund
or the Acquired Fund shall be closed to trading or trading thereupon shall be
restricted, or (b) trading or the reporting of trading on such Exchange or
elsewhere shall be disrupted so that, in the judgment of the Board of
Directors/Trustees of either Fund, accurate appraisal of the value of the net
assets with respect to the Acquiring Fund Shares or the Acquired Fund Shares is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
4. REPRESENTATIONS AND WARRANTIES
4.1. World Funds, on behalf of the Acquired Fund, represents and warrants
to Investment Series, on behalf of the Acquiring Fund, as follows:
(a) World Funds is a corporation duly organized and validly existing
under the laws of the State of Maryland with power under its Articles of
Incorporation, as amended, to own all of its properties and assets and to
carry on its business as it is now being conducted;
(b) World Funds is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquired
Fund of the transactions contemplated herein, except such as have been
obtained under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act and such
as may be required by state securities laws;
A-4
<PAGE>
(d) Other than with respect to contracts entered into in connection
with the portfolio management of the Acquired Fund which shall terminate on
or prior to the Closing Date, World Funds is not, and the execution,
delivery and performance of this Agreement by World Funds will not result,
in violation of Maryland law or of its Articles of Incorporation, as
amended, or By- Laws, or of any material agreement, indenture, instrument,
contract, lease or other undertaking known to counsel to which the Acquired
Fund is a party or by which it is bound, and the execution, delivery and
performance of this Agreement by the Acquired Fund will not result in the
acceleration of any obligation, or the imposition of any penalty, under any
agreement, indenture, instrument, contract, lease, judgment or decree to
which the Acquired Fund is a party or by which it is bound;
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquired Fund or any
properties or assets held by it. The Acquired Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquired Fund at and for the year ended October 31, 1999,
have been audited by KPMG LLP, independent certified public accountants,
and are in accordance with GAAP consistently applied, and such statements
(copies of which have been furnished to the Acquiring Fund) present fairly,
in all material respects, the financial position, results of operations,
changes in net assets and financial highlights of the Acquired Fund as of
such date in accordance with GAAP, and there are no known contingent
liabilities of the Acquired Fund required to be reflected on a statement of
assets and liabilities (including the notes thereto) in accordance with
GAAP as of such date not disclosed therein;
(g) Since October 31, 1999, there has not been any material adverse
change in the Acquired Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquired Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by Investment Series, on behalf of the
Acquiring Fund. For purposes of this subsection (g), a decline in net asset
value per share of the Acquired Fund due to declines in market values of
securities in the Acquired Fund's portfolio, the discharge of Acquired Fund
liabilities, or the redemption of Acquired Fund shares by Acquired Fund
Shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquired Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
A-5
<PAGE>
payment thereof, and, to the best of the Acquired Fund's knowledge, no such
return is currently under audit and no assessment has been asserted with
respect to such returns;
(i) For each taxable year of its operation, the Acquired Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will have distributed all of its investment company
taxable income and net capital gain (as defined in the Code) that has
accrued through the Closing Date;
(j) All issued and outstanding shares of the Acquired Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material respects with applicable registration
requirements of the 1933 Act and state securities laws, (ii) are, and on
the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable, and (iii) will be held at the time of the Closing
by the persons and in the amounts set forth in the records of the Transfer
Agent, as provided in section 3.3. The Acquired Fund does not have
outstanding any options, warrants or other rights to subscribe for or
purchase any of the Acquired Fund shares, nor is there outstanding any
security convertible into any of the Acquired Fund shares;
(k) At the Closing Date, the Acquired Fund will have good and
marketable title to the Acquired Fund's assets to be transferred to the
Acquiring Fund pursuant to section 1.2 and full right, power, and authority
to sell, assign, transfer and deliver such assets hereunder free of any
liens or other encumbrances, except those liens or encumbrances as to which
the Acquiring Fund has received notice at or prior to the Closing, and upon
delivery and payment for such assets, the Acquiring Fund will acquire good
and marketable title thereto, subject to no restrictions on the full
transfer thereof, including such restrictions as might arise under the 1933
Act and the 1940 Act, except those restrictions as to which the Acquiring
Fund has received notice and necessary documentation at or prior to the
Closing;
(l) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Directors of World Funds, and, subject to the approval
of the Acquired Fund Shareholders, this Agreement constitutes a valid and
binding obligation of World Funds, on behalf of the Acquired Fund,
enforceable in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
other laws relating to or affecting creditors' rights and to general equity
principles;
(m) The information to be furnished by World Funds, on behalf of the
Acquired Fund, for use in applications for orders, registration statements
or proxy materials or for use in any other document filed or to be filed
with any federal, state or local regulatory authority (including the
National Association of Securities Dealers, Inc.), which may be necessary
in connection with the transactions contemplated hereby, shall be accurate
and complete in all material respects and shall comply in all material
respects with federal securities and other laws and regulations applicable
thereto; and
A-6
<PAGE>
(n) The current prospectus and statement of additional information of
the Acquired Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading; and
(o) The proxy statement of the Acquired Fund to be included in the
Registration Statement referred to in section 5.7 (the "Proxy Statement"),
insofar as it relates to the Acquired Fund, will, on the effective date of
the Registration Statement and on the Closing Date, not contain any untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which such statements are made, not materially
misleading; provided, however, that the representations and warranties in
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by Investment Series, on behalf of the Acquiring Fund, for use
therein.
4.2. Investment Series, on behalf of the Acquiring Fund, represents and
warrants to World Funds, on behalf of the Acquired Fund, as follows:
(a) Investment Series is a business trust organized and validly
existing under the laws of The Commonwealth of Massachusetts with power
under its Agreement and Declaration of Trust, as amended, to own all of its
properties and assets and to carry on its business as it is now being
conducted;
(b) Investment Series is registered with the Commission as an open-end
management investment company under the 1940 Act, and such registration is
in full force and effect;
(c) No consent, approval, authorization, or order of any court or
governmental authority is required for the consummation by the Acquiring
Fund of the transactions contemplated herein, except such as have been
obtained under the 1933 Act, the 1934 Act and the 1940 Act and such as may
be required by state securities laws;
(d) Investment Series is not, and the execution, delivery and
performance of this Agreement by Investment Series will not result, in
violation of Massachusetts law or of its Agreement and Declaration of
Trust, as amended, or By-Laws, or of any material agreement, indenture,
instrument, contract, lease or other undertaking known to counsel to which
the Acquiring Fund is a party or by which it is bound, and the execution,
delivery and performance of this Agreement by the Acquiring Fund will not
result in the acceleration of any obligation, or the imposition of any
penalty, under any agreement, indenture, instrument, contract, lease,
judgment or decree to which the Acquiring Fund is a party or by which it is
bound;
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<PAGE>
(e) No material litigation or administrative proceeding or
investigation of or before any court or governmental body is presently
pending or to its knowledge threatened against the Acquiring Fund or any
properties or assets held by it. The Acquiring Fund knows of no facts which
might form the basis for the institution of such proceedings which would
materially and adversely affect its business and is not a party to or
subject to the provisions of any order, decree or judgment of any court or
governmental body which materially and adversely affects its business or
its ability to consummate the transactions herein contemplated;
(f) The Statements of Assets and Liabilities, including the Investment
Portfolio, Operations, and Changes in Net Assets, and the Financial
Highlights of the Acquiring Fund at and for the year ended October 31,
1999, have been audited by Ernst & Young LLP, independent certified public
accountants, and are in accordance with GAAP consistently applied, and such
statements (copies of which have been furnished to the Acquired Fund)
present fairly, in all material respects, the financial position, results
of operations, changes in net assets and financial highlights of the
Acquiring Fund as of such date in accordance with GAAP, and there are no
known contingent liabilities of the Acquiring Fund required to be reflected
on a statement of assets and liabilities (including the notes thereto) in
accordance with GAAP as of such date not disclosed therein;
(g) Since October 31, 1999, there has not been any material adverse
change in the Acquiring Fund's financial condition, assets, liabilities or
business other than changes occurring in the ordinary course of business,
or any incurrence by the Acquiring Fund of indebtedness maturing more than
one year from the date such indebtedness was incurred except as otherwise
disclosed to and accepted in writing by World Funds, on behalf of the
Acquired Fund. For purposes of this subsection (g), a decline in net asset
value per share of the Acquiring Fund due to declines in market values of
securities in the Acquiring Fund's portfolio, the discharge of Acquiring
Fund liabilities, or the redemption of Acquiring Fund shares by Acquiring
Fund shareholders shall not constitute a material adverse change;
(h) At the date hereof and at the Closing Date, all federal and other
tax returns and reports of the Acquiring Fund required by law to have been
filed by such dates (including any extensions) shall have been filed and
are or will be correct in all material respects, and all federal and other
taxes shown as due or required to be shown as due on said returns and
reports shall have been paid or provision shall have been made for the
payment thereof, and, to the best of the Acquiring Fund's knowledge, no
such return is currently under audit and no assessment has been asserted
with respect to such returns;
(i) For each taxable year of its operation, the Acquiring Fund has met
the requirements of Subchapter M of the Code for qualification as a
regulated investment company and has elected to be treated as such, has
been eligible to and has computed its federal income tax under Section 852
of the Code, and will do so for the taxable year including the Closing
Date;
(j) All issued and outstanding shares of the Acquiring Fund (i) have
been offered and sold in every state and the District of Columbia in
compliance in all material
A-8
<PAGE>
respects with applicable registration requirements of the 1933 Act and
state securities laws and (ii) are, and on the Closing Date will be, duly
and validly issued and outstanding, fully paid and non- assessable. The
Acquiring Fund does not have outstanding any options, warrants or other
rights to subscribe for or purchase any of the Acquiring Fund shares, nor
is there outstanding any security convertible into any of the Acquiring
Fund shares;
(k) The Acquiring Fund Shares to be issued and delivered to the
Acquired Fund, for the account of the Acquired Fund Shareholders, pursuant
to the terms of this Agreement, will at the Closing Date have been duly
authorized and, when so issued and delivered, will be duly and validly
issued and outstanding Acquiring Fund Shares, and will be fully paid and
non- assessable;
(l) At the Closing Date, the Acquiring Fund will have good and
marketable title to the Acquiring Fund's assets, free of any liens or other
encumbrances, except those liens or encumbrances as to which the Acquired
Fund has received notice at or prior to the Closing;
(m) The execution, delivery and performance of this Agreement will
have been duly authorized prior to the Closing Date by all necessary action
on the part of the Trustees of Investment Series and this Agreement will
constitute a valid and binding obligation of Investment Series, on behalf
of the Acquiring Fund, enforceable in accordance with its terms, subject,
as to enforcement, to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other laws relating to or affecting
creditors' rights and to general equity principles;
(n) The information to be furnished by Investment Series, on behalf of
the Acquiring Fund, for use in applications for orders, registration
statements or proxy materials or for use in any other document filed or to
be filed with any federal, state or local regulatory authority (including
the National Association of Securities Dealers, Inc.), which may be
necessary in connection with the transactions contemplated hereby, shall be
accurate and complete in all material respects and shall comply in all
material respects with federal securities and other laws and regulations
applicable thereto;
(o) The current prospectus and statement of additional information of
the Acquiring Fund conform in all material respects to the applicable
requirements of the 1933 Act and the 1940 Act and the rules and regulations
of the Commission thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not materially misleading;
(p) The Proxy Statement to be included in the Registration Statement,
only insofar as it relates to the Acquiring Fund, will, on the effective
date of the Registration Statement and on the Closing Date, not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which such statements were made, not
materially misleading; provided, however, that the representations and
warranties in
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<PAGE>
this section shall not apply to statements in or omissions from the Proxy
Statement and the Registration Statement made in reliance upon and in
conformity with information that was furnished or should have been
furnished by World Funds, on behalf of the Acquired Fund, for use therein;
and
(q) Investment Series, 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 securities laws as may
be necessary in order to continue its operations after the Closing Date.
5. COVENANTS OF THE ACQUIRING FUND AND THE ACQUIRED FUND
5.1. Investment Series, on behalf of the Acquiring Fund, and World Funds,
on behalf of the Acquired Fund, each covenants to operate its business in the
ordinary course between the date hereof and the Closing Date, it being
understood that (a) such ordinary course of business will include (i) the
declaration and payment of customary dividends and other distributions and (ii)
such changes as are contemplated by the Funds' normal operations; and (b) each
Fund shall retain exclusive control of the composition of its portfolio until
the Closing Date.
5.2. Upon reasonable notice, Investment Series' officers and agents shall
have reasonable access to the Acquired Fund's books and records necessary to
maintain current knowledge of the Acquired Fund and to ensure that the
representations and warranties made by the Acquired Fund are accurate.
5.3. World Funds, on behalf of the Acquired Fund, covenants to call a
meeting of the Acquired Fund Shareholders entitled to vote thereon to consider
and act upon this Agreement and to take all other reasonable action necessary to
obtain approval of the transactions contemplated herein. Such meeting shall be
scheduled for no later than November 22, 2000 (or such other date as the
Acquired Fund and the Acquiring Fund may agree to in writing).
5.4. World Funds, on behalf of the Acquired Fund, covenants that the
Acquiring Fund Shares to be issued hereunder are not being acquired for the
purpose of making any distribution thereof other than in accordance with the
terms of this Agreement.
5.5. World Funds, on behalf of the Acquired Fund, covenants that it will
assist Investment Series in obtaining such information as Investment Series
reasonably requests concerning the beneficial ownership of the Acquired Fund
Shares and will provide Investment Series with a list of affiliates of the
Acquired Fund.
5.6. Subject to the provisions of this Agreement, Investment Series, on
behalf of the Acquiring Fund, and World Funds, on behalf of the Acquired Fund,
will each take, or cause to be taken, all actions, and do or cause to be done,
all things reasonably necessary, proper, and/or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.7. Each Fund covenants to prepare the Registration Statement on Form N-14
(the "Registration Statement"), in compliance with the 1933 Act, the 1934 Act
and the 1940 Act in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein. Investment Series, on behalf of the
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<PAGE>
Acquiring Fund, will file the Registration Statement, including the Proxy
Statement, with the Commission. World Funds, on behalf of the Acquired Fund,
will provide the Acquiring Fund with information reasonably necessary for the
preparation of a prospectus, which will include the Proxy Statement referred to
in section 4.1(o), all to be included in the Registration Statement, in
compliance in all material respects with the 1933 Act, the 1934 Act and the 1940
Act.
5.8. World Funds, on behalf of the Acquired Fund, covenants that it will,
from time to time, as and when reasonably requested by Investment Series,
execute and deliver or cause to be executed and delivered all such assignments
and other instruments, and will take or cause to be taken such further action as
Investment Series may reasonably deem necessary or desirable in order to vest in
and confirm the Acquiring Fund's title to and possession of all the assets and
otherwise to carry out the intent and purpose of this Agreement.
5.9. Investment Series, on behalf of the Acquiring Fund, covenants to use
all reasonable efforts to obtain the approvals and authorizations required by
the 1933 Act and 1940 Act, and such of the state securities laws as it deems
appropriate in order to continue its operations after the Closing Date and to
consummate the transactions contemplated herein; provided, however, that
Investment Series may take such actions it reasonably deems advisable after the
Closing Date as circumstances change.
5.10. The Acquiring Fund covenants that it will, from time to time, as and
when reasonably requested by World Funds, execute and deliver or cause to be
executed and delivered all such assignments, assumption agreements, releases,
and other instruments, and will take or cause to be taken such further action,
as World Funds may reasonably deem necessary or desirable in order to (i) vest
and confirm to the Acquired Fund title to and possession of all Acquiring Fund
shares to be transferred to Acquired Fund pursuant to this Agreement and (ii)
assume the stated liabilities from the Acquired Fund.
5.11. As soon as reasonably practicable after the Closing, the Acquired
Fund shall make a liquidating distribution to its shareholders consisting of the
Acquiring Fund Shares received at the Closing.
5.12. Investment Series, on behalf of the Acquiring Fund, and World Funds,
on behalf of the Acquired Fund, shall each use its reasonable best efforts to
fulfill or obtain the fulfillment of the conditions precedent to effect the
transactions contemplated by this Agreement as promptly as practicable.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND
The obligations of World Funds, on behalf of the Acquired Fund, to consummate
the transactions provided for herein shall be subject, at its election, to the
performance by Investment Series, on behalf of the Acquiring Fund, of all the
obligations to be performed by it hereunder on or before the Closing Date, and,
in addition thereto, the following further conditions:
6.1. All representations and warranties of Investment Series, with respect
to 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
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<PAGE>
Closing Date; and there shall be (i) no pending or threatened litigation brought
by any person (other than Acquired Fund, its adviser or any of their affiliates)
against the Acquiring Fund, the Acquired Fund or their advisers,
Directors/Trustees or officers arising out of this Agreement and (ii) no facts
known to the Acquired Fund which the Acquired Fund reasonably believes might
result in such litigation.
6.2. Investment Series, on behalf of the Acquiring Fund, shall have
delivered to the Acquired Fund on the Closing Date a certificate executed in its
name by its President or a Vice President, in a form reasonably satisfactory to
the Acquired Fund and dated as of the Closing Date, to the effect that the
representations and warranties of Investment Series, with respect to the
Acquiring Fund, made in this Agreement are true and correct on and as of the
Closing Date, except as they may be affected by the transactions contemplated by
this Agreement, and as to such other matters as the Acquired Fund shall
reasonably request;
6.3. World Funds, on behalf of the Acquired Fund, shall have received on
the Closing Date an opinion of Sullivan & Worcester LLP, in a form reasonably
satisfactory to World Funds, and dated as of the Closing Date, to the effect
that:
(a) Investment Series has been duly organized and is a validly
existing business trust in good standing under the laws of The Commonwealth
of Massachusetts;
(b) Investment Series, with respect to the Acquiring Fund, has the
power to carry on its business as presently conducted in accordance with
the description thereof in Investment Series' registration statement under
the 1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
Investment Series, on behalf of the Acquiring Fund, and assuming due
authorization, execution and delivery of the Agreement by World Funds on
behalf of the Acquired Fund, constitutes a valid and legally binding
obligation of Investment Series, on behalf of the Acquiring Fund,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and laws of
general applicability relating to or affecting creditors' rights and to
general equity principles;
(d) the execution and delivery of the Agreement did not, and the
exchange of the Acquired Fund's assets for Acquiring Fund Shares pursuant
to the Agreement will not, violate the Agreement and Declaration of Trust,
as amended, or By-Laws of Investment Series or any provision of any
material agreement, indenture, instrument, contract, lease or other
undertaking (in each case known to such counsel) to which the Acquiring
Fund is a party or by which it or any of its properties may be 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 Acquiring Fund is a party or by which it is bound;
(e) to the knowledge of such counsel, all regulatory or court
consents, authorizations, approvals, orders or filings required to be
obtained or made by the Acquiring Fund under the Federal laws of the United
States or the laws of The
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<PAGE>
Commonwealth of Massachusetts for the exchange of the Acquired Fund's
assets for Acquiring Fund Shares pursuant to the Agreement have been
obtained or made; and
(f) to the 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 Acquiring Fund or any of its
properties or assets and the Acquiring Fund 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,
other than as previously disclosed in the Registration Statement.
Such opinion may state that it is solely for the benefit of World Funds, its
Directors and its officers. Such opinion may contain such assumptions and
limitations as shall be in the opinion of Sullivan & Worcester LLP appropriate
to render the opinions expressed therein. Such opinion also shall include such
other matters incident to the transaction contemplated hereby as World Funds, on
behalf of the Acquired Fund, may reasonably request.
6.4. Investment Series, on behalf of the Acquiring Fund, shall have
performed all of the covenants and complied with all of the provisions required
by this Agreement to be performed or complied with by the Acquiring Fund on or
before the Closing Date.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND
The obligations of Investment Series, on behalf of the Acquiring Fund to
consummate the transactions provided for herein shall be subject, at its
election, to the performance by World Funds, on behalf of the Acquired Fund, of
all of the obligations to be performed by it hereunder on or before the Closing
Date and, in addition thereto, the following further conditions:
7.1. All representations and warranties of World Funds, with respect to the
Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date, with
the same force and effect as if made on and as of the Closing Date; and there
shall be (i) no pending or threatened litigation brought by any person (other
than Acquiring Fund, its adviser or any of their affiliates) against the
Acquired Fund, the Acquiring Fund or their advisers, Directors/Trustees or
officers arising out of this Agreement and (ii) no facts known to the Acquiring
Fund which the Acquiring Fund reasonably believes might result in such
litigation.
7.2. World Funds shall have delivered to the Acquiring Fund a statement of
the Acquired Fund's assets and liabilities as of the Closing Date, certified by
the Treasurer of World Funds;
7.3. World Funds, on behalf of the Acquired Fund, shall have delivered to
the Acquiring Fund on the Closing Date a certificate executed in its name by its
President or a Vice President, in a form reasonably satisfactory to the
Acquiring Fund and dated as of the Closing Date, to the effect that the
representations and warranties of World Funds, with respect to the Acquired
Fund, made in this Agreement are true and correct on and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Acquiring Fund shall reasonably
request;
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<PAGE>
7.4. Investment Series, on behalf of the Acquiring Fund, shall have
received on the Closing Date an opinion of Willkie Farr & Gallagher, in a form
reasonably satisfactory to Investment Series, and dated as of the Closing Date,
to the effect that:
(a) World Funds has been duly organized and is a validly existing
corporation under the laws of the State of Maryland;
(b) World Funds, with respect to the Acquired Fund, has the corporate
power to carry on its business as presently conducted in accordance with
the description thereof in World Funds' registration statement under the
1940 Act;
(c) the Agreement has been duly authorized, executed and delivered by
World Funds, on behalf of the Acquired Fund, and assuming due
authorization, execution and delivery of the Agreement by Investment Series
on behalf of the Acquired Fund, constitutes a valid and legally binding
obligation of World Funds, on behalf of the Acquired Fund, enforceable in
accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
(d) the execution and delivery of the Agreement did not, and the
exchange of the Acquired Fund's assets for Acquiring Fund Shares pursuant
to the Agreement will not, violate the Articles of Incorporation, as
amended, or By-Laws of World Funds or any provision of any material
agreement, indenture, instrument, contract, lease or other undertaking (in
each case known to such counsel) to which the Acquired Fund is a party or
by which it or any of its properties may be 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; and
(e) to the knowledge of such counsel, all regulatory or court
consents, authorizations, approvals, orders or filings required to be
obtained or made by the Acquired Fund under the Federal laws of the United
States or the laws of the State of Maryland for the exchange of the
Acquired Fund's assets for Acquiring Fund Shares pursuant to the Agreement
have been obtained or made; and
(f) to the 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 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,
other than as previously disclosed in the Registration Statement.
Such opinion may state that it is solely for the benefit of the Investment
Series, its Trustees and its officers. Such opinion may contain such
assumptions and limitations as shall be in the opinion of Willkie Farr &
Gallagher appropriate to render the opinions expressed therein. Such opinion
also shall include such other matters incident to the transaction contemplated
hereby as Investment Services, on behalf of the Acquiring Fund, may reasonably
request.
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7.5. World Funds, on behalf of the Acquired Fund, shall have performed all
of the covenants and complied with all of the provisions required by this
Agreement to be performed or complied with by the Acquired Fund on or before the
Closing Date.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND AND THE
ACQUIRED FUND
If any of the conditions set forth below have not been met on or before the
Closing Date with respect to the Acquired Fund or the Acquiring Fund, the other
party to this Agreement shall, at its option, not be required to consummate the
transactions contemplated by this Agreement:
8.1. This Agreement and the transactions contemplated herein shall have
been approved by the requisite vote of the holders of the outstanding shares of
common stock in the Acquired Fund in accordance with the provisions of the
Articles of Incorporation, as amended, and By-Laws of World Funds, applicable
Maryland law and the 1940 Act, and certified copies of the resolutions
evidencing such approval shall have been delivered to the Acquiring Fund.
Notwithstanding anything herein to the contrary, neither the Acquiring Fund nor
the Acquired Fund may waive the conditions set forth in this section 8.1;
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending or to its knowledge threatened before any court or governmental agency
in which it is sought to restrain or prohibit, or obtain material damages or
other relief in connection with, this Agreement or the transactions contemplated
herein;
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities deemed necessary by
Investment Series or World Funds 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 been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act; and
8.5. The parties shall have received an opinion of Willkie Farr & Gallagher
addressed to World Funds and Investment Series substantially to the effect that,
based upon certain facts, assumptions and representations, for Federal income
tax purposes: (i) the transfer to the Acquiring Fund of all of the assets of the
Acquired Fund in exchange solely for Acquiring Fund Shares and the assumption by
the Acquiring Fund of all of the stated liabilities of the Acquired Fund,
followed by the distribution of such Acquiring Fund Shares to Acquired Fund
shareholders in exchange for their shares of the Acquired Fund in complete
liquidation of the Acquired Fund, will constitute a "reorganization" within the
meaning of Section 368(a)(1) of the Code, and the Acquiring Fund and the
Acquired Fund will each be "a party to a reorganization" within the meaning of
Section 368(b) of the Code; (ii) no gain or loss will be recognized by the
Acquired Fund upon the transfer of the Acquired Fund's assets to the Acquiring
Fund in exchange for the
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<PAGE>
Acquiring Fund Shares and the assumption by the Acquiring Fund of the stated
liabilities of the Acquired Fund or upon the distribution (whether actual or
constructive) of the Acquiring Fund Shares to the Acquired Fund's shareholders
in exchange for their shares of the Acquired Fund; (iii) the basis of the assets
of the Acquired Fund in the hands of the Acquiring Fund will be the same as the
basis of such assets of the Acquired Fund immediately prior to the transfer;
(iv) the holding period of the assets of the Acquired Fund in the hands of the
Acquiring Fund will include the period during which such assets were held by the
Acquired Fund; (v) no gain or loss will be recognized by the Acquiring Fund upon
the receipt of the assets of the Acquired Fund in exchange for Acquiring Fund
Shares and the assumption by the Acquiring Fund of all of the stated liabilities
of the Acquired Fund; (vi) no gain or loss will be recognized by the holders of
shares of common stock in the Acquired Fund upon the receipt of Acquiring Fund
Shares solely in exchange for their shares of the Acquired Fund as part of the
transaction; (vii) the basis of Acquiring Fund Shares received by the holders of
shares of common stock in the Acquired Fund will be the same as the basis of the
shares of common stock in the Acquired Fund exchanged therefor; and (viii) the
holding period of Acquiring Fund Shares received by the holders of shares of
common stock in the Acquired Fund will include the holding period during which
the shares of common stock in the Acquired Fund exchanged therefor were held,
provided that at the time of the exchange the shares of common stock in the
Acquired Fund were held as capital assets in the hands of the holders of shares
of common stock in the Acquired Fund. The delivery of such opinion is
conditioned upon receipt by Willkie Farr & Gallagher of representations it shall
request of each of World Funds and Investment Series. Notwithstanding anything
herein to the contrary, neither World Funds nor Investment Series may waive the
condition set forth in this section 8.5.
9. INDEMNIFICATION
9.1. Investment Series, on the behalf of the Acquiring Fund, agrees to
indemnify and hold harmless World Funds and each of its Directors and officers
from and against any and all losses, claims, damages, liabilities or expenses
(including, without limitation, the payment of reasonable legal fees and
reasonable costs of investigation) to which jointly and severally World Funds or
any of its Directors or officers may become subject, insofar as any such loss,
claim, damage, liability or expense (or actions with respect thereto) arises out
of or is based on any breach by the Acquiring Fund of any of its
representations, warranties, covenants or agreements set forth in this
Agreement.
9.2. World Funds, on behalf of the Acquired Fund, agrees to indemnify and
hold harmless Investment Series and each of its Trustees and officers from and
against any and all losses, claims, damages, liabilities or expenses (including,
without limitation, the payment of reasonable legal fees and reasonable costs of
investigation) to which jointly and severally Investment Series or any of its
Trustees or officers may become subject, insofar as any such loss, claim,
damage, liability or expense (or actions with respect thereto) arises out of or
is based on any breach by the Acquired Fund of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
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<PAGE>
10. FEES AND EXPENSES
10.1. Each of Investment Series, on behalf of the Acquiring Fund, and World
Funds, on behalf of the Acquired Fund, represents and warrants to the other that
it has no obligations to pay any brokers or finders fees in connection with the
transactions provided for herein.
10.2. Expenses of the Reorganization that relate to the Acquiring Fund and
the Acquired Fund will be borne by SSB Citi. Any such expenses which are so
borne by SSB Citi will be solely and directly related to the Reorganization.
11. ENTIRE AGREEMENT; SURVIVAL OF WARRANTIES
11.1. Investment Series, on behalf of the Acquiring Fund, and World Funds,
on behalf of the Acquired Fund, agree that neither party has made any
representation, warranty or covenant not set forth herein and that this
Agreement constitutes the entire agreement between the parties.
11.2. Except as specified in the next sentence set forth in this section
11.2, the representations, warranties and covenants contained in this Agreement
or in any document delivered pursuant hereto or in connection herewith shall not
survive the consummation of the transactions contemplated hereunder.
The covenants to be performed after the Closing and the obligations of each of
Investment Series, on behalf of the Acquiring Fund, and World Funds, on behalf
of the Acquired Fund, in Sections 9.1 and 9.2 shall survive the Closing.
12. TERMINATION
This Agreement may be terminated and the transactions contemplated hereby may be
abandoned by either party by (i) mutual agreement of the parties, or (ii) by
either party if the Closing shall not have occurred on or before March 1, 2001,
unless such date is extended by mutual agreement of the parties, or (iii) by
either party if the other party shall have materially breached its obligations
under this Agreement or made a material and intentional misrepresentation herein
or in connection herewith. In the event of any such termination, this Agreement
shall become void and there shall be no liability hereunder on the part of any
party or their respective trustees, directors or officers, except for any such
material breach or intentional misrepresentation, as to each of which all
remedies at law or in equity of the party adversely affected shall survive.
13. AMENDMENTS
This Agreement may be amended, modified or supplemented in such manner as may be
mutually agreed upon in writing by the authorized officers of World Funds and
Investment Series; provided, however, that following the meeting of the Acquired
Fund Shareholders called by the Acquired Fund pursuant to section 5.3 of this
Agreement, no such amendment may have the effect of changing the provisions for
determining the number of the Acquiring Fund Shares to be issued to the Acquired
Fund shareholders under this Agreement to the detriment of such shareholders
without their further approval.
A-17
<PAGE>
14. NOTICES
Any notice, report, statement or demand required or permitted by any provisions
of this Agreement shall be in writing and shall be deemed duly given if
delivered by hand (including by Federal Express or similar express courier) or
transmitted by facsimile or three days after being mailed by prepaid registered
or certified mail, return receipt requested, addressed to the Acquired Fund, c/o
Smith Barney World Funds, Inc., 388 Greenwich Street, New York, New York 10013,
with a copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York
10019-6099, Attn.: Burton M. Leibert, Esq., or to the Acquiring Fund, c/o Smith
Barney Investment Series, 388 Greenwich Street, New York, New York 10013, with
a copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York, New York
10019-6099, Attn.: Burton M. Leibert, Esq., or to any other address that World
Funds or Investment Series shall have last designated by notice to the other
party.
15. HEADINGS; COUNTERPARTS; ASSIGNMENT; LIMITATION OF LIABILITY
15.1. The Article and section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.2. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original.
15.3. This Agreement shall bind and inure to the benefit of the parties
hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and the shareholders of the
Acquiring Fund and the Acquired Fund and their respective successors and
assigns, any rights or remedies under or by reason of this Agreement.
15.4. Investment Series is organized as a Massachusetts business trust, and
references in this Agreement to Investment Series mean and refer to the Trustees
from time to time serving under the Agreement and Declaration of Trust on file
with the Secretary of State of The Commonwealth of Massachusetts, as the same
may be amended from time to time, pursuant to which Investment Series conducts
its business. It is expressly agreed that the obligations of Investment Series
hereunder shall not be binding upon any of its Trustees, shareholders, nominees,
officers, agents, or employees of Investment Series personally, but bind only
the property of the Acquiring Fund as provided in the Agreement and Declaration
of Trust of Investment Series. Moreover, no series of Investment Series other
than the Acquiring Fund shall be responsible for the obligations of Investment
Series hereunder, and all persons shall look only to the assets of the Acquiring
Fund to satisfy the obligations of Investment Series hereunder. The execution
and the delivery of this Agreement have been authorized by the Board of Trustees
of Investment Series, on behalf of the Acquiring Fund, and this Agreement has
been signed by authorized officers of Investment Series 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
A-18
<PAGE>
only the property of the Acquiring Fund as provided in the Agreement and
Declaration of Trust of Investment Series.
15.5. This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to its
principles of conflicts of laws.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed by its President, Vice President or in the case of SSB Citi, an
authorized person and attested by its Secretary, Assistant Secretary or in the
case of SSB Citi, an authorized person.
Attest: SMITH BARNEY WORLD FUNDS, INC.
on behalf of Pacific Portfolio
By: __________________________________
Name: ____________________________
Title: _____________________________
Attest: SMITH BARNEY INVESTMENT SERIES
on behalf of Smith Barney International
Aggressive Growth Fund
By: __________________________________
Name: ____________________________
Title: _____________________________
Attest: SSB CITI FUND MANAGEMENT LLC
By: __________________________________
Name: ____________________________
Title: _____________________________
A-19
<PAGE>
THE PROSPECTUS, ANNUAL REPORT AND SEMI-ANNUAL REPORT OF
THE ACQUIRING FUND DATED FEBRUARY 28, 2000 (AS AMENDED
SEPTEMBER 11, 2000), OCTOBER 31, 1999 AND APRIL 30, 2000,
RESPECTIVELY, ARE INCORPORATED BY REFERENCE TO
THE MOST RECENT FILINGS THEREOF BY
SMITH BARNEY INVESTMENT SERIES
<PAGE>
INFORMATION REQUIRED IN THE STATEMENT OF ADDITIONAL INFORMATION
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 2000
STATEMENT OF ADDITIONAL INFORMATION
388 Greenwich Street
New York, New York 10013
(800) 451-2010
RELATING TO THE ACQUISITION BY THE SMITH BARNEY
INTERNATIONAL AGGRESSIVE GROWTH FUND (THE "ACQUIRING FUND"),
A SERIES OF SMITH BARNEY INVESTMENT SERIES ("INVESTMENT SERIES")
OF THE ASSETS OF THE PACIFIC PORTFOLIO (THE "FUND"),
A SERIES OF SMITH BARNEY WORLD FUNDS, INC. ("WORLD FUNDS").
Dated: October [18], 2000
This Statement of Additional Information, relating specifically to the
proposed transfer of all of the assets of the Fund, a series of World Funds, to
Investment Series, on behalf of the Acquiring Fund, in exchange for shares of
the corresponding class of the Acquiring Fund and the assumption by the
Acquiring Fund of the stated liabilities of the Fund, consists of this cover
page and the following described documents, each of which accompanies this
Statement of Additional Information and is incorporated herein by reference.
1. Statement of Additional Information for the Acquiring Fund, dated
February 28, 2000, as amended on September 11, 2000.
2. Statement of Additional Information for the Fund, dated February 28,
2000.
3. Annual Report of the Acquiring Fund for the year ended October 31,
1999 and Semi-Annual Report of the Acquiring Fund for the six-months
ended April 30, 2000.
4. Annual Report of the Fund for the year ended October 31, 1999 and the
Semi- Annual Report of the Fund for the six months ended April 30,
2000.
This Statement of Additional Information is not a prospectus. A
Prospectus/Proxy Statement, dated October [18], 2000, relating to the above-
referenced matter may be obtained without charge by calling or writing the
Acquiring Fund at the telephone number or address set forth above. This
Statement of Additional Information should be read in conjunction with the
Prospectus/Proxy Statement.
B-1
<PAGE>
FINANCIAL STATEMENTS
The Annual Report of each of the Fund and the Acquiring Fund for the year
ended October 31, 1999, and the Semi-Annual Report to each of the Fund and the
Acquiring Fund for the six months ended April 30, 2000 (unaudited), including
audited financial statements, notes to the financial statements and report of
the independent auditors, are incorporated by reference herein. To obtain a
copy of the Annual Reports (and any more recent semi-annual report) without
charge, please call 1-800-451-2010.
PRO FORMA FINANCIAL STATEMENTS
Because the net asset value of the Fund is less than 10% of the Acquiring
Fund's net asset value, pro forma financial statements are not required to be
and have not been prepared for inclusion in the Statement of Additional
Information filed in connection with the Reorganization.
<PAGE>
THE ANNUAL REPORT, SEMI-ANNUAL REPORT AND STATEMENT OF ADDITIONAL
INFORMATION OF THE ACQUIRING FUND DATED OCTOBER 31, 1999, APRIL
30, 2000 AND FEBRUARY 28, 2000 (AS AMENDED ON SEPTEMBER 11, 2000),
RESPECTIVELY, ARE INCORPORATED
BY REFERENCE TO THE MOST RECENT FILINGS THEREOF BY
SMITH BARNEY INVESTMENT SERIES
<PAGE>
THE PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION, ANNUAL
REPORT AND SEMI-ANNUAL REPORT OF THE FUND DATED FEBRUARY 28,
2000, OCTOBER 31, 1999 AND APRIL 30, 2000, RESPECTIVELY, ARE
INCORPORATED BY REFERENCE TO THE MOST RECENT FILINGS
THEREOF BY SMITH BARNEY WORLD FUNDS, INC.
<PAGE>
PART C
OTHER INFORMATION
ITEM 15. INDEMNIFICATION -- The response to this item is incorporated by
reference to Section 9 of the Agreement and Plan of Reorganization. Reference
is also made to the Registrant's Agreement and Declaration of Trust, dated
January 29, 1987. Registrant is a named assured on a joint insured bond
pursuant to Rule 17g-1 of the Investment Company Act of 1940. Other assureds
include SSB Citi Fund Management LLC (Registrant's Adviser) and affiliated
investment companies. The response to this item is further incorporated by
reference to Post-Effective Amendment No. 11 to the Registration Statement on
Form N-1A filed on March 2, 1994 (File No. 33-11716).
ITEM 16. EXHIBITS
1(a) Registrant's Agreement and Declaration of Trust dated January 29, 1987
is incorporated by reference to Post-Effective Amendment No. 18 to the
Registration Statement on Form N-1A, filed on February 28, 1997
(Securities Act No. 33-11716) ("Post-Effective Amendment No. 18").
1(b) Registrant's Certificate of Designation of Common Sense Money Market
Fund dated September 30, 1987 is incorporated by reference to Post-
Effective Amendment No. 18.
1(c) Registrant's Certificate of Designation of Common Sense Municipal Bond
Fund dated April 4, 1988 is incorporated by reference to Post-
Effective Amendment No. 18.
1(d) Registrant's Certificate of Resolution dated January 8, 1992 is
incorporated by reference to Post-Effective Amendment No. 18.
1(e) Registrant's Certificate of Amendment dated January 20, 1994 is
incorporated by reference to Post-Effective Amendment No. 18.
1(f) Registrant's Certificate of Designation of Common Sense II Aggressive
Opportunity Fund dated January 27, 1994 is incorporated by reference
to Post-Effective Amendment No. 18.
1(g) Certificate of Designation of Common Sense II Government Fund dated
January 27, 1994 is incorporated by reference to Post-Effective
Amendment No. 18.
1(h) Registrant's Certificate of Designation of Common Sense II Growth Fund
dated January 27, 1994 is incorporated by reference to Post-Effective
Amendment No. 18.
C-1
<PAGE>
1(i) Registrant's Certificate of Designation of Common Sense II Growth and
Income Fund dated January 27, 1994 is incorporated by reference to
Post-Effective Amendment No. 18.
1(j) Registrant's Certificate of Amendment of the Agreement and Declaration
of Trust dated May 10, 1996 is incorporated by reference to Post-
Effective Amendment No. 18.
1(k) Registrant's Amended and Restated Certificate of Designation of Common
Sense II Emerging Growth Fund dated May 10, 1996 is incorporated by
reference to Post-Effective Amendment No. 18.
1(l) Registrant's Amended and Restated Certificate of Designation of Common
Sense II International Equity Fund dated May 10, 1996 is incorporated
by reference to Post-Effective Amendment No. 18.
1(m) Registrant's Amended and Restated Certificate of Designation of Common
Sense Money Market Fund dated May 10, 1996 is incorporated by
reference to Post-Effective Amendment No. 18.
1(n) Registrant's Amended and Restated Certificate of Designation of Common
Sense Municipal Bond Fund dated May 10, 1996 is incorporated by
reference to Post-Effective Amendment No. 18.
1(o) Registrant's Certificate of Amendment Amending the Amended and
Restated Certificate of Designation of Common Sense Emerging Growth
Fund dated July 2, 1996 is incorporated by reference to Post-Effective
Amendment No. 18.
1(p) Registrant's Certificate of Amendment Amending the Amended and
Restated Certificate of Designation of Common Sense International
Equity Fund dated July 2, 1996 is incorporated by reference to Post-
Effective Amendment No. 18
1(q) Registrant's Certificate of Amendment of the Agreement and Declaration
of Trust dated December 30, 1997 is incorporated by reference to Post-
Effective Amendment No. 21 to the Registration Statement on Form N-1A,
filed on December 15, 1998. (Securities Act No. 33-11716) ("Post-
Effective Amendment No. 21")
1(r) Registrant's Form of Certificate of Designation of Mid Cap Fund dated
February 17, 1999 is incorporated by reference to Post-Effective
Amendment No. 22 to the Registration Statement on Form N-1A, filed on
February 26, 1999. (Securities Act No. 33-11716) ("Post-Effective
Amendment No. 22").
1(s) Registrant's Form of Certificate of Amendment of the Agreement and
Declaration of Trust is incorporated by reference to Post-Effective
Amendment No. 26 to the Registration Statement on Form N-1A, filed on
September 11, 2000. (Securities Act No. 33-11716) ("Post-Effective
Amendment No. 26").
C-2
<PAGE>
2 Registrant's By-Laws, as amended on July 10, 1996 are incorporated by
reference to Post-Effective Amendment No. 18.
3 Not applicable.
4 Form of Agreement and Plan of Reorganization is included in Part A to
the Registration Statement on Form N-14.
5(a) Registrant's Specimen copy of certificate for Share of Beneficial
Interest in Common Sense Trust for Class A shares is incorporated by
reference to Post-Effective Amendment No. 17 to the Registration
Statement on Form N-1A, filed on March 21, 1996. (Securities Act No.
33-11716) ("Post-Effective Amendment No. 17").
5(b) Registrant's Specimen copy of certificate for Share of Beneficial
Interest in Common Sense Trust for Class B shares is incorporated by
reference to Post-Effective Amendment No. 17.
5(c) Registrant's Specimen copy of certificate for Share of Beneficial
Interest in Common Sense Trust for Class 1 shares is incorporated by
reference to Post-Effective Amendment No. 17.
6 Form of Investment Advisory Agreement for Concert Investment Series is
incorporated by reference to Post-Effective Amendment No. 20 to the
Registration Statement on Form N-1A, filed on February 27, 1998.
(Securities Act No. 33-11716) ("Post-Effective Amendment No. 20").
7(a) Distribution Agreement with CFBDS, Inc is incorporated by reference to
Post-Effective Amendment No. 21.
7(b) Form of Dealer Agreement is incorporated by reference to Post-
Effective Amendment No. 22.
7(c) Form of Distribution Agreements with Salomon Smith Barney Inc. and PFS
Distributors, Inc. dated June 5, 2000 is incorporated by reference to
Post-Effective Amendment No. 26.
8 Retirement Plan for Directors is incorporated by reference to Post-
Effective Amendment No. 22.
9 Form of Custodian Agreements is incorporated by reference to Post-
Effective Amendment No. 20.
10(a) Form of Amended and Restated Class A Distribution Plan is
incorporated by reference to Post-Effective Amendment No. 22.
10(b) Form of Amended and Restated Class B Distribution Plan is
incorporated by reference to Post-Effective Amendment No. 22.
C-3
<PAGE>
10(c) Form of Amended and Restated Servicing Agreement for Class A Shares
is incorporated by reference to Post-Effective Amendment No. 22.
10(d) Form of Amended and Restated Servicing Agreement for Class B Shares
is incorporated by reference to Post-Effective Amendment No. 22.
10(e) Rule 18f-3 Plan is incorporated by reference to Post-Effective
Amendment No. 18.
11 Opinion and consent of Counsel as to the legality of the securities
being registered is filed herewith.
12 Opinion and consent of Counsel supporting tax matters and consequences
to shareholders discussed in the prospectus is filed herewith.
13(a) Form of Transfer Agency Agreement is incorporated by reference to
Post-Effective Amendment No. 20.
13(b) Form of Sub-Transfer Agency Agreement is incorporated by reference to
Post-Effective Amendment No. 20.
14 Auditors' Consent is filed herewith.
15 Not applicable.
16 Powers of Attorney are incorporated by reference to Registrant's
registration statement filed on Form N-1A.
17(a) Form of proxy card is filed herewith.
17(b) Annual Report of Concert Investment Series(R), dated October 31, 1999,
and Semi-Annual Report dated April 30, 2000, are incorporated herein
by reference.
17(c) Prospectus and statement of additional information of Concert
Investment Series(R), dated February 28, 2000, are incorporated herein
by reference.
17(d) Semi-Annual Report of Registrant, dated April 30, 2000, is
incorporated herein by reference.
17(e) Prospectus and statement of additional information of Registrant,
dated February 28, 2000, are incorporated herein by reference.
17(f) Code of Ethics is incorporated by reference to Post-Effective
Amendment No. 26.
ITEM 17. UNDERTAKINGS
(1) The undersigned registrant agrees that prior to any public reoffering
of the securities registered through the use of a prospectus which is a part of
this registration statement by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c) of
C-4
<PAGE>
the securities Act [17 CFR 230.145c], the reoffering prospectus will contain the
information called for by the applicable registration form for reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other terms of the applicable form.
(2) The undersigned registrant agrees that every prospectus that is filed
under paragraph (1) above will be filed as a part of an amendment to the
registration statements and will not be used until the amendment is effective,
and that, in determining any liability under the 1933 Act, each post-effective
amendment shall be deemed to be a new registration statement for the securities
offered therein, and the offering of the securities at that time shall be deemed
to be the initial bona fide offering of them.
C-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement on Form N-14 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and the State of New York on the 18th
day of September, 2000.
SMITH BARNEY INVESTMENT SERIES
By: /s/ Heath B. McLendon
---------------------------------
Name: Heath B. McLendon
Title: Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
<S> <C> <C>
/s/ Heath B. McLendon Chairman of the Board September 18, 2000
------------------------------------------ (Chief Executive Officer)
Heath B. McLendon
/s/ Lewis E. Daidone Senior Vice President and September 18, 2000
------------------------------------------ Treasurer (Chief Financial
Lewis E. Daidone and Accounting Officer)
/s/ Donald M. Carlton* Trustee September 18, 2000
------------------------------------------
Donald M. Carlton
/s/ A. Benton Cocanougher* Trustee September 18, 2000
------------------------------------------
A. Benton Cocanougher
/s/ Stephen R. Gross* Trustee September 18, 2000
------------------------------------------
Stephen R. Gross
/s/ Alan G. Merten* Trustee September 18, 2000
------------------------------------------
Alan G. Merten
/s/ R. Richardson Petit* Trustee September 18, 2000
------------------------------------------
R. Richardson Petit
</TABLE>
* Signed by Heath B. McLendon, their duly authorized attorney-in-fact, pursuant
to power of attorney dated February 27, 1998.
C-6
<PAGE>
EXHIBITS
(11) Opinion and consent of Counsel as to the legality of the securities being
registered
(12) Form of Opinion of Counsel supporting tax matters and consequences to
shareholders discussed in the prospectus
(14) Auditor's Consent
(17)(a) Proxy Card
